Tuesday, March 31, 2009
Friday, March 27, 2009
Qantas and Our Super
You can fly, but you can't hide from the financial crisis
Elizabeth KnightMarch 26, 2009
The International Air Transport Association - the organisation that covers most of the world's top airlines - has made a particularly bleak assessment of the industry, saying it was in intensive care and the worst region was the Asia Pacific.
Australia's flagship carrier, Qantas, is feeling its share of the heat and yesterday confirmed speculation that it would slice 90 management positions and keep its salary freeze in place.
The move is expected to save between $21 million and $24 million but result in a one-off charge for redundancies of under $20 million.
This comes along with other operational changes being put in place by the new chief executive, Alan Joyce - all of them designed to expand the roles of the remaining managers and flatten the corporate structure. As a result, some stand-alone operations will be merged.
Qantas has been hacking into its cost base for years, mainly operational staff, especially in maintenance and engineering. So when the cyclical downturn began in earnest and pressure mounted on revenue there were few meaningful cuts left.
Now Qantas faces the problem of financing a shortfall in its defined benefit superannuation scheme. Merrill Lynch has estimated this shortfall to be $296 million, based on the fall in the value of the assets in the fund.
Qantas says the super fund has not yet made a call on the company to top-up the scheme. But logic suggests it is only a matter of time before, at the very least, Qantas will need to increase its provisioning to cover the shortfall.
Qantas may not have to pay the cash in one hit, but the shortfall may be reflected in its profit and loss for the year to June 30.
There will be a cash flow impact, and if it is large enough it is reasonable to question how Qantas will fund it.
The staff cuts made over the past year suggest there will be significant calls made on super entitlements, and some of these employees will have been covered by defined benefits plans. Many of the flight engineers who left in December are understood to have been covered by such schemes.
Defined benefits schemes, which were popular in the 1980s, entitle superannuants to a guaranteed lump sum - as opposed to regular super schemes, which rely on accumulated returns from the super fund. If sharemarkets continue to fall, the hole in the scheme will be bigger by the end of this financial year.
Qantas is not alone here. Plenty of companies face defined benefit shortfalls - including the Commonwealth Bank, Telstra and AMP. But Qantas is an extremely cyclical company, and both business and consumers are cutting travel in response to the global economic slowdown. Air travel is the extreme end of discretionary spending.
To date Australia has been less affected by the crisis, but more economists are downgrading their expectations of the economy with each week.
There is near certainty now that we will move into recession this year, which would add to the pressure on Qantas's earnings.
Having issued profit downgrades last year, the airline is sticking to its forecasts of a full-year pre-tax profit of $500 million for the year to June 30.
But given the worsening environment it would come as no surprise to see a further downgrade before the end of this financial year.
IATA said on Tuesday it had revised its outlook for the global air transport industry, and estimated $US4.7 billion ($6.7 billion) in losses this year, compared with $US2.5 billion in December. This reflected the rapid deterioration in the global economy, it said.
To put this into perspective, IATA expects global aviation revenue to fall $US62 billion. The fall after September 11, 2001 was $US23 billion.
This is nothing short of a catastrophe. Qantas has been cushioned so far, in part by relatively strong domestic demand. But as economic conditions deteriorate here its yields will continue to suffer as a result of discounting.
And its offshore profits, already being squeezed, will be hurt by competition on the Pacific route from Virgin's V and Delta Air Lines.
http://business.smh.com.au/business/you-can-fly-but-you-cant-hide-from-the-financial-crisis-20090325-9ak1.html
Elizabeth KnightMarch 26, 2009
The International Air Transport Association - the organisation that covers most of the world's top airlines - has made a particularly bleak assessment of the industry, saying it was in intensive care and the worst region was the Asia Pacific.
Australia's flagship carrier, Qantas, is feeling its share of the heat and yesterday confirmed speculation that it would slice 90 management positions and keep its salary freeze in place.
The move is expected to save between $21 million and $24 million but result in a one-off charge for redundancies of under $20 million.
This comes along with other operational changes being put in place by the new chief executive, Alan Joyce - all of them designed to expand the roles of the remaining managers and flatten the corporate structure. As a result, some stand-alone operations will be merged.
