Pearls and Irritations

Alan Joyce picked up a cool $24 million last year. With three months left to run this financial year, the chief executive of Qantas may take a pay cut of $500,000 or $600,000 on his base salary of $2.1 million.

As the airline’s share price and profits are in free-fall, he is unlikely to get bonuses. That was seven days ago. Things just got much worse. The airline has just grounded 150 planes, declaring it would cut international capacity by 90 per cent.

Qantas, already this country’s most famous marque, is destined to become emblematic for corporate welfare, for having the best of both worlds. It is fair to say that Alan Joyce is an extremely capable executive and an airline an extremely complex corporate beast to manage, but it is in financial trouble. Almost every airline in the world with large external debt is likely to soon be technically insolvent.

Unless a cure for the virus is found, and implemented, in short order, questions will be asked as to how Qantas and other large corporations can pay almost no tax for ten years, put the screws on the price of labour in their workforces, pay themselves exorbitant executive salaries and board fees, then cry poor when things turn ugly.

Alan Joyce was hinting at government help for the airline the last time things got tricky when Qantas declared a $2.4 billion loss in 2014. Things are worse now. Debt stands at $4.6 billion and $5.8 billion in liabilities from “revenue booked in advance” is sitting on the airline’s balance sheet. Now that flights are being cancelled en masse it is unclear what proportion of customers will be reimbursed but – with a dividend of $201 million slated to be paid on April 13, things are tight.

Qantas though is lucky. Like Australia’s banks, it is “Too Big To Fail”. If things get worse, as financial markets are indicating, the Government might let Virgin Australia fend for itself, but never the Spirit of Australia, nor the banks. Already, the banks are underpinned by taxpayers. We own their risk. Indeed the Reserve Bank has been buying their assets (debts) from them in rising quantities over the past few days. By the time this crisis has passed, the public will take a different view of corporate welfare.

Surely neo-liberalism is on its last legs.

During the height of the Global Financial Crisis in 2009, American taxpayers bailed out Wall Street and a host of the world’s biggest institutions such as insurer AIG. In Australia, the Government rode to the rescue of the banks. At this corporate welfare, there was not a whimper of dissent from the business lobby which apparently champions free markets. Yet this transcendent act of corporate socialism may well be eclipsed in the current crisis.

The world’s largest and most powerful institutions have become more dominant since the GFC. And once this crisis has passed, they are likely to be even more dominant as financial crises tend to wipe out smaller players while the most powerful are protected by virtue of their sheer size and political influence. Macquarie Bank is a case in point. Protected, indeed bailed out, by the sovereign credit guarantee decreed by the Government in 2009, the Macbankers took the opportunity to raise $25 billion in cheap taxpayer-backed debts which they then promptly ploughed into junk bonds, clipping the difference in yield and turbo-charging their profits for years.

This is not to say that governments should not be defending system stability. That is their most urgent duty in times like these. But what they should be doing is taxing the world’s largest corporations properly during the good times and cut out the toxic practice of transferring public wealth into private hands via privatisation and corporate welfare.

Writing in the Sydney Morning Herald last October, Steve Purvinas, Federal Secretary of the Australian Licensed Aircraft Engineers Association pointed out the double standards being espoused by Qantas management:

“After Qantas announced a $2.8 billion loss in 2014, staff were all called on to freeze their wage levels for 18 months, a call that my union was first to heed in order to help the struggling airline. Assuming the alternative possibility of CPI-based wage increases, employees now forgo $60 million each year as a result of the ongoing wage freeze. At the same time executive and senior management remuneration packages have increased by – you guessed it – $60 million each year. Not one cent forgone by employees to help the airline has gone into reinvestment or new aircraft”.

Indeed, while executive salaries rose at a clip, the average age of the Qantas fleet, which is older than peer airlines, went from 8.3 years in 2012 to 12.8 years since last year. Alan Joyce has taken out around $100 million in executive pay since he took the reins at the airline in 2009.

It is little wonder the reputation of big business and government has taken a battering; the former for greed and the latter for poor stewardship. It is a crisis in leadership which undermines the credibility of government and therefore the ability of politicians to legislate effectively, to reform. It would be a mistake to let this crisis pass without real reform. It is unlikely the public will swallow the line for much longer that “free markets” should prevail in the good times only to be quickly dismissed in favour of corporate welfare when things go awry.

Michael West established michaelwest.com.au to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences.