March 30, 2012

Qantas-Air Pacific used as proxy fight between Australia and Fiji

Posted by Will Horton on 30th March, 2012 10:45 AM

Qantas and Air Pacific have been caught in a proxy fight between their home countries as Australia condemns the ongoing lack of democracy in Fiji since military leader Frank Bainimarama took control of the island nation last decade. Bainimarama in turn has had the civil aviation ministry pass a decree requiring, amongst other statutes, Fijian airlines to have local citizens comprise two-thirds of the board. Fiji has a 51% stake in Air Pacific while Qantas holds a 46% stake and accounts for four of the nine board seats.

While it is apparent Qantas will have to relinquish a board seat to comply with the new regulations, the carrier for some years has been seeking to sell its stake – and would surrender all board seats – but Fiji is unwilling to spend the AUD15 million that Qantas' stake is valued at. Fiji is also irritated that Qantas' LCCJetstar serves Fiji, to Air Pacific's detriment, although Virgin Australia has significantly more capacity.

Bainimarama is understood to be upset with Australia's support of Fiji's ban from the Commonwealth until the introduction of elections, which Bainimarama is not supporting. The Fijian airline ownership change is bigger in intent than in outcomes.

Fiji Attorney-General and Minister for Civil Aviation Aiyaz Sayed-Khaiyum in a statement portrayed the change as merely bringing Fiji's airline ownership regulations to international standards. “Fiji has long been out of step with the Chicago Convention and consequent international practices," Mr Sayed-Khaiyum said. The ministry even supplied examples of ownership requirements in other countries, although most showed that foreigners cannot hold a majority share; Air Pacific has been locally majority owned.

Fiji sought to portray discussions and changes of airline ownership as natural discourse, pointing to Qantas' statement to Australian regulators to question the proposed corporate restructure of Virgin Australia that would see its domestic operation be legally separate from its international operation, thus allowing its domestic operation to not be subject to foreign ownership requirements. (Australia is relatively unique in allowing majority foreign owned airlines to operate domestically.) Qantas' complaint was seen a mere formality and gesture that competition between the two is healthy, but Fiji is now ironically using the complaint against Qantas.

The new Fijian law requires Fijian carriers be under “substantial ownership and effective control” of a Fijian citizen, defined as:
  • The Government of Fiji or any institution of the State;
  • An individual who is a citizen of Fiji;
  • A partnership each of whose partners is an individual who is a citizen of Fiji; or,
  • A corporation or association of which at least 51 percent of the voting interest is owned and controlled by persons who are citizens of Fiji, at least two thirds of the board of directors and any committee are citizens of Fiji, and such corporation or association is under actual and effective control of citizens of Fiji.

Majority control moot point

While Fiji has promoted this law as it taking influence away from Qantas, a scenario that has been repeated in public, Qantas in fact has purposefully taken a hands-off role with the carrier and consequently has limited influence to be taken away, making Fiji's claims a moot point. This hands-off role is evident in the directors Qantas is publicly listed as having appointed to Air Pacific: Narendra Kumar, Simon Hickey and Paul Edwards. Mr Edwards looks after strategy and network at Qantas and could be seen to possibly irritate the Fijian government for his role, but Mr Kumar and Mr Hickey have neutral objectives; Mr Kumar looks after QantasLink, the carrier's primarily regional domestic carrier and which does not serve Fiji, and Mr Hickey is the CEO of the Qantas frequent flyer programme, which has only loose connections to Air Pacific.

In a question and answer supplement, the Fijian government explained its recent action to a situation that has been occurring since 1998 as: "this situation only recently came to our attention following a routine investigation into these legal requirements". The statement even has a section addressing the question "Is this move a result of differences with Qantas regarding a price for its shares that it wants to sell and Fiji wants to buy?" The provided answer is: "No. That is absolutely false." While the decree may not be directly related to share price negotiations, if Fiji would relieve Qantas of its stake, this matter would not have arisen.

Australia-Fiji capacity by seats: 09-Apr-2012 to 15-Apr-2012

RankAirlineTotal Seats
1FJAir Pacific4,890
2DJVirgin Australia3,872
3JQJetstar Airways732

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