Family First dissenting report
Inquiry into the
Qantas Sale (Keep Jetstar Australian) Amendment Bill 2007
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Securing Australian jobs
for workers and their families
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Securing Australian jobs for workers and their families is
FAMILY FIRST's top priority. That is why FAMILY FIRST introduced the Bill,
to protect jobs in Jetstar and other associated entities from being sent
overseas.
Australian workers need job security because that ensures
their families have peace of mind.
FAMILY FIRST was startled at the inquiry to hear Qantas
admit "... all jobs within Qantas are under review ...".
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There is a loophole that
allows Qantas to avoid the Qantas Sale Act
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Currently the Qantas Sale Act forces Qantas to keep
jobs and operations in Australia. But the Act does not apply to associated
entities like Jetstar and Australian Airlines.
Qantas has been transferring more and more of its seats to
Jetstar, because of Jetstar's lower costs and higher profits. Associated
entities like Jetstar are not covered by the Qantas Sale Act and can
be used to move Australian jobs offshore.
It makes no sense for different parts of Qantas to have
different rules applied to them.
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Parliament
should resolve this situation
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It is vital that the Parliament clarifies the scope of the
Qantas Sale Act to ensure Qantas does not use corporate restructuring
to avoid its restrictions.
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The Bill
should be passed with some amendments
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FAMILY FIRST recommends
the Bill be passed with amendments to ensure a majority of Qantas and
associated entity jobs stay in Australia.
This can be done by
deleting from clause 5(b) the words "any other country" and
replacing them with " all other countries". There should also be a
similar and complementary amendment for section 7(1)(h) of the Qantas Sale
Act.
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Introduction
Securing Australian jobs for workers and their families is
FAMILY FIRST's top priority. That is why FAMILY FIRST introduced the Qantas
Sale (Keep Jetstar Australian) Amendment Bill 2007, to protect jobs in
Jetstar and other Qantas associated entities from being sent overseas.
Currently the Qantas Sale Act forces Qantas to keep
jobs and operations in Australia. But the Act does not apply to associated
entities like Jetstar and Australian Airlines.
These subsidiaries can be used to move Australian jobs
offshore and that is something FAMILY FIRST wants to stop.
That is why FAMILY FIRST has introduced legislation to amend
the Qantas Sale Act to close this loophole and ensure that restrictions
that apply to Qantas – including rules about maintenance, training and administration
– also apply to Jetstar and other associated entities like catering.
It is relatively easy for Qantas to push operations into
associated entities with a lower cost base like Jetstar. There is extensive
evidence this is happening, even at the expense of Qantas-badged services'
growth and profit.
In another case, Qantas is using associated entity
Australian Airlines to cut costs on Qantas-badged services. Jetstar may also
end up flying aircraft on behalf of Qantas under Qantas colours, completing the
corporate manoeuvre to achieve lower cost flights with fewer Australian workers
and lower conditions.
FAMILY FIRST'S Bill is an anti-avoidance measure, to stop
Qantas from seeking to avoid the Qantas Sale Act by moving Qantas
operations to Jetstar and other associated entities.
It makes no sense for different parts of Qantas to have
different rules applied to them.
FAMILY FIRST's interest in this issue was prompted by the
proposed takeover of Qantas by Airline Partners Australia, but even if the
takeover fails, the issue remains and the Bill will continue to be important.
The Qantas Sale (Keep Jetstar Australian) Amendment Bill 2007
The Qantas Sale (Keep Jetstar Australian) Amendment Bill
2007 is to ensure that the requirements listed for Qantas' articles of
association in the Qantas Sale Act also apply to Qantas associated
entities.
The Bill does this by using an anti-avoidance provision and
four other provisions which mirror clauses in the Qantas Sale Act.
The Bill names Jetstar in its title as the most prominent of
those associated entities, but the Bill is not limited to Jetstar. The Bill
refers to "associated entities" rather than specific entities or
subsidiaries to ensure the provisions of the Qantas Sale Act cannot be
avoided by a change of name or a corporate restructure.
