SYDNEY -- A legal challenge thrown down by the pilots of Qantas Airways to the international operations of its low-cost subsidiary Jetstar could complicate a private-equity consortium's $8.8 billion bid for Australia's national carrier.
The head of the Australian and International Pilots Association, which represents more than 2,300 Qantas and Jetstar flight crew members, said the union had gone to court in Sydney to try to block Jetstar's foreign flying and to ensure that Jetstar, like Qantas, was protected by the Qantas Sale Act. The 1992 act was designed to ensure Qantas remained Australian-owned and -operated following its privatization.
"The issue we've raised is simply to ensure that Jetstar always remains part of Qantas," said Ian Woods, AIPA president. He said it is up to the government to close any loopholes in the act.
The bid for Qantas by Airline Partners Australia, led by Macquarie Bank of Australia and U.S. private-equity firm Texas Pacific Group, has spurred impassioned exchanges and numerous headlines in the Australian press. Qantas, nearly 90 years old and known affectionately in the country as the Flying Kangaroo, is a national icon.
During a spate of private-equity deals around the world, union leaders in several countries have been urging greater government oversight and, in some cases, action to halt acquisitions. The Council of Trade Unions, an Australian group, is seeking to block the proposed sale of Qantas. Some labor leaders say private equity's liberal use of debt to finance deals threatens the acquired company's stability, putting jobs and benefits at risk.
A provision in the Qantas Sale Act bars the airline from conducting "scheduled international air transport passenger services under a name other than its company name or a registered business name that includes the expression Qantas." Launched domestically in May 2004, Jetstar began flying to Christchurch, New Zealand, in December 2005, and in November began its international long-haul operations to Asian-Pacific vacation destinations.
"The business case for any takeover of Qantas seems to be on squeezing more savings by shifting Qantas's business into the low-cost Jetstar operation," Woods of the pilots association said in a statement, warning of an effort to "hollow out Qantas."
Qantas said its Jetstar operations do not break the law. "We have received legal advice and understand we are compliant with the Qantas Sale Act," said Kevin Brown, executive general manager in charge of human resources and industrial relations. "We will defend Jetstar International's ability to grow travel for Australians and create jobs in Australia."
The private-equity consortium has emphasized that continuing the expansion of Jetstar, under Qantas chief executive Geoff Dixon and Jetstar chief executive Alan Joyce, is a key growth plank underpinning its bid. The Qantas board has recommended that shareholders accept the offer, which was launched in December.
While structured to comply with foreign-ownership and control legislation, the bid, due to close March 9, is being considered by Australia's Foreign Investment Review Board, which can recommend the federal treasurer reject it on discretionary national-interest grounds. It could make its recommendation by March 7. The bid is also subject to clearance by the Australian Competition and Consumer Commission.