To recap yesterday’s big news, an international consortium, made up principally of Australia’s Macquarie Bank Ltd. (ASX: MBL) and U.S. pirate equity firm Texas Pacific has made a $10 billion buy-out offer for Australian icon Qantas (ASX: QAN). Now, it’s not clear if the bid can legally go through yet. Australian law prevents foreign interests (interlopers, pirates, Americans—especially Texans) from owning more than 49% of the airline. And no single shareholder can own more than 25% of it. Despite these very real obstacles, it is never too early to explore the financial angles and absurdities.
“I think I can confidently predict you will never see the kangaroo moved off the tail of Qantas aircraft,” Deputy Prime Minister Mark Vaile said. What a relief!
On this Thanksgiving Day, we thank God that the Kangaroo will stay on the tail. In our list of nightly worries—nuclear holocaust from North Korea, nuclear holocaust in the Middle East, nuclear holocaust in Manhattan, and our own potential mortgage—at least we can cross off whether the Kangaroo will still be on the tale of Qantas’ aircraft, should this friendly pirate equity offer go through.
Seriously. Just how important is that kangaroo? Does it make an airplane more aerodynamic? Sleeker? More fuel efficient or just better looking? Can a plane fly higher with the boost from those powerful kangaroo legs? Or does it just look good and, importantly, warm the heart of Australians?
We ask in all honesty and curiousity. There are national icons in America, too. But most of them are commercial and for sale to the highest bidder. Coca-Cola, McDonald’s, Andy Warhol’s portrait of Marilyn Monroe. Is there such a thing, we wonder, as a commercial asset that has strategic value and shouldn’t be sold to foreigners?
The U.S. Congress apparently thinks so, although “thinks” is a generous word to describe what Congress, in its collective stupidity, often does. In the past year, political pressure in the U.S. has blocked foreign acquisitions of two U.S. companies.
First was the China National Offshore Oil Corporation’s bid for independent U.S. oil producer UNOCAL. This made sense for CNOOC, mostly because much of UNOCAL’s natural gas reserves are in Burma, Thailand, and Vietnam. CNOOC, which is 70% owned by China’s communist government, naturally saw the ‘synergy’ between China’s energy needs and UNOCAL’s energy assets. Congress saw it differently, effectively saying that an American company shouldn’t sell itself and its energy assets to a foreign economic competitor.
Say what you will about the hypocrisy of America blocking a deal on the free market, but the strategic calculus, from a certain point of view is defensible: energy is a strategic issue for national government’s these days. Decisions about energy resources are therefore, according to some people, national decisions, not state, local, or even private. Debatable, yes, but not nutty.
America also blocked the bid of Dubai World Ports to own and operate port facilities in New York, New Orleans, New Jersey, Baltimore, Miami, and Philadelphia. It seemed quite clear to even-handed analysts that the Dubai company would probably do a better job of running the ports as a for-profit business. It has experience, expertise, and most importantly, the cash to make the deal. But Congress and the American press, at least in the post 9-11 world, could not overcome the idea—and let us be frank in a Michael Richards kind of way—of a bunch of Arabs operating American ports.
So here’s our question to you Australia, is Qantas a strategic national asset that deserves protection from rampaging foreign pirate equiteers? What is the worst that could happen if the Australian government or the Australian people were not majority owners in domestic airline?
Hmm. Well, there is the danger that a foreigner owner-operator could someday decide to cut service and routes. Australia is a long way away from most other places. This would mean reduced routes, higher fares, and more isolation. Survivor Australia!
What else? You’d certainly see fewer jobs in the aerospace industry, which some nations see as a legitimate strategic national concern. If you can’t build, operate, and maintain your own domestic fleet of aircraft, this certainly puts you at the mercy of those that can, be they American, European, or Chinese.
Of course, in the division of labor of globalization, a nation doesn’t need to be good at everything. It’s hard to be good at everything, after all. You need a lot of people, a wealth and diversity of resources and labor, and a ton of capital.
Australia is blessed with an abundance of natural resources. It does not have an abundance of skilled labor. It does, it appears, have an abundance of capital. So where does that leave the important of Qantas as a national strategic asset? We’ll see.
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by kage on 23 November 2006:
Well actually, in the old days before rationalization/privatization, Qantas was very much a strategic asset. Qantas aircraft were 'on-call' to carry troops and supplies, failing other means. This certainly happened during the Vietnam War. Qantas was also the major repairer/parts supplier for Air Force aircraft engines, and instruments.
But that is all in the past - three cheers for globalization and retrench the skilled labour. Last time I checked the Air Forces engine contract was with either Malaysia or Indonesia. Of course when you take an asset , run it down and then auction off what's left we can call it progress.