This is the important point highlighted in one of the
submissions:
A failure to make the proposed amendments simply renders the
[Qantas Sale] Act impotent. To deny passage of this Bill is to deny the effect
of the Act against simple corporate restructuring.[1]
FAMILY FIRST welcomes Qantas's statement that it has "...
no objection in principle to the intentions of the Bill."[2]
Current regulation
Current regulation of Qantas relevant to the Qantas Sale
(Keep Jetstar Australian) Amendment Bill 2007 consists of the Qantas
Sale Act 1992, the Air Navigation Act 1920, policy and the Deed of
Undertaking signed earlier this month.[3]
The coverage is not adequate to keep jobs in Qantas associated entities in Australia,
which is why the Qantas Sale Act must be amended.
Qantas Sale Act 1992
The Qantas Sale Act was passed in 1992 following the
Government's decision to sell 100 per cent of the Qantas Group. The Act sets
out a range of conditions that must be included in Qantas' articles of
association to maintain the Australian character of Qantas.[4]
The legislation applies to Qantas and not to other carriers
because Qantas is Australia's national carrier and a national icon. A number
of witnesses testified to Qantas' importance to Australia:
As our national carrier, Qantas and the Qantas Group cannot just
be regarded as another public/private company. As the national carrier it has bestowed
on it significant rights and, we say, responsibilities through the granting of
Air Service Agreements by the Australian Federal Government. The Company could
not operate to its current extent without these rights and so conversely it has
to and does expect regulation by the Federal Government in the national
interest.[5]
Virgin Blue, when you look at its position in the Australian
aviation industry compared with the Qantas group of companies, it does not have
the reach or significance, nor does it provide the services or have the
historical background and the cultural identity that Qantas has.[6]
Qantas is an economically strategic company. The existence of
the Qantas Sale Act is evidence of this. Qantas and its subsidiaries,
including Jetstar, play a vital role in the Australian transport industry and
the economy as a whole. In many cases Qantas, its subsidiaries and Jetstar are
often the sole operators flying to regional and remote regions within Australia.[7]
The conditions to be included in Qantas' articles of
association include restrictions on foreign ownership to 49 per cent of Qantas;
limits on foreign airlines owning more than 35 per cent; limits to prevent any
one foreign person owning more than 25 per cent; ensuring the head office of
Qantas is in Australia; prohibiting Qantas incorporating outside Australia;
requiring that a minimum of two thirds of directors be Australian citizens;
requiring that the chair of the meeting of directors be an Australian citizen;
and ensuring the principal operational centre for Qantas be in Australia.
The Qantas Sale (Keep Jetstar Australian) Amendment Bill
2007 also applies these conditions to Qantas associated entities.
Australians do not know the difference between Qantas and
the Qantas Group. As far as the public is concerned, Qantas is Qantas. But
Qantas claims there is a big difference and the Qantas Sale Act only
applies to one part of the Qantas Group – Qantas Airways Limited.[8]
Jetstar does not appear to regard itself as separate to
Qantas, leaving its representation during this inquiry to Qantas Airways
Limited.
Other Qantas associated entities, which also did not offer
their own positions to the Committee, include Australian Airlines, Jetconnect,
Air Pacific Limited, Orangestar which runs Jetstar Asia and Valuair, Australian
Air Express, Express Freighters Australia and Qantas Flight Catering.[9]
Qantas claims it was the Australian Parliament's intention
that the Qantas Sale Act would not apply to associated entities. [10]
As evidence, it points to the comments of one Member of Parliament – an
Opposition Member, Senator David MacGibbon. Qantas also points to the fact the
relevant Minister did not respond.to Senator MacGibbon's comments.[11]
In fact, Senator MacGibbon's comments were his interpretation of a conversation
with "two advisers from the Department", not ministerial advisers or
the Minister.[12]
Senator MacGibbon also referred to one particular subsidiary rather than the
general issue of subsidiaries.[13]
The evidence that Qantas relies on is flimsy and it is
extremely difficult to believe its claims.
The Australian and International Pilots Association has
taken a dispute over the interpretation of the Qantas Sale Act to the
Federal Court, to determine if the legislation applies to subsidiaries.[14]
Given there is doubt on this matter, it is appropriate that
the Parliament clarifies the issue by passing the Qantas Sale (Keep Jetstar
Australian) Amendment Bill 2007 to ensure jobs are kept in Australia.
Air Navigation Act 1920
The Air Navigation Act is the overarching legislation
that:
... covers all of the licensing and designation requirements for
all Australian international carriers ... foreign shareholdings [must] be no more
than 49 per cent ... at least two-thirds of the board members must be Australian
citizens, the chairperson of the company must be an Australian citizen, the
airline's head office must be in Australia and the airlines operational base
must be in Australia ... Those provisions apply to all carriers applying for an
international airline licence, apart from Qantas, which has provisions on top
of that under the Qantas Sale Act ...[15]
But these requirements are not necessarily as strict as the
Department implies:
One lawyer said there are a range of factors relevant to whether
an airline can hold the relevant licence. 'My understanding is it has never
been the case that any one of them is absolutely mandatory so that if you
didn't quite meet some targets but you could demonstrate strength in a number
of other factors you could continue to [hold a licence],' he says. This would
mean Jetstar could possibly shift maintenance, catering and training jobs
overseas, but stay incorporated in Australia, and have its head office here.[16]
It is also interesting to note that "Australia and New
Zealand are the only countries which permit wholly foreign owned domestic
carriers."[17]
The Department of Transport and Regional Services also
indicated that the laws on where an airline's operational base and head office
should be located are likely to be weakened in the near future:
We are one of those countries that have been looking, as part of
a liberalisation process, at introducing clauses such as principal place of
business and those sorts of provisions. But they are not yet established in all
our bilaterals. At this point, a carrier could not operate and exercise
Australian traffic rights without having its operational base and its head
office in Australia.[18]
Given the comments of the Department that the location of an
Australian international airline's operational base and head office will soon
be up for grabs, the Qantas Sale Act must be amended to ensure Qantas
does not use its corporate structure to shift jobs overseas.
Deed of Undertaking
It was generally agreed in evidence to the Committee that
the Deed of Understanding has a limited lifespan and will only last as long as
Airline Partners Australia has a controlling interest in Qantas.[19]
That is unlikely to be long as private equity companies tend
to sell off assets they have purchased in less than five years.[20]
Corporate lawyer Janet Whiting writes that the requirements
of the Deed need not be passed on to a new buyer:
... if Airline Partners or Aurora disposed of their interests in
Qantas to third parties (who were Australian and so did not offend the
foreigner restrictions in the legislation nor require Foreign Investment Review
Board approval), the purchasers would not be bound by the undertakings.[21]
The undertakings given in the Deed largely mirror current
legislation. There is mention of Jetstar, but not the broader issues of
associated entities. The Deed also includes a number of additional undertakings
that are unenforceable:
One senior corporate lawyer, who declined to be named because
his firm is involved in the deal, said these obligations [the 'additional
obligations' in the deed of undertaking] could be strictly complied with
provided that at the time of signing the deed, Airline Partners honestly
believed they were true. But once the deed was signed, Airline Partners would
be free to change its plans.[22]
The Australian Manufacturing Workers' Union also held grave
concerns about the usefulness of the Deed:
The deed provides no real protections for Australian jobs that
cannot be avoided through corporate manoeuvres. It is also avoidable through
transmission of ownership of the Qantas Group. Nevertheless, to the extent that
the deed does purport to provide some protections for the Australian airline industry,
those protections should be contained in legislation, not private contract.[23]
There is also a good deal of scepticism that the Australian
Government would act to enforce the Deed:
... the government has also arranged undertakings on other big
mergers and takeovers involving companies including Arnotts, BHP, Brambles and
Rio Tinto without ever following up on the undertakings with enforcement
action.[24]
"Similar promises [to the deed] were extracted when Ansett
was sold to Air New Zealand, and soon afterwards jobs were offshored,"
said Ingrid Scott, ASU Victorian state secretary.[25]
The Committee received a detailed analysis from the
Australian and International Pilots Association, setting out the difficulties
of enforcing the Deed.[26]
Transfer of Qantas seats to Jetstar and other lower cost entities
Qantas has been transferring more and more of its seats to
Jetstar, because of Jetstar's lower costs and higher profits. As one reporter
wrote, "Jetstar's ... behind the improvements in all of the key measures of
Qantas's performance and its falling cost base."[27]
Qantas told the Committee that:
Jetstar has enabled a growth in leisure based operations also in
Australia. It is not competing directly head to head with Qantas, but it is
recognising that in certain market segments there is growth potential that
could be realised if operated with the Jetstar model.[28]
Such a description implies Jetstar is targeting a fairly
limited market. But increasingly the international airline market is not a
business market. And Jetstar's sights are not limited to the leisure market as
evidenced by the new StarClass business class service on Jetstar which is
designed to attract business travellers to the airline.
