By all accounts, Alan Joyce, the new head of Qantas, is a likeable man with an excellent record as an airline executive. Yet his first week as the chief executive of Australia's international carrier and national icon has unfolded like a bad Irish joke. Joyce has managed to convey an impression of incoherence embroiled by treachery and exacerbated by naivety.
At exactly the same time as the Irish economy is going down the tubes because of an unbridled debt binge, this Irish import seems to be laying waste to common sense as soon as he's taken over the top job. They are hunting for his head in Spain and trying to buy his soul in Britain.
In the week since news leaked out that Qantas is in merger talks with British Airways, Joyce has had plenty of time to explain why this merger is not as stupid as it appears. There may be compelling reasons Qantas would want to merge with this embattled, loss-making airline but as yet none has been forthcoming. Attempts by British Airways to justify the merger have been an insult to the intelligence of Qantas shareholders, Qantas staff, Qantas frequent flyers and market analysts.
British Airways actually believes this is going to be a marriage of equals, rather than a takeover by Qantas, surely a road map towards a rocky marriage. Worse, Qantas appears to a pawn in a game of strategic chess being played by BA's own Irish chief executive, Willie Walsh.
For the past six months, BA has been engaged in prolonged, public and substantive merger talks with the Spanish national carrier, Iberia, which, like BA, has its own imperial vanities that are not to be taken lightly. Unlike the proposed merger with Qantas, this is a logical strategic alliance. The operations of BA and Iberia are complementary. They could extract cost synergies of about $1 billion a year. It would provide the necessary scale for survival within Europe. There are fewer regulatory complexities. And the two carriers already own strategic stakes in each other.
That's why the chairman of Iberia, Fernando Conte, blew his top last week when he heard that Walsh had been talking behind his back to Joyce. "I knew about it one hour before it was published," he told a luncheon audience at the Aviation Club on Pall Mall last week. He described the rival proposal as irrational: "I think it's more reasonable to start the [merger] process within Europe. That's the more rational process." As for trying to merge BA, Iberia and Qantas all at the same time, he said that was "too complex", which is diplomatic language for "ridiculous". He's right.
What makes Qantas look bad is that, apart from not having yet provided any credible rationale for merging with a money-losing BA trapped in a mature market, it is obvious that Qantas is being used. The British and the Spaniards have been locked in negotiations in which each side suffer delusions of grandeur. Iberia already owns 10 per cent of BA and believes it should be a 50-50 merger because BA is weighed down with unfunded pension liabilities, is losing money and is facing greater competition to its biggest market.
British Airways, for its part, owns 13 per cent of Iberia and originally thought it was going to take over the smaller Spanish flag carrier, with at least a 60-40 share. But based on current market valuations, BA shareholders would get only about 55 per cent of the merged company.
Then there's the suspicious timing. Iberia recently held a briefing for hedge funds in Madrid at which it gave a negative assessment of BA's financial position, highlighting its £1.7 billion ($4 billion) pension fund deficit, which is growing, its disappearing profit margins, and the open skies agreement between the US and Britain which will intensify competition in BA's most important market. This negative portrait was seen in London as an attempt to deflate BA's share price, down towards the merger of equals the Spaniards want.
Suddenly, up pops the leak from BA that it has also been in substantive merger talks with Qantas. It was a leak Qantas did not need, judging by its mute and inert performance since the talks were revealed. If Qantas needs to bulk up, and management has been wanting to bulk up for years, it needs to make strategic sense, rather than scale for the sake of scale. Qantas, not BA, is one of the world's 10 largest airlines in market capitalisation. Qantas, not BA, operates in the major growth area in global aviation. Qantas, not BA, has been making large profits. Qantas, not BA, has successfully created a low-cost carrier to protect its flanks.
In short: any deal that smacks of a 50-50 merger of equals with BA, and plays into Walsh's ambition to place British Airways at the centre of the world's first global carrier, would be a sell-out of Australia's interests. So Joyce has got himself into deep water even before he's settled into the top job.
Or rather, his predecessor, Geoff Dixon, has got him into deep water.
Dixon, who is staying on as an adviser into next year, did an outstanding job as chief executive of Qantas. But while he was furiously cutting costs to ensure the long-term survival of Qantas, and record profits, he was paid almost $12 million during his final year. So he fought to the last drop of everyone else's blood, while earning more than twice as much as the chief executives of most of the world's other leading airlines. It makes him look greedy, even if he is not. And Dixon's final legacy, the proposed merger with BA, looks worse.
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