Qantas accuses Etihad of 'virtual takeover' of Virgin Australia

Qantas says it fears Etihad will destabilise Australian aviation market
Qantas Group chief executive officer Alan Joyce.
By Courtney Trenwith
Tue 19 Nov 2013 12:52 PM

The head of Australian carrier Qantas has accused foreign airlines including Abu Dhabi-based Etihad of a “virtual takeover” of Virgin Australia in what he fears will destabilise the country’s domestic aviation industry, local tourism and jobs.

Chief executive Alan Joyce, who launched an historic partnership deal with Dubai’s Emirates Airline earlier this year, has formally complained to the Australian federal and NSW governments, calling for regulatory changes.

The complaint relates to Virgin Australia’s A$350m ($325 million) capital raising exercise, in which Etihad, which owns a 19.9 percent stake in the company, and Virgin’s two other major shareholders, Air New Zealand (24 percent stake) and Singapore Airlines (19.9 percent stake), will participate in a rights offer.

The funding injection will help increase liquidity in the financially struggling airline as it spends up on projects designed to takeover Qantas’ valuable domestic market share.

The airline’s recent investments in business class and new wide-bodied aircraft for the lucrative Perth-Sydney route already have made a dent in Qantas’ performance.

Virgin Australia chief John Borghetti said Qantas’ attempt to prevent its capital raising with foreign carriers emphasised that his airline had ended its rival's monopoly in the domestic market.

Qantas has called for a review of the motives behind the capital raising.

The move will allow the three major foreign shareholders – all of which are government-backed - to increase their combined stake from 63 per cent to as much as 70 per cent.

Qantas fears the increased foreign investment would “distort” the domestic aviation industry to the benefit of those foreign investors.

Enhancing Qantas' displeasure is the fact it cannot pursue a similar path because different rules apply to its business.

Under the Qantas Sale Act, under which the airline was privatised, foreign investment in the airline is capped at 49 percent, total ownership by foreign airlines is limited to 35 percent and a single foreign investor can buy no more than 25 percent.

Qantas said the $350m injection into Virgin by ''three government-backed airlines highlights the uneven playing field created by existing policy settings''.

''If wholly privatised, Virgin's ability to receive potentially unlimited capital from its government-backed owners would seriously distort the domestic aviation market for the benefit of foreign interests,'' the company said in a statement.

Australian politicians have not commented on the issue, while unions have backed Qantas’ concerns.

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