Essays on State Interference and the Bailout Debate - Qantas Airlines Case Study

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The paper "State Interference and the Bailout Debate - Qantas Airlines" is a good example of a business case study.   Qantas airline has been facing industrial disputes, diminishing profitability and reputation in recent years. The government of Australia responded to the woes facing the airlines through a bailout. Although the airline is partially owned by the government, there is a general feeling that the carrier represents aspirations and interest of the Australian people. Interference of state on issues internal to the management of a company may happen because the state is a shareholder or desires to salvage its image that is manifested in the company (Miron, 2009).

In market economy systems, the role of a state in determining inputs, costs, and prices is limited to the shareholding structure and private investment (Mcchesney, 1997). The mere existence of state control over the company may not necessarily construe state interference in decision-making regarding inputs, costs and prices (Andrews, 2009). The aim of this essay is to argue the Qantas ‘ bailout’ debate and the justification of the government to bail out the company. State interference and the Qantas ‘ bailout’ debate The influence of the state on privately owned firms has been a raging debate among academicians, scholars and practising government economists.

Specifically, the Economists had been worried that the responses of many governments to the global financial crisis is to bail out poorly performing companies when they  basically  need  radical managerial transformation. The Australian bailout debate has hit Qantas, which was formerly a government-owned company. In reality, Qantas has been facing liquidity crisis with debts and bills going over $7.5 billion (The Guardian, 2011). These debts cannot be paid because the company has little assets or cash to cover the costs.

However, those opposed to the debate argue that a bailout is a waste of public taxes in salvaging a failing private company (McLaughlin, 2014). On the other hand, those for the bailout insist that the company flies the ‘ Kangaroo’ which is the icon of Australian heritage, sentimental attachment and pride (ibid). Government interference in decisions of a public company may help big players to take advantage of small players. Varrender (2014) agrees that liquidity problems facing an industry may lead to insolvency especially in the vulnerable airline industry.

The author further notes that without Federal Government assistance, formal insolvency destroys a lot of values and thus corporate reconstruction becomes impossible. The Australian government sought to protect the bigger picture of serious implications for tourism and disruption of the economy if the airlines grounded (The Guardian, 2011). However, Painter (2009) argues that the decisions of government are discretionary and that bailouts create moral hazards for owners and managers receiving the bailouts. The author further notes that management in some companies inconsistent with the interests of customers, creditors, and shareholders may sometimes combine with severe government regulation and lead to a bailout.

McChesney (1997) observes that in ‘ public choice theory’ , political factors play out at a time economic resources are allocated not by the markets but by the government. Departures from fiduciary principles may happen on who allocates resources where politically influenced markets gravitate around government actors (Andrews, 2009). For example, a legislator may favor a company in their district as a fiduciary obligation to the electorate and not necessarily favoring their campaign contributors.


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