Qantas has been hacking into its cost base for years, mainly operational staff, especially in maintenance and engineering. So when the cyclical downturn began in earnest and pressure mounted on revenue there were few meaningful cuts left.
Now Qantas faces the problem of financing a shortfall in its defined benefit superannuation scheme. Merrill Lynch has estimated this shortfall to be $296 million, based on the fall in the value of the assets in the fund.
Qantas says the super fund has not yet made a call on the company to top-up the scheme. But logic suggests it is only a matter of time before, at the very least, Qantas will need to increase its provisioning to cover the shortfall.
Qantas may not have to pay the cash in one hit, but the shortfall may be reflected in its profit and loss for the year to June 30.
There will be a cash flow impact, and if it is large enough it is reasonable to question how Qantas will fund it.
The staff cuts made over the past year suggest there will be significant calls made on super entitlements, and some of these employees will have been covered by defined benefits plans. Many of the flight engineers who left in December are understood to have been covered by such schemes.
Defined benefits schemes, which were popular in the 1980s, entitle superannuants to a guaranteed lump sum - as opposed to regular super schemes, which rely on accumulated returns from the super fund. If sharemarkets continue to fall, the hole in the scheme will be bigger by the end of this financial year.
Qantas is not alone here. Plenty of companies face defined benefit shortfalls - including the Commonwealth Bank, Telstra and AMP. But Qantas is an extremely cyclical company, and both business and consumers are cutting travel in response to the global economic slowdown. Air travel is the extreme end of discretionary spending.
To date Australia has been less affected by the crisis, but more economists are downgrading their expectations of the economy with each week.
There is near certainty now that we will move into recession this year, which would add to the pressure on Qantas's earnings.
Having issued profit downgrades last year, the airline is sticking to its forecasts of a full-year pre-tax profit of $500 million for the year to June 30.
But given the worsening environment it would come as no surprise to see a further downgrade before the end of this financial year.
IATA said on Tuesday it had revised its outlook for the global air transport industry, and estimated $US4.7 billion ($6.7 billion) in losses this year, compared with $US2.5 billion in December. This reflected the rapid deterioration in the global economy, it said.
To put this into perspective, IATA expects global aviation revenue to fall $US62 billion. The fall after September 11, 2001 was $US23 billion.
This is nothing short of a catastrophe. Qantas has been cushioned so far, in part by relatively strong domestic demand. But as economic conditions deteriorate here its yields will continue to suffer as a result of discounting.
And its offshore profits, already being squeezed, will be hurt by competition on the Pacific route from Virgin's V and Delta Air Lines.
http://business.smh.com.au/business/you-can-fly-but-you-cant-hide-from-the-financial-crisis-20090325-9ak1.html
Qantas Management Cleanout
More management jobs to go at Qantas
Matt O'SullivanMarch 26, 2009
QANTAS will make further cuts to lower management ranks within the coming months, once it completes the axing of 90 senior management roles.
The confirmation yesterday that it will slash its senior management team by 20 per cent is also expected to give the company an upper hand in negotiations with staff and unions about further cost-cutting.
The latest management changes are part of plans by the chief executive, Alan Joyce, to operate the company under four core businesses: the Qantas airline, Jetstar, Frequent Flyer and Freight. Under his predecessor, the group operated under stand-alone businesses that had their own corporate centres.
But it leaves unchanged the top tier of senior executives Mr Joyce has corralled since before he took over last November. The commercial side of the business falls under the auspices of John Borghetti while the operational area is the domain of Lyell Strambi. A Coca-Cola Amatil executive, John Scriven, will take over as the human relations boss on April 6.
The latest management cuts will save the airline up to $24 million a year. Qantas tapped 68 senior managers yesterday after earlier making 10 people redundant. The remaining 12 managers will be offered new positions within the group.
Asked whether the changes would lead to further job cuts, the corporate affairs chief, David Epstein, said the airline anticipated "further consequential changes" to other layers of management but "how they will work out is yet to be determined".
Qantas has been seeking to slash costs in recent months in a desperate bid to offset a slump in demand. Last month it axed loss-making routes to China and direct flights to India, as well as handing over domestic services in New Zealand to its low-cost subsidiary, Jetstar.
