Difficult choice over Qantas

Treasurer Joe Hockey has warned that the community must choose between allowing a foreign takeover of the national airline Qantas Airways (ASX: QAN), or allowing a taxpayer–funded bailout of the airline.

“If voters say no … we think it should remain Australian owned and controlled and have a national carrier, then we must accept we have to pay a price for that,’’ Mr Hockey said. “I don’t have a magic bullet here, but what I do know, that coming down the pipeline… Australia needs to decide whether it’s going to pay a taxpayer price for owning a national carrier.’’

The opposition Labor Party has vowed to block any increase in foreign ownership of Qantas. Under the Qantas Sale Act foreign ownership is limited to 49% of the airline.

Opposition leader Bill Shorten said that “Qantas should be held in Australia’s hands, full stop”. Opposition transport Minister Anthony Alba Anesi said it was important to keep Qantas as a majority Australian owned national carrier for reasons that went beyond commercial.

The Treasurer says that Qantas’s current situation is commercially unsustainable, where it was competing against a majority foreign government subsidised Virgin Australia Holdings (ASX: VAH). Qantas says that Virgin has been able to undercut its fare prices thanks to majority shareholdings by sovereign backed Singapore Airlines, Air New Zealand (ASX: AIZ) and Etihad.

According to the Australian Financial Review, Qantas does not believe that an amendment to the Sale Act will help it as it would take too long to get through Parliament. The company has requested urgent government intervention and support.

Foolish takeaway

it appears the most likely solution will be a taxpayer–funded bailout of Qantas by the Federal government, so that Qantas remains Australia’s national airline. Another potential solution could be to split the airline into its domestic and international operations and allow unlimited foreign investment in the former, similar to the way Virgin operates now.

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Motley Fool writer/analyst Mike King doesnt own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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