Views on the Bill
The committee received evidence from a range of groups and individuals,
including Qantas and Virgin Australia, unions and professional associations representing
Qantas employees, and the Department of Infrastructure and Regional
Several key issues were covered in the course of the inquiry, including:
(a) the nature of the challenges facing Qantas, and whether the Bill
provides an appropriate and optimal response to these challenges;
(b) the effect the proposed amendments to the Qantas Sale Act might have on
Australian-based Qantas jobs;
(c) the impact that offshoring of maintenance work—which some witnesses
argued would likely increase should the Bill be enacted—might have on passenger
(d) the ways in which Qantas could be restructured (particularly in terms of
its domestic and international operations) should the Bill be enacted; and
(e) whether foreign ownership of Qantas could potentially damage Australia's
Views on the problems
There was some agreement between supporters and opponents of the Bill
about the nature of certain problems facing Qantas, if not necessarily on the
solutions to those problems.
In particular, Qantas and several of the unions that gave evidence to
the committee were in agreement that Virgin Australia was using its access to
capital from foreign state-owned corporations to finance losses incurred in its
pursuit of a greater share of the domestic aviation market.
For its part, Qantas told the committee that the primary threat to its
future was the fact that Virgin Australia's strategy was backed financially by
three foreign government-owned airlines, which collectively had a
70 per cent stake in Virgin Australia:
Right now in our core domestic market Qantas faces a
manifestly un-level playing field, which threatens our future prospects. Three
foreign airlines, all totally or majority government owned, have taken 70 per
cent ownership of Virgin Australia. Late last year they poured more than $300
million into the airline to bankroll continued major capacity increases into
the market by Virgin at a time when Virgin was making significant losses. This
is a strategy directed at weakening Qantas and promoting the interests of
Virgin's foreign owners.
The Qantas Engineers' Alliance (made up of the Australian Manufacturing
Workers' Union (AMWU), the Australian Workers' Union and the Electrical Trades
Union) put the matter more bluntly still, and suggested that Virgin Australia
was engaged in a 'predatory price war' with Qantas. The Qantas Engineers'
Alliance argued that the ownership structure of Virgin Australia:
... is anti-competitive, unsustainable and occurring with the
aid of foreign governments prepared to sustain ongoing losses in the pursuit of
market share with the end aim being the removal of a strong, well-respected
competitor in Qantas.
The Qantas Engineers' Alliance continued by arguing that Virgin was, in
practice if not in a strictly legal sense, dumping excess capacity into the
domestic aviation market:
The new and clearly excessive capacity being placed into the
domestic aviation market [by Virgin] at a loss is clearly not market driven. It
is being done to undermine the competitiveness and viability of the Qantas
While there was general (although not universal) agreement that the
discounting and capacity competition between Qantas and Virgin were key
contributors to Qantas' current difficulties, a number of submitters argued that
problems at Qantas were also a result of poor management decisions.
For instance, Colonial Airways, while acknowledging that Qantas has
suffered as a result of Virgin's ability to utilise foreign capital to finance
losses in the competition for market share, also pointed to problems arising
from Qantas business decisions. These decisions included (but were not limited
to) aircraft selection and 'unproven forays and costly business expeditions
into Asia that the Qantas Group pursued through Jetstar and other subsidiaries
in recent times.'
The Australian Services Union (ASU), meanwhile, rejected the suggestion
that restrictions on foreign ownership had contributed to Qantas' difficulties:
Advocates of the proposed reforms often argue that Qantas is
disadvantaged by the restrictions on foreign ownership. They contend that
Qantas has difficulties raising capital. We dispute this argument. As one of
the world’s most successful airlines, Qantas has never had any trouble raising
capital when required. Qantas is presently below the foreign ownership
threshold of 49%. It has only come close to the exceeding the threshold on one
occasion (the [Airlines Partners Australia] private equity bid). This indicates
that sufficient local capital is available.
The committee acknowledges that there are a range of factors that have
contributed to Qantas' current difficulties, some of which may be a matter for
the Qantas board and Qantas shareholders. The committee believes that regardless
of what other factors may have contributed to Qantas' difficulties, it cannot
be denied that the Qantas Sale Act, as it currently stands, forces Qantas to
compete on an un-level playing field. The amendments the Bill would make to the
Qantas Sale Act would level the playing field, and enable Qantas to compete in
an environment free of unreasonable and outdated regulatory impediments,
including impediments to accessing foreign capital.