Qantas also laid off 1500 workers late last year and shelved plans to hire 1200 staff in response to the weakening passenger demand.
The International Air Transport Association's latest forecast says airlines around the world to post losses of $US4.7 billion ($6.7 billion) this year because of the global slowdown.
Virgin Blue has also shed up to 400 staff and grounded five aircraft while Air New Zealand made 200 full-time workers redundant late last year.
An industry insider said the cuts to Qantas management would give Mr Joyce a way to restart negotiations with unions about lowering labour costs. "It potentially gives him more room to manoeuvre with the Qantas staff if the global market continues to get worse," he said.
But a union spokeswoman, Linda White, said there would be significant resistance from workers to any attempts to cut costs further at Qantas.
Qantas shares fell 1c to $1.745 yesterday, taking the decline so far this year to 33 per cent.
Matt O'SullivanMarch 26, 2009
QANTAS will make further cuts to lower management ranks within the coming months, once it completes the axing of 90 senior management roles.
The confirmation yesterday that it will slash its senior management team by 20 per cent is also expected to give the company an upper hand in negotiations with staff and unions about further cost-cutting.
The latest management changes are part of plans by the chief executive, Alan Joyce, to operate the company under four core businesses: the Qantas airline, Jetstar, Frequent Flyer and Freight. Under his predecessor, the group operated under stand-alone businesses that had their own corporate centres.
But it leaves unchanged the top tier of senior executives Mr Joyce has corralled since before he took over last November. The commercial side of the business falls under the auspices of John Borghetti while the operational area is the domain of Lyell Strambi. A Coca-Cola Amatil executive, John Scriven, will take over as the human relations boss on April 6.
The latest management cuts will save the airline up to $24 million a year. Qantas tapped 68 senior managers yesterday after earlier making 10 people redundant. The remaining 12 managers will be offered new positions within the group.
Asked whether the changes would lead to further job cuts, the corporate affairs chief, David Epstein, said the airline anticipated "further consequential changes" to other layers of management but "how they will work out is yet to be determined".
Qantas has been seeking to slash costs in recent months in a desperate bid to offset a slump in demand. Last month it axed loss-making routes to China and direct flights to India, as well as handing over domestic services in New Zealand to its low-cost subsidiary, Jetstar.
Qantas also laid off 1500 workers late last year and shelved plans to hire 1200 staff in response to the weakening passenger demand.
The International Air Transport Association's latest forecast says airlines around the world to post losses of $US4.7 billion ($6.7 billion) this year because of the global slowdown.
Virgin Blue has also shed up to 400 staff and grounded five aircraft while Air New Zealand made 200 full-time workers redundant late last year.
An industry insider said the cuts to Qantas management would give Mr Joyce a way to restart negotiations with unions about lowering labour costs. "It potentially gives him more room to manoeuvre with the Qantas staff if the global market continues to get worse," he said.
But a union spokeswoman, Linda White, said there would be significant resistance from workers to any attempts to cut costs further at Qantas.
Qantas shares fell 1c to $1.745 yesterday, taking the decline so far this year to 33 per cent.
Friday, March 20, 2009
Wednesday, March 4, 2009
Bloated CEOs
Paying caviar to get monkeys: Our overvalued CEOs
13 January 2009 Adam Schwab writes:
In justifying large executive salaries, company directors will excuse their largesse by arguing that Australian companies compete in a global marketplace for talent -- unless companies pay executives more than others, shareholders will suffer poor returns. Implicit is that the cost of the executive and their ability are correlated. While such a theory may work for cars or suits, paying more for executives does not only fail to lead to superior performance, it encourages inappropriate capital allocation and reduces long-term returns.
Crikey considered the share price performance of the companies of seventeen of Australia’s highest paid executives. As the table below indicates, while directors have been very willing to hand over shareholder funds to their CEOs, the returns earned have in reality, been terrible.
