VA is not an infrastructure asset. QIC has no idea how to run an airline and it would become a disaster investment for them if they try.
But it doesnt really matter, QIC wont win the bid. The risks in VA will be too high for their risk appetite and so they wont be able to mount a competitive bid.
It's actually an incredibly low risk investment in the short to medium term. Coming in at the bottom of the market, the value will inevitably rise even if it is mismanaged to collapse in the long term - so long as they sell early.
But it's a moot point, QIC is seeking to partner with somebody else, who will likely be the managing partner, it's unlikely QIC will be the ones running it - aside from requiring head office in Queensland.
Their cash position isn't so great that they could buy the whole airline.
Unfortunately I would class owning any airline a high risk investment. When you look at the numbers of the long term airlines go from boom to bust.
They are capital intensive and typically return only a couple of percent profit. The airlines that get a decent 10pc are few and far between.
The last few years have been boom time. QF was returning over 10pc. Virgin was negative.
I take your point though. In theory. Bottom of market. Two horse race. Jobs for Queensland. Sounds like a winner. But history is littered with “billionaires becoming millionaires” in this game.
At the end of the day its QLDs money... though given a huge percentage of state money comes from Canberra one could argue its WA money.
Definitely going to be interesting few months ahead in Australian aviation.
With the Queensland economy highly dependent upon on regular air services, I am not that surprised that the Queensland government in some form has their hat in the ring. The last thing Queensland needs is a VAm2 that cuts routes and frequencies in the Queensland market.
A good investor would never loose billions of dollars on an airline. If we look at the airline failures over the last twenty years, we could easily argue the bulk of the failures were related to legacy issues, failed business plans, changing market conditions (ME3), mismanagement or extraordinary circumstances.
I think the majority of us would argue the failure of VA revolved around its business model and not core market conditions.
If we actually look at the Australian market, it has all of the ingredients for a successful second and I'd suggest third airline (high wages, geographically dispersed cities, industries heavily reliant on air travel, established markets, large tourism industry, excellent infrastructure, population that likes to travel).
....and this is why I see the REX and Alliance proposals to expand their airlines as being a good first step to a sustainable and competitive market.
These two airlines could add approximately 15-25 A318-A320 sized jets ($25-35 million each) in the near future. With both airlines having relatively low scale and (assumed) market strategies that offset directly competing with QANTAS/JETSTAR, the risks would be considerably less than buying a relatively large airline that still requires restructuring.
Over the longer term, they could both organically expand their business focusing on their core markets. The question for such a strategy revolves around at what level of investment and risk both airlines would be willing to make to reach the all important critical mass.
For the Queensland government, their involvement could revolve around underwriting aircraft leases, payments for ensuring minimum frequencies of RPT to regional centres, performance based cash incentives, etc.
The problem with a QANTAS /JETSTAR monopoly would revolve around their marketing departments directing "would be tourists" to locations that best suit their bottom line (i.e holiday packages in South Australia instead of Queensland).
As such, the risk for states like Queensland is more about ensuring the fundamentals for the Queensland economy remain strong, rather than loosing money by owning an airline.
I'd suggest the Queensland government statements about saving jobs is only just part of the story. It could be more about securing the future of the economy.