Michael Ryan, co-founder of pioneer low cost airline Ryanair
commented on the Qantas strategy:
I would imagine that what they [Qantas] are trying to do is put
as many of Qantas' routes into Jetstar [as possible].[29]
Australian observers have been pointing to this trend for a
number of years.
Where a year ago Jetstar wasn't going to be allowed to harm
Qantas, Dixon now says, 'Jetstar has an incredible future in value based air
travel. It is not to be constrained in any way.' ... In the past year [Qantas]
has admitted significant yield migration away from Qantas domestic pointing to
the flood of cheap fares from Jetstar that were supposed to be only bad for
competition.[30]
Continuing along this theme:
The conclusion that can be readily drawn ... and supported by some
public comments from Qantas chief executive officer, Geoff Dixon, is that it is
worth more to Qantas to use Jetstar to lower its costs and curb Virgin Blue
than any dilution of main line revenue. In bulk terms, Jetstar's 12 per cent
market share by the end of June was at the expense of Qantas, which withdrew in
large measure or in full from a range of what it declared to be leisure routes,
handing them over to Jetstar.[31]
More recently, one commentator has argued that the Airline
Partners Australia takeover deal
... is predicated on Qantas growing. The only place that can
happen, with a company altering scale, is outside of Australia. And the only
platform that can happen from, is Jetstar. Why? First, because Jetstar's cost
base is made so wonderfully competitive because Dixon & Co don't have to
deal with Qantas' 13 unions. And second, because all the growth in the airline
business is in the discount airspace.[32]
As a result of this conscious strategy by Qantas to move
more and more seats to Jetstar, "... travellers should expect to find
themselves increasingly on Jetstar aircraft, rather than the familiar Flying
Kangaroo, whether on local routes or to overseas destinations."[33]
Experience with Qantas subsidiaries Australian Airlines and
Jetconnect demonstrates that Qantas can also use restructuring and subsidiaries
to achieve lower cost base flights under its own colours.
The Committee heard evidence that Qantas is now operating
flights that appear to be normal Qantas flights, but which have lower cost
crews from other Qantas subsidiaries:
Australian Airlines was set up and operated for some period of
time. On 30 June last year it was closed down. Essentially, if you remember,
Australian had its own livery—its own uniforms, its own call signs. At 1 July
this year, it became Australian Airlines wet leasing and it has now commenced
to fly Qantas mainline aircraft, white with red tails with Qantas uniforms on
Qantas routes. The company achieved a 20 per cent reduction in cost base
because the same terms and conditions of employment apply ... given the model
that has evolved through Australian Airlines and its use as a wet leasing
arrangement for Qantas mainline, in our view, it is highly likely that that
will occur with Jetstar.[34]
Jetconnect was described to the Committee by those appearing
for Qantas as "... a wholly owned New Zealand incorporated subsidiary ...which
operates scheduled international air transport services as it operates 737
services on the Tasman and in domestic New Zealand on behalf of Qantas.[35]
Jetconnect provides flights under Qantas colours within New
Zealand and between New Zealand and Australia. The company also provides
cabin crew for Jetstar flights between New Zealand and Australia.[36]
As aviation commentator Ben Sandilands explained a couple of
years ago:
What took off as Jetstar in May 2004 is [Geoff] Dixon's and
[Peter] Gregg's vehicle for a total reconstruction of the culture, processes
and profitability of the sometimes overlapping territories of Qantas
international, Qantas domestic, Qantas Cityflyer, Qantaslink (jet), Qantaslink
(turboprop), Australian, JetConnect, Jetstar and the so far hapless Jetstar
Asia.[37]
Qantas is using what space it can find around the rules to
maximise its profit. The Australian Council of Trade Unions argues that:
If left unchanged, the Qantas Sale Act, does not restrict those
controlling the Qantas Group from establishing a new entity and subsequently
shifting resources, licences and other rights to the new entity and
consequently avoid the provisions of the Qantas Sale Act.[38]
It is vital that the Parliament clarifies the scope of the Qantas
Sale Act before its provisions are made meaningless by corporate
restructuring to avoid its restrictions.