Executive
Company
Remuneration between 2006 and 2008 ($ million)
Share return between June 2005 and December 2008
Rupert Murdoch
News Corp
86.6 -44.17%
Alan Moss Macquarie 79.5 -42.22%*
Phil Green Babcock 51.3 -98.84%
Frank Lowy Westfield 43.6 -24.85%
Wal King Leighton 41.6 -120.47%
Sol Trujillo Telstra 33.9 -26.48%
David Morgan/Gail Kelly Westpac 27.5 -13.23%
David Turner/Mike Ihlein Brambles 24.9 -13.10%
Leigh Clifford/Tom Albanese Rio Tinto 24.8 -17.45%
Geoff Dixon Qantas 24.1 -21.66%
Paul Little Toll Holdings 23.4 -44.79%
John Stewart NAB 23.1 -33.67%
David Murray/Ralph Norris CBA 23 -26.75%
Greg Clarke Lend Lease 22 -46.76%
All Ordinaries Index -17.52%
* Share price taken as at 30 March 2005
Of the fourteen highest paid executives between 2006 and 2008, ten companies recorded extraordinarily poor returns, led by Babcock & Brown, which paid former executive, Phil Green, $51.3 million while its share price slipped by 99 percent. Investors in News Corp, Macquarie Bank and Toll lost almost half of their capital, despite their CEOs collecting $86.6 million, $79.5 million and $23.4 million respectively.
The only CEO on the greed list who can point to above average returns being provided to investors is Leighton Holdings’ Wal King. However, King’s star has faded recently, with Leighton scrip dropping from almost $65 in December 2007 to around $25 per share on the back of a shock profit downgrade last week.
It should also be remembered that the comparator, the All Ordinaries index, has itself been a poorly performed asset class. Compared with residential or commercial property, bonds or cash, the returns earned by companies on Crikey’s Greed Index has been especially poor. In addition, the returns compared were not taken over the recent correction, but rather, over a longer three year time period.
Despite the evidence that highly paid CEOs provide terrible value for money, not everyone agrees. Former Wesfarmers CEO, "Saint" Michael Chaney (who himself was one of the few well performed executives), launched an impassioned defense of executive remuneration to the Financial Review last Saturday. In defending executive largesse, Chaney argued that there was a “lack of broader understanding of the remuneration issue and that there is, in most cases, strong alignment between shareholder and executive returns.” Chaney claimed that:
I think most companies now have schemes that don’t reward the executive really well unless shareholders do well…in the case of NAB for example, no long-term incentive granted after 2001 has vested, and many of them never will. There are hundreds of millions of dollars worth of ‘remuneration’ never actually received.
While Chaney’s comments regarding alignment between shareholder and executive returns appear to be contradicted by evidence, Saint Michael does have a point in relation to overstatement of equity rewards -- that is, in a falling market, the value of equity instruments granted will often be significantly over-stated by Remuneration Report valuations. However, while the former head of the CEO Trade Union (also known as the Business Council of Australia) and current NAB chairman is correct about equity payments, he neglected to acknowledge the significant levels of cash remuneration paid to NAB executives.
In the last four years, NAB CEO, John Stewart, has collect more than $17 million cash, while NAB’s former Australian chief, Ahmed Fahour, has received almost $15 million in hard currency. During their tenure, NAB has managed to lose more than a billion dollars investing in US mortgages while Fahour controversially sold millions of dollars worth of NAB shares only days before the company announced a discounted placement. However, notwithstanding the cash showered upon Fahour and Stewart by NAB directors, since 2005, the bank’s shares have slumped by around 27 percent.
When looking at a potential investment, investors should take a few minutes to consider the company’s recent remuneration reports. Any business which pays executives high relative levels of fixed cash pay or cash short-term incentives is encouraging short-term, risk taking behavior (like NAB’s US mortgage fiasco). This is likely to be rewarding for executives, but costly for investors.
It now appears that when it comes to the Australian boardroom, when you pay caviar, you get monkeys.
13 January 2009 Adam Schwab writes:
In justifying large executive salaries, company directors will excuse their largesse by arguing that Australian companies compete in a global marketplace for talent -- unless companies pay executives more than others, shareholders will suffer poor returns. Implicit is that the cost of the executive and their ability are correlated. While such a theory may work for cars or suits, paying more for executives does not only fail to lead to superior performance, it encourages inappropriate capital allocation and reduces long-term returns.
Crikey considered the share price performance of the companies of seventeen of Australia’s highest paid executives. As the table below indicates, while directors have been very willing to hand over shareholder funds to their CEOs, the returns earned have in reality, been terrible.
Executive
Company
Remuneration between 2006 and 2008 ($ million)
Share return between June 2005 and December 2008
Rupert Murdoch
News Corp
86.6 -44.17%
Alan Moss Macquarie 79.5 -42.22%*
Phil Green Babcock 51.3 -98.84%
Frank Lowy Westfield 43.6 -24.85%
Wal King Leighton 41.6 -120.47%
Sol Trujillo Telstra 33.9 -26.48%
David Morgan/Gail Kelly Westpac 27.5 -13.23%
David Turner/Mike Ihlein Brambles 24.9 -13.10%
Leigh Clifford/Tom Albanese Rio Tinto 24.8 -17.45%
Geoff Dixon Qantas 24.1 -21.66%
Paul Little Toll Holdings 23.4 -44.79%
John Stewart NAB 23.1 -33.67%
David Murray/Ralph Norris CBA 23 -26.75%
Greg Clarke Lend Lease 22 -46.76%
All Ordinaries Index -17.52%
* Share price taken as at 30 March 2005
Of the fourteen highest paid executives between 2006 and 2008, ten companies recorded extraordinarily poor returns, led by Babcock & Brown, which paid former executive, Phil Green, $51.3 million while its share price slipped by 99 percent. Investors in News Corp, Macquarie Bank and Toll lost almost half of their capital, despite their CEOs collecting $86.6 million, $79.5 million and $23.4 million respectively.
The only CEO on the greed list who can point to above average returns being provided to investors is Leighton Holdings’ Wal King. However, King’s star has faded recently, with Leighton scrip dropping from almost $65 in December 2007 to around $25 per share on the back of a shock profit downgrade last week.
It should also be remembered that the comparator, the All Ordinaries index, has itself been a poorly performed asset class. Compared with residential or commercial property, bonds or cash, the returns earned by companies on Crikey’s Greed Index has been especially poor. In addition, the returns compared were not taken over the recent correction, but rather, over a longer three year time period.
Despite the evidence that highly paid CEOs provide terrible value for money, not everyone agrees. Former Wesfarmers CEO, "Saint" Michael Chaney (who himself was one of the few well performed executives), launched an impassioned defense of executive remuneration to the Financial Review last Saturday. In defending executive largesse, Chaney argued that there was a “lack of broader understanding of the remuneration issue and that there is, in most cases, strong alignment between shareholder and executive returns.” Chaney claimed that:
I think most companies now have schemes that don’t reward the executive really well unless shareholders do well…in the case of NAB for example, no long-term incentive granted after 2001 has vested, and many of them never will. There are hundreds of millions of dollars worth of ‘remuneration’ never actually received.
While Chaney’s comments regarding alignment between shareholder and executive returns appear to be contradicted by evidence, Saint Michael does have a point in relation to overstatement of equity rewards -- that is, in a falling market, the value of equity instruments granted will often be significantly over-stated by Remuneration Report valuations. However, while the former head of the CEO Trade Union (also known as the Business Council of Australia) and current NAB chairman is correct about equity payments, he neglected to acknowledge the significant levels of cash remuneration paid to NAB executives.
In the last four years, NAB CEO, John Stewart, has collect more than $17 million cash, while NAB’s former Australian chief, Ahmed Fahour, has received almost $15 million in hard currency. During their tenure, NAB has managed to lose more than a billion dollars investing in US mortgages while Fahour controversially sold millions of dollars worth of NAB shares only days before the company announced a discounted placement. However, notwithstanding the cash showered upon Fahour and Stewart by NAB directors, since 2005, the bank’s shares have slumped by around 27 percent.
When looking at a potential investment, investors should take a few minutes to consider the company’s recent remuneration reports. Any business which pays executives high relative levels of fixed cash pay or cash short-term incentives is encouraging short-term, risk taking behavior (like NAB’s US mortgage fiasco). This is likely to be rewarding for executives, but costly for investors.
It now appears that when it comes to the Australian boardroom, when you pay caviar, you get monkeys.
Qantas Says "It's Teething Problems"
Teething problems for A380s
From: The Daily Telegraph
March 04, 2009
QANTAS has been hit by a string of problems which have grounded all three of its flagship A380s over the past few days.
All three superjumbos were back in service by late yesterday after being out of action for 24 hours.
The two-storey jets, capable of carrying almost 600 people in full economy mode, were grounded in London and Sydney to deal with issues the airline said were teething problems.
Click here to read the full article on the website
Alternatively, you can copy and paste this link into your browser:http://www.news.com.au/dailytelegraph/story/0,22049,25135638-5001021,00.html
From: The Daily Telegraph
March 04, 2009
QANTAS has been hit by a string of problems which have grounded all three of its flagship A380s over the past few days.
All three superjumbos were back in service by late yesterday after being out of action for 24 hours.
The two-storey jets, capable of carrying almost 600 people in full economy mode, were grounded in London and Sydney to deal with issues the airline said were teething problems.
Click here to read the full article on the website
Alternatively, you can copy and paste this link into your browser:http://www.news.com.au/dailytelegraph/story/0,22049,25135638-5001021,00.html
A380 Too Fat For America
Qantas' Airbus too fat for America
From: The Daily Telegraph
March 03, 2009
THE giant Qantas Airbus A380 is too big for Los Angeles international airport.
As Qantas plunges billions on the aircraft, LA air traffic controllers warned that, without changes, they may have no choice but to turn away the world's biggest passenger planes.
America's National Air Traffic Controllers Association believes Los Angeles airport would be unable to accommodate the A380 if not for the recession-related slump in air traffic.
Click here to read the full article on the website
Alternatively, you can copy and paste this link into your browser:http://www.news.com.au/dailytelegraph/story/0,22049,25128459-5013605,00.html
From: The Daily Telegraph
March 03, 2009
THE giant Qantas Airbus A380 is too big for Los Angeles international airport.
As Qantas plunges billions on the aircraft, LA air traffic controllers warned that, without changes, they may have no choice but to turn away the world's biggest passenger planes.
America's National Air Traffic Controllers Association believes Los Angeles airport would be unable to accommodate the A380 if not for the recession-related slump in air traffic.
Click here to read the full article on the website
Alternatively, you can copy and paste this link into your browser:http://www.news.com.au/dailytelegraph/story/0,22049,25128459-5013605,00.html
Faults Ground Qantas A380 Airbus Fleet
Faults ground Qantas A380 airbus fleet
From: The Daily Telegraph
March 03, 2009
QANTAS has been hit by a string of problems which have grounded all three of their flagship A380s in the past few days.
One of the planes was back in service this morning, but the other two were declared unserviceable with a fuel tank indication system problem.
"Qantas is an early customer of the A380 and naturally, as with any new aircraft type and like other operators of the A380, we expect the occasional issue to arise,'' the airline said in a statement.
Click here to read the full article on the website
From: The Daily Telegraph
March 03, 2009
QANTAS has been hit by a string of problems which have grounded all three of their flagship A380s in the past few days.
One of the planes was back in service this morning, but the other two were declared unserviceable with a fuel tank indication system problem.
"Qantas is an early customer of the A380 and naturally, as with any new aircraft type and like other operators of the A380, we expect the occasional issue to arise,'' the airline said in a statement.
Click here to read the full article on the website
Advice From British Medical Magazine
Never say dead, doctors told
Doctors have been advised never to pronounce a passenger dead on a flight, even if the person has stopped breathing and can't be treated further, according to new recommendations published in Lancet online. It says that when the call goes out for help, doctors should show their credentials and obtain patient consent. They should also request the airline's enhanced medical kit rather than its basic first aid kit.
Source: www.afr.com 26/02/2009
Doctors have been advised never to pronounce a passenger dead on a flight, even if the person has stopped breathing and can't be treated further, according to new recommendations published in Lancet online. It says that when the call goes out for help, doctors should show their credentials and obtain patient consent. They should also request the airline's enhanced medical kit rather than its basic first aid kit.
Source: www.afr.com 26/02/2009
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