It is all go today: Fiji's military government lead by Commodore Frank Bainimarama has issued a decree saying that all Fijian-registered air carriers must now be owned and controlled by Fijian nationals. In effect the government is taking full control of the country's national carrier Air Pacific.
Fiji already has a 51% holding of Air Pacific but Qantas owns 46.3%. Fijian Attorney General Aiyaz Sayed-Khaiyum came out yesterday and said Qantas since 1998 has exercised effective control over the carrier because “Qantas-appointed board members enjoy supermajority and veto rights”.
The Fijian government confirmed it is both false and misleading to think Fiji is nationalizing the airline and depriving Qantas of its shareholder rights. Qantas will retain its ownership stake and its right to dividends, but will no longer be able to exercise control over the annual operating budget, the appointment of the airline's chairman, the addition of new routes or a host of other management decisions.
Air Pacific is essential to Fiji as is the growth of the airline. It is responsible for carrying more than 70% of visitors to Fiji controlling in effect one-third of the nation's economy. Sayed-Khaiyum said Fiji has recently extended its diplomatic relations with a number of countries and would like to have the ability to fly to new regions.
Qantas said it would issue a statement later today but as I type there is nothing showing and it is in effect late evening in Australia. They must be choosing their words with extreme care, and well they should in such a situation where clarification is sought at the highest level.
We might argue that the price tag Qantas proposed to the Fijian government some time ago for the 46.3% holding was a little too high. The two sides have been locked in talks and haven't been able to agree on a price. All the while Fiji was hoping Qantas would agree to a binding independent valuation of its stake. The Fijian government's latest move will negatively impact the value of the stake to Qantas and to any interested third parties. Thus the Fijian government has turned any sale into a race that only it can win.
Last year Air Pacific Group, which also owns a stake in Fijian resorts, reported a post tax profit of 25m Fijian dollars ($14m) on revenues of 587m Fijian dollars ($328m).
The effect of the past 24 hours is that Qantas has indeed lost a premium on its holding and now has no reason to hold onto the same. The effect on Qantas’s growth is minimal at most.
In China, following on from yesterday’s announcement from the big three airlines in China that they need capital fast, there is further woe for the outlook of the most populous nation on Earth: Chinese industrial profits fell sharply in the first two months of 2012 by some 5.2% from 2011. The biggest losers were metal processing, car manufacturing and chemical industries – all three are core indicators of domestic economic growth rather than pure export growth and as such paint a telling picture. Relaxation of economic controls may be on the cards.
Meanwhile, as mentioned here a few months ago concern is mounting among airlines using Brazil’s San Paulo international airport that landing fees may soon increase, the only basis for this argument being that the investors paid too much for the business in the recent privatization of the same. This is open to conjecture but what is a fact is the most popular investment out there at the moment is by far airports of the future – private and institutional investors cannot get enough of it, second in the field of aerospace is older aircraft. We will be looking at both in detail in Miami on the 15th May 2012 at the Aerospace Investment Conference. Book your place now.