Jobs and conditions
Australians workers need job security because that ensures
their families have peace of mind. Unfortunately Australians who work for
Qantas and its associated entities do not enjoy job security.
FAMILY FIRST was startled at the inquiry to hear Qantas
executives admit "... all jobs within Qantas are under review ...".[39]
We already know the attitude of Qantas CEO Geoff Dixon about
his workers and job security. Mr Dixon has said that his workers should be
grateful to have jobs![40]
Further, he has said profits are more important than workers and their
families:
I sometimes get criticised for this, but I have always seen
shareholders as our most important stakeholders. I know some CEOs say look
after your customers, look after your employees, and the returns for
shareholders will follow. I do the exact opposite.[41]
Representatives of maintenance workers told the hearing
about their involvement in an ongoing review:
From subsequent discussions that I and our delegates have been
directly involved in with regard to the ongoing review of maintenance and
engineering in the Qantas group, I can say categorically—and the Seabury
consultants that were engaged by Qantas have said so quite bluntly—that their
recommendation to the Qantas board is to offshore the whole lot. We are
struggling to save Australian jobs in maintenance and engineering.[42]
Another maintenance worker representative revealed his
concern that more maintenance work would go offshore:
I met with Mr Dixon—along with Bill Shorten, the National
Secretary of the AWU, and Doug Cameron, the National Secretary of the AMWU—in
December ... He did mention that if we can come down to somewhere close to within
five per cent of the costs at the Asian facilities then we would keep
maintenance onshore. But from that statement I assume that if we cannot match
that he is going to make a decision, or the board will make a decision, to send
maintenance offshore based purely on cost and not safety.[43]
Qantas has regularly threatened its workers with job cuts:
Dixon says that if Singapore Airlines is allowed into the
Pacific, it could induce Qantas to review its engineering and maintenance
operations in Australia. Dixon says the company employs 6000 professional
engineers and their equivalents, but the cost structure makes that part of its
business less efficient. The veiled threat is that if Singapore enters the
market, Qantas might be forced to shut up shop, sack up to 6000 workers, and
outsource its maintenance work to the likes of Air New Zealand.[44]
Qantas executives at the hearings stated:
The act does not require [Qantas] to maintain a majority of
facilities in Australia but in reality a majority of facilities are in Australia.[45]
The jobs are not only valued by the workers and their
families, but by many others who have related and dependent employment:
The direct dependence of over 6000 employees on these
[maintenance] operations, as well as a multiplier effect of these jobs of at
least 2-3 times, shows the devastation that would be wreaked at places like
Geelong and Bankstown, as well as Sydney, Melbourne and Brisbane generally,
should these jobs become too much of a burden for a highly leveraged Qantas to
bear.[46]
Protecting jobs for Australian workers and their families is
the number one reason for FAMILY FIRST's Bill.
FAMILY FIRST believes there is more to running a business
than making a profit. Companies like Qantas and its associated entities have an
obligation to the communities they serve.
Amendments
A number of amendments have been proposed to strengthen the Bill
and FAMILY FIRST is happy to consider each of those amendments.
The most significant comments in submissions and from
witnesses were on the following key clause of the Bill, which expands the
coverage of the legislation to "associated entities", based on words
used in the Qantas Sale Act:
(5) Qantas must ensure that:
...