Amending the Qantas Sale Act to 'level the playing
The Qantas Sale Act applies only to Qantas and imposes certain
conditions on the airline. As noted earlier, Part 3 of the Act contains the
ownership restrictions that apply to Qantas. The repeal of this part of the Act,
together with related amendments to the Air Navigation Act, would allow Qantas
to operate on equal terms with Virgin Australia.
The committee heard a range of different views regarding whether the Bill
would be effective in levelling the playing field in the Australian aviation
For its part, Qantas argued that since the Qantas Sale Act became law in
1992, 'the domestic and international aviation landscape has changed
significantly without matching changes to the regulatory or policy framework.'
Appearing before the committee, Mr Joyce argued that the proposed amendments to
the Qantas Sale Act would allow Qantas to compete in the aviation market on an
equal footing with its competitors:
A decision has now been taken by this government to ask the
parliament to amend the Qantas Sale Act. We support this as a means to level
the playing field; as we state in our submission, Qantas is prevented by the
act from competing on equal terms to those of our competitors. This is without
precedent elsewhere in the economy and is without parallel in the global aviation
industry. To our knowledge, no other business in Australia's economy is
competitively handicapped in this manner.
The Regional Aviation Association of Australia wrote that it 'supports
legislative change that will enable Qantas to raise capital in a manner that
places it on a level playing field with its international and domestic
While critical of some aspects of the Bill, the Australian and
International Pilots Association (AIPA) nonetheless maintained that amending
the Qantas Sale Act 'is necessary to level the playing field among Australian
international airlines if the Virgin restructure is not to be publicly
The AIPA expressed support for removing the limit on foreign ownership
from the Qantas Sale Act in its written submission. Even so, during its
appearance before the committee, the AIPA added that the removal of the
49 per cent limit on overall foreign ownership:
...warrants further investigation beyond just that provided by
a Senate inquiry. We would prefer to see that examined in more detail, and that
is why we have suggested that, before the 49 per cent is abolished, it be
examined by an agency over a longer period, with more resources devoted to it.
The ASU argued that the Bill would not create the 'level playing field'
in the aviation sector that the government was seeking:
If the government truly wants to 'level the playing field in
aviation' in Australia the solution does not lie in the Qantas Sale Act.
Stricter negotiations focussing on the national interest and job creation in
Australia, as part of the government negotiated Air Services Agreements would
level the playing field. So [too] would imposing ... job creation requirements on
foreign carriers flying domestically.
The Qantas Engineers' Alliance argued that no 'level playing field'
exists in the aviation market, which is distorted by 'massive government
intervention and ownership.'
Similarly, the Australian Council of Trade Unions (ACTU) told the
committee that because of the unusual nature of the aviation industry, wherein
money is often invested 'with a different set of return expectations from those
of a conventional investor in a normal industry,' any concept of a level
playing field in the aviation market was essentially 'illusory':
If this bill were carried in its current form, it would not
release the corporation into a perfectly functioning capital market where it
would be able to raise money. It would release it, as I think Mr Joyce
effectively confirmed in his remarks tonight, into a market where it is able to
seek capital from foreign-owned airlines, most of which are directly or
indirectly owned by foreign governments. So that is not releasing the business
into a normally functioning global capital market. People are invested in
airlines for different reasons: they are invested in them because they fit into
a broader package of assets in terms of an aviation business; they are invested
in them for strategic national interest; there are clearly some vanity projects
in the Middle East that are unrelated to commercial returns; and there are
cases where governments have made the investment as part of the national interest
explicitly. ... So our core position really is that, if we are going to rescind
legislation which deals with creating an Australian controlled, located and,
essentially, operated airline, we need to do so cognisant of the capital market
into which we are releasing that business.
As well as allowing higher levels of foreign ownership overall, the Bill
would also remove the 25 per cent limit on ownership by a single
foreign investor and the 35 per cent limit on aggregate ownership by
a foreign airline. It should be noted, however, that under the proposed
amendment in the Bill to the Air Navigation Act and in compliance with
Australia's various air service agreements, Qantas would still need to be
substantially owned and effectively controlled by Australian nationals if it
were to operate international air services.
