JETSTAR ASIA, VALUAIR BRING NO CHEER TO QANTAS
5 September 2008
Ven Sreenivasan
Australian carrier's Singapore investment yet to turn the corner, four years on
(SINGAPORE) Qantas has offered further evidence that its investment in Jetstar Asia and Valuair continues to be an unhappy one - prompting observers to ask how long the Australian carrier will hold on to it, in a worsening industry environment.
Four years after entering the Singapore budget airline sector, Qantas failed to provide equity-accounting for OrangeStar Investment Holdings in its latest financial statement. Qantas owns 45 per cent of OrangeStar, the holding company for Jetstar Asia and Valuair.
'Since December 2006, the investment in OrangeStar Investment Holdings ceased to be equity-accounted as losses reduced the value of the investment to below zero,' Qantas says in its preliminary financial report for the year ended June 30. In the section of the report that shows contributions from associates and jointly controlled entities, it goes on to add: 'The amount of losses not recognised as at June 30, 2008 was $0.1 million.'
In an accompanying table that details contributions from associates and jointly controlled entities, Qantas fails to provide advice on OrangeStar's contribution to net profit.
OrangeStar was formed in late 2005 when Qantas bought privately owned Valuair and merged it operationally with its then-49 per cent-controlled Jetstar Asia. Qantas and Temasek Holdings subsequently injected fresh funds into OrangeStar to recapitalise Jetstar Asia and Valuair, which together have burned an estimated $100 million since taking to the skies in 2004.
In all, Qantas is believed to have invested well over A$50 million (S$60 million) in the Singapore-based budget airline venture, while Temasek is estimated to have pumped in S$30 million. The remaining stakeholders are former minorities of Jetstar Asia and the founding shareholders of Valuair, whose stakes were progressively diluted as the two substantial shareholders recapitalised the struggling company.
In early 2007, Singapore and Australian regulators gave the nod to Qantas, its Melbourne-based budget carrier Jetstar Australia and OrangeStar to fix fares, coordinate scheduling, capacity, prices, yields and marketing. This paved the way for the OrangeStar units to link seamlessly with Jetstar Australia, which had just started operating flights from Australia to half-a dozen Asian destinations including Thailand, Vietnam and Bali. But the 'operational merger' drew howls of protest from rivals like Singapore's Tiger Airways, which claimed it was anti-competitive.
The arrangement unravelled several months ago when Jetstar Australia and Jetstar Singapore abruptly decided to go their separate ways. That raised suspicions that all was not well within the group.
Meanwhile, OrangeStar's chief executive Chong Phit Lian insists that Jetstar Asia and Valuair remain profitable, at least in the current quarter. 'We will be making our filings soon, and you will be able to see the numbers,' she said.
Meanwhile, Qantas's options remain limited. It would take a very brave investor to plough money into an industry that is struggling through its worst crisis in recent memory. More than two dozen carriers have collapsed this year alone as record fuel prices led to higher fares that dampened passenger demand.
Just two days ago, the International Air Transport Association (IATA) said the global aviation industry faces a US$5.2 billion loss with the price of jet fuel around US$140 a barrel.
There is little doubt that OrangeStar needs all the shareholder support it can muster if it is to keep going. The question is whether Qantas has finally lost patience.
Business Times Singapore
(c) 2008 Singapore Press Holdings Limited
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