Australia rejects Qantas loan request

Australia’s government has rejected a request from Qantas Airways for a $2.7 billion unsecured loan to help the national carrier return to profitability, deciding instead to abolish foreign ownership restrictions, the prime minister said.

In the wake of Monday’s decision to allow greater foreign ownership of Qantas, Prime Minister Tony Abbott said his ministers had acted on expert advice from accounting firm PricewaterhouseCoopers to decide that Qantas did not need the line of credit, the Associated Press news agency reported. 

“We sent in various experts to have a look at Qantas, and the conclusion that we came to based on their advice was that Qantas does not need an unsecured facility from the government,” Abbott told Macquarie Radio on Wednesday.

The airline last week posted a first-half loss of $211 million amid tougher competition, and said it would cut 5,000 jobs to slash costs. That resulted in the airline’s credit rating being downgraded from investment grade to junk.

The government plans to repeal legislation that prevents foreign airlines from holding more than 35 percent of Qantas and any single foreign investor from holding more than a 25 percent stake. The legislation also mandates 51 percent Australian ownership.

Qantas chief executive Alan Joyce on Wednesday welcomed the government’s decision to allow more foreign investment, which he said would “level the playing field” with its major competitor Virgin Australia.

Joyce argues that foreign governments were funding Virgin Australia’s “loss-making strategy in the domestic market.”

Joyce said a government-backed debt facility would have been an interim measure to correct distortions in the aviation market created by restrictions on ownership of Qantas.

“We are a very healthy airline, we’re in a very strong position, but we have to manage our way through this loss of rating and we have a plan to do that,” he said.

Virgin Australia has opposed any government loan to Qantas, but said it had no issue with greater foreign ownership of Australia’s largest airline.

Abbott has not yet won the support of senators outside government whom he needs to pass the changes through parliament.

Opposition parties have voiced objections to any reforms that could send Qantas jobs overseas.

The main opposition Labor Party prefers a government loan to secure Qantas’ future, but regional Australian airline Rex warns that such a loan would distort the Australian aviation market.