The measure to remove the 25 per cent and
35 per cent limitations was broadly supported by those witnesses who
addressed it directly. For example, the AIPA argued that these limits 'serve no
useful purpose and should be repealed.'
The ACTU, meanwhile, suggested that if the intent of the Bill was to
improve Qantas' access to foreign capital, it should be asked why this could
not be achieved by only repealing the 25 per cent and
35 per cent rules. This would, it argued, have 'the effect of giving
them additional access to foreign capital, including large shareholdings from
foreign airlines without creating the series of collateral effects which have
been complained about—the loss of Australian control and the loss of Australian
location with respect to jobs and activities.'
Asked if the Bill would achieve its objective of delivering a level
playing field in the aviation sector, the Department of Infrastructure and
Regional Development told the committee that it would. The Department suggested
it would do so:
... by removing the restrictions that are contained within the
Qantas Sale Act and placing the Qantas Group under the regulatory construct of
all of the rest of the aviation legislation, including the Air Navigation Act...
As noted above, the committee believes that the Qantas Sale Act imposes
unreasonable and outdated impediments on Qantas, and forces it to compete on an
un-level playing field. The committee acknowledges that some witnesses were of
the view that Qantas' access to foreign capital could be adequately improved
simply by removing the 25 per cent limit on ownership by a single
foreign investor and the 35 per cent limit on aggregate ownership by
foreign airlines. However, the committee believes that removing these limits
alone would only go some way toward correcting the distortion created by the
Qantas Sale Act, given other aspects of Part 3 of the Act are a disincentive to
potential investors. In order to properly level the playing field, and enable Qantas
to compete without unreasonable and outdated regulatory restrictions, it is
necessary to repeal Part 3 of the Qantas Sale Act in its entirety, including
the 49 per cent limit on foreign ownership.
The future of Qantas
A key item of discussion in submissions and during the public hearing
was the potential impact of the Bill on Australian jobs at Qantas.
Qantas indicated that the repeal of Part 3 of the Qantas Sale Act would
provide it with greater workforce flexibility, telling the committee that the
Qantas Sale Act as currently drafted denied Qantas the ability that Virgin has
to undertake a large part of its operations (such as heavy maintenance and call
centre work) offshore.
The ACTU, meanwhile, argued that the repeal of the Qantas Sale Act would
remove any restriction on the 'wholesale exporting of Qantas jobs in Australia
to foreign interests.'
The ACTU suggested to the committee that around 10,000 jobs across the Qantas
group could be offshored. Asked why Qantas might want to offshore these jobs,
the ACTU responded that it would allow Qantas to conduct parts of its
operations in a lower wage environment:
So it is explicitly a process of seeking to cut the wages of
the people performing the work. It is a process of risk transfer from the
parent corporation to another corporation and eventually to the people
performing the work. That is the economic logic of outsourcing, in essence. 
The ACTU clarified that the figure of 10,000 jobs only referred to jobs
within the Qantas group itself. In its submission, the ACTU also noted that Qantas'
operations support a further 165,000 indirect employment opportunities in a
range of industries, and many of these jobs would also be put at risk in the
event the Bill was enacted.
The ASU contended in its submission that over the past decade Qantas had
moved to offshore a sizable number of Australian jobs, and suggested Qantas
'has evidenced a clear intention to offshore Australian jobs where they see a
commercial advantage.' The ASU further argued that:
...without the restrictions imposed by the Qantas Sale Act,
this trend would accelerate and more skilled jobs would be lost offshore. The
Qantas Sale Act has succeeded in preserving Qantas and Qantas-owned and
operated companies as Australian entities.
Virgin Australia, however, noted that despite never having been subject
to the restrictions contained in the Qantas Sale Act, it had developed a
business with 9,500 employees, 95 per cent of whom were based in
Australia. Virgin also noted:
There is no obligation under the [Qantas Sale Act] for the
facilities which support Qantas’ domestic operation to be located in Australia,
in recognition of the fact that it would be logistically impossible for any
Australian airline to conduct domestic services from an offshore base.