(b) the facilities taken in aggregate which are used by
Qantas and by any associated entity in the provision of scheduled international
air transport services (for example, facilities for the maintenance and housing
of aircraft, catering, flight operations, training and administration), located
in Australia, when compared with those located in any other country, represent
the principal operational centre for Qantas and its associated entities;
Those giving evidence agreed with the intent of the clause,
but thought it would not achieve its purpose.
The Australian and International Pilots Association pointed
out that:
This would permit, for example, 25% of the facilities to remain
in Australia and 75% to go off-shore, spread between 5 countries with 15% in
each country, so that the principal operational centre for any associated
entity would remain located in Australia as required. Instead, the Bill should
be amended to ensure that the Australian facilities, when compared to
facilities in all other countries, represent the principal operational centre
for the associated entities of Qantas.[47]
The Australian Licenced Aircraft Engineers Association
stated that:
If such words [in the bill] are accepted then Qantas management
will be able to shift all maintenance of its fleet offshore so long as half of
the remaining (non engineering) combined facilities remain in Australia. We
consider the likelihood of Qantas accepting this option would be high and today
information was received in our office showing that Qantas has started
advertising internally for engineers and aircraft planners (who plan aircraft
maintenance work) to move to Asia.[48]
The Australian Services Union, representing workers in areas
such as check-in, load control, call centres and clerical and administrative
tasks like finance, information technology and human resources, stated that:
The ASU believes that it is important to strengthen the Qantas
Sale Act 1992 to include provisions to maintain Australian jobs. The current
proposed provision, which takes the facilities in aggregate as the benchmark
for keeping jobs in Australia, at best preserves 50% plus one of the Group jobs
in Australia if the Qantas Group jobs are in Australia and one other country.
The more countries that have Qantas Group jobs the less jobs are required in Australia.
The provision also does not in fact specify which jobs are preserved. There is
also nothing in the provision which would maintain particular classes of jobs
in Australia, for example in call centres, administration, finance or
maintenance. All of these jobs could be offshored and yet Australia could still
be the principle operational centre for the Qantas Group and the aggregate of
jobs in the Group could be still in Australia.[49]
The Australian Manufacturing Workers' Union also pointed out
that aircraft leasing arrangements could affect the calculation of the
undefined "principal operational centre":
There is a failure ... [shared] with the Act – to define a
'principal operational centre'. Does the principal operational centre exist in Australia
'when compared with any other country' because no one other country has aggregate
Qantas operations compared with Australia. Even on the best possible reading,
that it is the aggregate in all other countries that must be compared with Australia,
what happens when Qantas leases aircraft with a lease that includes maintenance
of that aircraft offshore? It is not a Qantas operation at all which maintains
that aircraft, so it never comes into the 'principal operational centre'
equation ... the AMWU believes that to ensure the continued effective operation
of maintenance facilities in Australia that a definition of principal
operational centre be adopted. The term 'principal operational centre' must
mean the facilities that conduct the planned, routine, primary and ancillary
maintenance of the current and future operational fleet of Qantas and its
subsidiaries are located in Australia.[50]
FAMILY FIRST agrees the Bill should be amended to ensure
that more than half of the jobs in Qantas and associated entities remain in Australia.
FAMILY FIRST has also considered more prescriptive amendments which would
ensure a majority of particular types of jobs remain in Australia. But this
would take the amendments away from the original approach of the Qantas Sale
Act.
FAMILY FIRST recommends amendments to ensure a majority of
Qantas and associated entity jobs stay in Australia. This can be done by
deleting from clause 5(b) the words "any other country" and replacing
them with " all other countries". There should also be a similar and
complementary amendment for section 7(1)(h) of the Qantas Sale Act.[51]
Conclusion
PROTECTING Australian jobs for workers and their families is
FAMILY FIRST's top priority which is why FAMILY FIRST believes the Qantas
Sale (Keep Jetstar Australian) Amendment Bill 2007 must be passed by the
Parliament with amendments.
Senator Steve Fielding
Leader of the FAMILY FIRST Party
FAMILY FIRST Senator for Victoria
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