MICHAEL WEST. Too Big To Fail: Qantas, the corporate elite and the coronavirus (michaelwest.com.au 17.03.2020)

Alan Joyce is a canny operator. As the ravages of the coronavirus began to hit the airline hard, the Qantas boss announced he would take no salary for the rest of the year; no salary for the rest of the financial year that is. Who will the Government bail out? Michael West investigates Australia’s institutions that are Too Big To Fail.

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.

 
QAN tax loss account balance $m tax paid $m franking account balance $m dividend per share $ franking
2009 7 0 0 0.06 100%
2010 857 62 18 0
2011 1157 74 17 0
2012 1590 0 25 0
2013 1850 9 84 0
2014 3240 0 84 0
2015 2850 0 84 0
2016 1474 0 84 0
2017 951 4 0 0.14 75%
2018 10 7 5 0.14 0%
2019 ? ? ? 0.22 100%

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.

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6 Responses to MICHAEL WEST. Too Big To Fail: Qantas, the corporate elite and the coronavirus (michaelwest.com.au 17.03.2020)

  1. Allan Kessing says:

    Michael West is the investigative journalist nonpareil – small wonder he was shafted by the AFR.
    As egregious as QANTAS is, it won’t be the last to suckle at the public teat.
    There is chatter now that paper castles of many thrusting entrepreneurs red in ink, if not claw, will be “nationalised” (but only temporarily…)
    Ireland’s Celtic Tiger had a severe dose of mange after the GFC and “distressed assets” -aka, gombeens’ over borrowed spec. building – were absorbed into NAMA by the government.
    The idea, allegedly, was to sell them, at a discount, to the populace who were being screwed by austerity to pay back the wild borrowings on the ECB.
    Nobody was surprised that the common folk didn’t get a look in and, amazingly, most have now ended up in the same hands, less or more.
    Same with Northern Rock bank which led Britain’s collapse – saved by the Exchequer, revitalised and hey presto, prestidigtationally back to the usual suspects.
    Except that it had to bailed out a second time – rinse & repeat.
    O Tempura, O Miso.

  2. Evan Hadkins says:

    Would the boards of these companies be open to the government buying shares; rather than corporate welfare?

  3. Richard Ure says:

    Didn’t Steve Jobs, who could take more credit for Apple’s success than Alan Joyce can take for Qantas’ fortunes, work for Apple on $1 a year?

  4. Rick Coyle says:

    Nice analysis of the leprechaun’s shenanigans but what about the culpability of the
    “star studded” Qantas board.

  5. Rob Stewart says:

    I too have been thinking about Qantas’ using the opportunity of COVID-19 to join the ranks of the top big to fail class. Actually Qantas has always been in the TBTF class but now it’s official and exposed to sunlight.

    It was interesting that as soon as Qantas indicated it might be in a spot of bother (who isn’t at the moment?!) the Government almost fell over itself in signalling to it that it would bail it out, no problem, how much do you want?!!

    Only point in the article I differ with is the one about “surely this will be the end of neoliberalism..” I don’t think so. This is precisely how neoliberalism works. Corporate welfare, penury for the masses, contempt for democracy, private profits and socialise losses. The GFC response by governments was an exemplar on how the system works. The thieving corrupt corporate financial complex was propped up with trillions and trillions and the structural, institutional, regulatory and political cancers that caused the GFC have never been addressed. No crisis will bring neoliberalism down only revolution with all the horrors that would entail will end this system. It’s a bit like a great big bully of a kid sitting in a little kid’s chair and eating the little kid’s lunch. The little kid says “please stop that” and the bully says “make me!”

  6. john austen says:

    Mr West:
    If these firms are too big to fail, why are they privately owned?

    Would public sector buy-outs of the businesses be preferable to hand-outs?

    Undoubtedly there are ‘technical’ issues, such as financial arrangements and GTE strictures, but what about the principles?

    Thanks

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