Furthermore, it would be highly inefficient as well as impractical for Qantas
to undertake any significant proportion of its operations from Australia (both
domestic and international) with staff domiciled overseas, precluding the
possibility that the Bill would result in the transfer of skills or loss of
jobs overseas. Virgin Australia also notes that the Bill would have no impact
on the obligations Qantas has, in common with all other Australian employers,
under the Fair Work Act 2009 (Cth) and the Migration Act 1958 (Cth).
The Department of Infrastructure and Regional Development explained to
the committee that there was already considerable scope for jobs to be located
offshore under the Qantas Sale Act at it currently stood:
There is a provision in the Qantas Sale Act that relates
specifically to the international services, and it says that of the facilities,
taken as a whole, if you look at the facilities that are in Australia compared
to what are in other countries then you have to say that Australia is the principal
base. For better or for worse, that allows considerable scope for outsourcing
at the moment. We do not see that there would be a substantial change in the
outsourcing in what is proposed.
One area of particular interest in the inquiry was the potential impact
the Bill might have on the amount of maintenance that Qantas undertakes on its
planes in Australia as opposed to maintenance that it undertakes offshore.
The Qantas Engineers' Alliance argued that repeal of Part 3 of the
Qantas Sales Act would substantially reduce Qantas' commitment to maintaining
heavy maintenance activity in Australia:
If Qantas were to adopt a similar hybrid
domestic-international structure to that of Virgin it could be reasonably
expected that any major foreign airline involved in the Qantas takeover would
seek to absorb Qantas' maintenance activities into that of its own global
Mr Joyce explained that due to improved technology, the requirements for
maintenance on newer aircraft were not as great as they had been for earlier
generations of aircraft, and this helped explain why Qantas was scaling down or
closing certain maintenance operations in Australia.
My Joyce further explained to the committee that as the Qantas fleet had
been updated, it had been necessary consolidate its heavy maintenance
operations at its Brisbane facility.
The Australian Licenced Aircraft Engineers Association acknowledged that, from
what it had seen on the ground, there was no indication that Qantas intended to
close down the Brisbane heavy maintenance facility.
Mr Joyce also told the committee that Virgin Australia undertakes its
heavy maintenance offshore, 'and Qantas needs the same flexibility.'
Virgin Australia argued that it would be 'highly inefficient as well as
impractical for Qantas to undertake any significant proportion of its
operations from Australia (both domestic and international) with staff
domiciled overseas, precluding the possibility that the Bill would result in
the transfer of skills or loss of jobs overseas.'
Virgin Australia, meanwhile, explained that the measures in the Bill
were unlikely to have a significant impact on Qantas' decisions on where to
undertake its maintenance work:
Although it may have been operationally and economically efficient
for Qantas to conduct all of its aircraft heavy maintenance in Australia when
it had a fleet consisting solely of B747s and B767s, the lack of critical mass
in several aircraft types in the current Qantas fleet is likely to prevent all
such aircraft maintenance being conducted in Australia, based on cost
considerations. The maintenance requirements of new generation, modern aircraft
are also significantly lower compared to earlier aircraft models. The
amendments proposed by the Bill will have no impact on the commercial realities
associated with aircraft maintenance.
In addition, the vast majority of any airline’s aircraft
maintenance activities consist of day-to-day line maintenance requirements,
which are carried out while aircraft are in service. It would be logistically
impossible to send aircraft overseas to have routine line maintenance
conducted. Accordingly, the Bill will not trigger a shift to more of Qantas’
aircraft maintenance being conducted overseas.
Several witnesses also argued that Qantas' contribution to Australia's
pool of skilled manufacturing workers would be threatened by passage of the Bill.
In its submission, the AIPA suggested that the architects of the Qantas
Sales Act did not want the contribution Qantas made to the national store of
technical knowledge and skills to be 'at the mercy of commercial expediency in
the hands of short-sighed opportunists.'
Questioned about the apprenticeship programs of Qantas and Virgin, the
AMWU (appearing as part of the Qantas Engineers Alliance) suggested that
whereas Qantas had a solid apprenticeship and traineeship program, Virgin did
not. It also stressed that the apprenticeships offered by Qantas produced
highly skilled manufacturing workers.
However, Virgin Australia reported in its submission that it was investing in:
...the development of skills which benefit the Australian
aviation industry, including through the establishment of a pilot cadet scheme
and an engineering apprenticeship program.
The committee shares community concerns about the recent job losses
announced by Qantas, but also maintains that the best way to protect Australian
jobs at Qantas is to ensure the airline has a viable future. To achieve this,
it is necessary to remove the unreasonable regulatory restrictions currently
imposed by the Qantas Sale Act and, in doing so, level the playing field in the
Australian aviation sector.
Further, the committee is not convinced that there is an inevitable link
between higher levels of foreign ownership and the ratio of local to foreign
jobs. Indeed, the committee believes that the example of Virgin Australia,
where 95 per cent of employees are Australian based, is instructive
in this regard.
One of the more contentious issues regarding the proposed amendments was
whether the offshoring of maintenance work—which some witnesses argued was a
likely outcome of the bill—might have a detrimental impact on passenger safety.
The Australian Licenced Aircraft Engineers' Association (ALAEA) argued
that the proposed amendments would increase the likelihood of more aircraft
maintenance being undertaken offshore, and this would in turn increase the risk
to passenger safety.
The Qantas Engineers' Alliance also suggested the repeal of Part 3 of
the Qantas Sale Act would lead Qantas to shift more maintenance work offshore nations
with a lower cost of operations, and that this would undermine safety outcomes:
Given that the primary reason Qantas seeks to offshore
maintenance is to cut costs by employing cheap labour, and cheap labour is to
be found in developing countries, it is of grave concern that safety
performance will increasingly be determined by regulatory structures and
institutions in countries where these structures are understandably not as well
developed or monitored as in Australia. If we cannot trust tap water is safe to
drink in developing countries, it is reasonable to hold concerns regarding the
quality of safety when it comes to aircraft maintenance performed in these same
In its appearance before the committee, Qantas labelled arguments that
the Bill would have negative safety implications as 'blatant fear mongering':
It is playing the safety card as a tool of industrial
relations. This committee needs no reminder of the absolute Qantas commitment
to safety and our exemplary track record of delivering it. The majority of
Qantas's maintenance is done in Australia. Our A380s and our 747s are
maintained overseas. Regardless of geography, all of our maintenance is done at
facilities approved by CASA and to Qantas's high standards.
Qantas also provided the committee with a direct response to the ALAEA's
claims, and argued that given there were multiple failsafe procedures in place,
suggestions that 'any mistake [in aviation maintenance] is a potential
catastrophe is alarmist and deeply irresponsible.'
Mr Joyce told the committee that claims that 'in some way that the
maintenance that has been done offshore by Qantas is in some way less or high
risk or has damaged safety in any way—is absolutely false.'
He subsequently added:
... if you regard heavy maintenance being done in Australia as
an important consideration for you when you pick an airline, then the only
airline you should travel on is the Qantas crew. Virgin does all its heavy
maintenance offshore—it does it in Singapore; it does it in New Zealand—and,
despite what was said last week, a lot of the maintenance is done in Singapore.
So, if you regard that as important, then fly Qantas. But our experience is—and
I think the experience of a lot of Australians that fly on foreign airlines
is—that there are a lot of safe airlines that do maintenance offshore, and the
standards of these maintenance facilities are world-class offshore. You can do
heavy maintenance in Asia or in Europe of the same quality as you can do in
In its submission, Virgin Australia rejected as 'unfounded' any
suggestion that the passage of the Bill would have a detrimental impact on
Qantas safety outcomes. Virgin Australia pointed out that:
The Chicago Convention imposes on each member State the
responsibility for compliance with standards and practices related to safety,
including regulatory oversight of its national carriers. The Civil Aviation
Safety Authority (CASA) develops and enforces the safety standards which
Australian carriers are required by law to observe, regardless of where
aircraft maintenance is conducted. Provided Australian airlines meet the
requisite CASA standards, there is no logical reason to expect that a decision
to conduct some aircraft maintenance activities offshore will result in
sub-optimal aviation safety outcomes.
The Committee believes the Civil Aviation and Safety Authority (CASA) to
be a highly effective and professional organisation. As such, the Committee has
a high degree of confidence that CASA's work in developing and enforcing safety
standards for Australian carriers, regardless of where those carriers undertake
their maintenance work, disproves any link between maintenance work being
undertaken overseas and aircraft passenger safety.
