The paper "Qantas Airline - Bailout Debate" is a good example of a business case study. For a long time, the government role in corporations has been an issue that often elicited mixed reactions and arguments. In 2014, the debate over private ownership versus the state was once again reopened due to the need for government to intervene and bail out companies. Qantas requested support from the government to help it overcome its difficult financial situation. This prompted a raging debate over whether the government should honour this request or not. As expected, Qantas competitors such as Virgin Australia were against the proposal to bail out Qantas and that they will ask for the same assistance if the request is accepted by the government.
On the other hand, some argue that the government should have offered Qantas a debt guarantee because the company was heavily regulated and it faces stiff competition from foreign governments. This essay discusses Qantas ‘ bailout’ debate and argues that the government stance was justified by drawing upon theories of the role of the state. Qantas was founded in 1920 as an Australian national carrier.
In 1947, it was nationalised and was later privatised through the Qantas Sale Act 1992 (Lafferty 2012, p. 91). In an effort to retain the status of the company as a national airline, several provisions were included in the Act. It also meant to ensure Qantas remains a predominantly Australian owned, managed and operated airline (Lafferty 2012, p. 91). Restriction of foreign ownership was capped at 49 per-cent; no foreign airlines can own more than 35 per-cent and foreign individuals are restricted to ownership percentage of no more than 25 are some of the provisions of the Act (Morrel 2013).
Furthermore, the Qantas Sale Act requires that the two-thirds of the airline directors should be citizens of Australia and the presiding director at any board meeting to be an Australian citizen. The 1992 Act also prohibits the incorporation of Qantas in any place apart from Australia. These legal requirements were part of the debate on the government bailout to Qantas. Qantas ‘ bailout’ debate is a classic example of what role should the government do in the business.
The role of the state is changing in most of the advanced democracies like Australia. Globalisation and stiff competition have necessitated a prompt response to effectively deal with challenges presented by globalisation. The welfare state is also experiencing overload on public resources (Mendoza & Vernis 2008, p. 389). This argument was presented in defence of government not to guarantee debt to Qantas. It was argued that Qantas should be bailed out in order to remain competitive. It was thought that subsidies would ensure that the airline can compete effectively with airlines such as government-backed Virgin Australia.
However, a company competes successfully in the market by creating a competitive advantage (Longenecker & Ariss 2002, p. 640). By offering subsidies to the airline, Qantas would have been dependent on corporate welfare. In this case, the airline could not be globally competitive since a competitive company strategically use the resources at its disposal in being competitive hence avoiding financial crises. In avoiding financial crises and major company failures, governments have resorted to debt guarantees (Suarez-Villa 2015, p. 147). This is seen as a form of corporate welfare.
This has resulted in increasing government debts obligations to an unsustainable level that threatens the financial apparatus of the country. Critics point out that by guaranteeing debt to Qantas, it would significantly increase the already overloaded government debts. Furthermore, it was argued that large chunks of taxpayers’ money will be put at risk since it is not certain how the airline can be competitive through the subsidy. Furthermore, the bailout is seen as a discouragement to companies to be competitive as it rewards inefficiency in conducting company operations and loss-making behaviour (Carney 2006 ).
It is argued that companies will depend on corporate welfare in the long run hence accountability and efficiency in using its own resources are compromised.
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