The ownership structure of Qantas
As noted in the Explanatory Memorandum, if the Bill is enacted Qantas'
international operations 'will still remain subject to designation criteria in
order to access negotiated air traffic rights under Australia's international
air service agreement.' These criteria include that the airline be substantially
owned and effectively controlled by Australian nationals, and have its head
office and operational base in Australia.
Referring to the requirement that an Australian international airline
must be substantially Australian owned and controlled, the Qantas Engineers'
Alliance speculated that the Bill would lead Qantas to split into two different
entities—one domestic and the other international.
Likewise, the AIPA suggested in its submission that if the bill is
passed in its current form, Qantas could 'replicate the Virgin restructure and,
subject to Foreign Investment Review Board (FIRB) approval, sell off up to 100%
of Qantas Domestic.'
The ACTU, meanwhile, told the committee that if Qantas were to become
majority foreign owned, it would:
...need to spin off the international airline. They would need
to do that in one of two ways. You would have either the sort of artifice that
Virgin is engaged in—that has some history; it is effectively what Ansett did
to create an international airline when it had a foreign dominated shareholder
registry—or you would have what is said to be the case, which is this spun-off
international airline which it is said that Australians would be keen to own,
although they have not been so keen to recapitalise the domestic business,
which has been the most profitable element of the business as a whole. That
does not make sense. 
Virgin Australia's compliance with
the Air Navigation Act
During the hearing, there was some discussion about whether Virgin
Australia was in practice circumventing the requirement in the Air Navigation
Act that an Australian international airline be majority Australian-owned.
Several witnesses argued that this was the case, and by extension that Qantas
could replicate this approach should the Bill be enacted.
For example, the AIPA contended that relationship between Virgin
Australia Holdings (the foreign-owned domestic arm of Virgin Australia) and
Virgin Australia International Holdings (the Australian-owned international
arm), demonstrated Virgin's intent to effectively work around the Air
The listed entity still exists as one entity but it is
split—and some would call it a sham—artificially into an international division
and a domestic division. I think the shares in the international division were
priced at something like one-millionth of a cent. There is a contract that
operates between the international and the domestic division that allows Virgin
to build up the foreign ownership in the domestic division to anywhere up to
100 per cent because wholly domestic airlines can be 100 per cent foreign
owned, like Tiger was until it was purchased by Virgin, and then they restrict
the ownership of the artificial international arm to 49 per cent or less in
order to access the air service agreements.
Similarly, the ACTU contended that Virgin's Australian-owned
international arm was, in effect, an 'artifice' that was dependent for its
existence on Virgin's foreign-owned domestic arm.
An argument along similar lines was put forward in an online article by
Michael Janda (The Drum, 6 March 2014), and that article was
the subject of discussion at the hearing. In his article, Mr Janda argued that
Virgin Australia has been able to exploit a loophole in the Air Navigation Act,
so that the foreign owned Virgin Australia Holdings (the ASX listed company) is
effectively able to control the holding company for its international operations,
Virgin Australia International Holdings, despite the foreign ownership
restrictions in section 11 of the Air Navigation Act. Mr Janda suggested that
Virgin Australia International Holdings:
...does not exist, except on a bit of paper at ASIC's offices,
and with the minimum indicia of corporate life to tick the regulator's boxes.
Its sole purpose is to provide the legal edifice that defeats the Air
Navigation Act's restriction of foreign ownership of in Australian
international airlines to 49 per cent.
Asked to respond to Mr Janda's interpretation of the rationale
underlying Virgin Australia's ownership structure, the Department of
Infrastructure and Regional Development told the committee that it did not
agree with the contention that the foreign-owned Virgin Australia Holdings is,
in practical terms, in control of the Australian-owned Virgin Australia
International Holdings. The Department told the committee that in fact Virgin
Australia International Holdings has an independent board and independent
chairperson, who control the ongoing direction of the company.
On notice, the Department provided further information, including that Virgin
Australia Holdings provides 'long term economic and operational support to
[Virgin Australia International Holdings] through service and funding
'facilities, in aggregate' provision of the Qantas Sale Act
Some witnesses also argued that the requirement in the Qantas Sales Act
that the 'facilities, taken in aggregate' that support Qantas' international
operations must be located in Australia (Section 7(1)(h)) should be retained or
better reflected in the Air Navigation Act. As the AIPA explained to the
committee, the Air Navigation Act does not itself contain such a requirement,
but instead contains a head of power (at section 13) for specific
licencing regulations. The requirement that an Australian international airline
have its 'operational base' in Australia is contained in a Department of
Infrastructure and Regional Development Guidance Note, rather than within the
For this reason, the ASU argued that the Air Navigation Act would
provide a poor substitute for the Qantas Sale Act, at least in terms of
protecting Australian jobs:
If the Qantas Sale Amendment Bill 2014 is successful, the
only legislative protection for Australian jobs will be found in the Air
Navigation Act 1920. This Act does not sufficiently protect Qantas as an
Australian airline. The Air Navigation Act 1920 restricts foreign
ownership of Australian international airlines to no more than 49% of the total
value of shares. However, it does not require an airline maintain a head office
and operation base in Australia. It does nothing to protect Australian based
catering, flight operations, training, administration or housing and
maintenance of aircraft. All this may be offshored under this Act. The Qantas
Sale Act, Part 3, Section 7(1)(h) provides important legislative protection
that ensures Qantas’ maintains an operational base in Australia.
The ALAEA also recommended retaining the 'facilities, taken in
aggregate' requirement, arguing that its repeal would remove any limit on the
offshoring of maintenance work.
The AIPA, meanwhile, opposed the repeal of the provision unless the Air
Navigation Act was amended to include 'incorporation, principal place of
business and effective regulatory control' requirements. The AIPA explained
that whereas the Qantas Sale Act is highly prescriptive, the regulatory
requirement that an Australian international airline's 'operational base' be in
Australia was poorly defined and subject to the discretion of the Secretary of
the Department of Infrastructure and Regional Development.
The AIPA further suggested to the committee that:
...the Productivity Commission should really look at those
policy settings so that, when we remove section 7(1)(h) from the Qantas Sale
Act, we have a very good idea of what the likely impact will be. At the moment
we are proposing to remove it, but I do not think we really know what the
consequences will be.
The Department of Infrastructure and Regional Development explained to
the committee that the Department's Guidance Notes reflected the requirements
that were set out in Australia's international air service agreements:
It is the bilateral air services agreements that outline what
requirements each party needs to meet in designating our respective airlines.
Those bilateral air services agreements are treaty level agreements. Once they
have gone through the domestic treaty processes, including consideration by [the
Joint Standing Committee on Treaties], and enter into force, then they are
legally binding and they create specific legal obligations on the Australian
government to ensure that in designating an Australian airline under the
bilateral air services agreement they meet these designation criteria. The
guidance notes are designed to ensure that, in exercising our legal
responsibilities under that agreement, the airlines meet certain criteria,
which removes a semblance of doubt about whether or not the airlines meet those
The Department further told the committee that paragraph 7(1)(h) of the
Qantas Sale Act was 'a sort of expanded version' of the requirement under the
Australian Navigation Act that an Australian international airline must have
its 'operational base in Australia.' The 'operational base' requirement was,
therefore, essentially the same as the facilities provision in the Qantas Sale
Act, although the latter 'spells it out in a bit more detail.'
The committee acknowledges concerns expressed by various witnesses
regarding the repeal of paragraph 7(1)(h) of the Qantas Sale Act. However, the
committee agrees with the Department of Infrastructure and Regional Development
that the regulatory requirement that an Australian international airline must
have its operational base in Australia achieves much the same effect.
The committee also notes that Australian carriers seeking designation as
an Australian international carrier must satisfy requirements set out in Australia's
air service agreements. This means, as the Department of Infrastructure and
Regional Development sets out in its International Air Services Information
Memorandum, that Australian carriers seeking designation are 'required to
demonstrate their capability to comply with the provisions of Australia's
bilateral air service agreements including the requirement that they are
substantially owned and effectively controlled by Australian nationals.'
National interest considerations
A number of witnesses raised the issue of whether Qantas' ability and
willingness to provide support during times of national emergency might be
undermined should Qantas become foreign owned.
The Qantas Engineers' Alliance suggested that during periods of national
emergency 'it is vital that Australia can call upon a national carrier that is
dependable and ubiquitous in the domestic and foreign aviation markets.'
In its submission, Virgin Australia noted that it too had made itself
available to serve the Australian national interest in times of need:
Virgin Australia also has a proven ability to support
Australians in times of need, having mobilised resources at short notice to
redeploy capacity to assist tens of thousands of travellers stranded during the
Qantas grounding in 2011 and when Air Australia went into administration in
2012. We have provided relief flights and offered assistance to support
recovery operations following natural disasters. These factors demonstrate the
importance of Virgin Australia as a national carrier and highlight the
significant contribution we have made, and will continue to make, to the
nation’s aviation infrastructure.
During the public hearing, the Department of Infrastructure and Regional
Development was asked if the Bill would have any impact on the Government's
ability to impress Qantas resources during a national emergency. Specifically,
the Department was asked if section 67 of the Defence Act 1903 would
have the same application if the Bill passed and Qantas subsequently became
On notice, the Department explained that section 67 of the Defence Act
(under Part IV—Special powers in relation to defence) deals with the
registration and impressment of vehicles, and does not mention Qantas. It
The owner of any vehicle, horse, mule, bullock, aircraft,
aircraft material, boat or vessel, or of any goods, required for naval,
military or air-force purposes, shall, when required to do so by an officer
authorized in that behalf by the regulations, furnish it for those purposes,
and shall be recompensed therefor in the manner prescribed, and the owners of
any vehicles, horses, mules, bullocks, aircraft, aircraft material, boats or
vessels may be required by the regulations to register them periodically.
The Department further explained that section 67 applied equally to
Virgin Australia and Qantas. It also noted that the Department was aware of no
instance in which this provision of the Defence Act had been invoked in order
to require Qantas to provide its aircraft for assistance.
The Department also reminded the committee that, even should the Bill be
passed, Qantas' international operations would still need to be majority
Other issues relating to how the sale of Qantas might impact the
national interest were also raised during the inquiry. For example, asked about
the risk of Qantas being sold off 'a la Ansett' in the instance the Bill was
enacted and a foreign private equity investment was made in Qantas, the ACTU
There is, clearly, considerable risk associated with a key
national asset. We have not talked about this tonight, but I think it is
important to make the point that domestic aviation in Australia is important
because we are a very large decentralised continent. It is an essential
service. We do not have things like high-speed rail. We do not live close
together. Transcontinental and intercity aviation is extremely important to the
Australian economy and our standard of living. We are a long way from anywhere
else. You cannot drive to the next country. International aviation is important
There is a national interest associated with this. The
history of private equity investments in businesses which are associated with
the national interest is quite poor. They borrow, essentially, against the
company's own balance sheet to buy the thing, break it up, strip the assets,
get out and cash out. That is the business model. It is not about actually
running an airline.
As Qantas pointed out, in the instance the Bill passed, any investment
by a foreign airline or state owned company in Qantas would still be subject to
FIRB approval. Mr Joyce told the committee:
Even with this part of the act removed, the FIRB protections
are going to be there, so no matter who the foreign entity is they would have
to [go] through a FIRB approval process. That was always going to be held up in
the national interest and that is still a hurdle that has to be overcome.
Qantas itself made the point that it makes an important contribution to
Australia's national interest, but argued this contribution would not be
affected by the Bill:
Qantas is important to Australia's strategic interests and
makes a major contribution to employment across the whole of the economy;
maintaining a unique skill base; and driving significant benefits to the
regional economy. Qantas provides these benefits on a scale that cannot be
replicated elsewhere in the economy and will not be diminished by the proposed
changes to the Act.
The committee recognises the important contribution that Qantas has made
and continues to make to Australia in times of national emergency and crisis.
The committee notes that Virgin Australia has also made significant
contributions to Australians in need in recent times. The committee is confident
that Qantas can and will continue to help out in times of need if the Bill is
passed, irrespective of the levels of foreign investment in Qantas.
The committee also acknowledges the important role that Qantas plays in
the Australian economy. Indeed, the very importance of Qantas requires that the
government act to level the playing field in the Australian aviation sector by
repealing Part 3 of the Qantas Sale Act, thereby helping to secure a strong and
viable future for the airline.
The committee recommends that the Bill be passed.
Senator David Bushby
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