ABC finds more loopholes in the APA Qantas deal

In an interview yesterday, ABC’s Business Editor Peter Ryan spoke with Janet Whiting a partner and commercial law specialist with Corrs Chambers Westgarth.

Eleanor Hall introduced the interview, saying, “With the proposed takeover of Qantas still far from a done deal, more questions are being asked today about the agreement struck between the Federal Government and the private equity consortium bidding on the airline.”

“Both the Prime Minister and the Treasurer say the undertakings agreed to by Airline Partners Australia are watertight and legally binding.”

“But lawyers who’ve been scrutinising the paperwork say there are loopholes in the fine print that would relieve Airline Partners of its undertakings if Qantas were to be sold to a third party.”

JANET WHITING: I think the deed of undertaking that’s been entered into has got a number of legal loopholes in it, in that it certainly binds the parties to the deed but if Airline Partners is successful in taking over Qantas, then the company will be privatised.

If Airline Partners then wants to dispose of their interest in Qantas to a third party, so in other words, on-sell it won’t bind the third party.

PETER RYAN: So this agreement that’s been struck between the federal government and Airline Partners Australia only applies to Airline Partners Australia assuming they are the successful bidders for Qantas?

JANET WHITING: That’s right. When you look at the deed of undertaking in isolation, it is watertight but only probably for as long as the parties want it to be watertight.

PETER RYAN: So what type of legal machinations would they have to go through if they sold all or part of Qantas to new owners?

JANET WHITING: If they were going to sell to a third party, and the third party was a foreign company or foreign investors, then you sort of go back to square one and you’ve got to look at the normal further approvals and hoops that would be needed to go through.

PETER RYAN: So there still would have to be a process with the foreign investment review board if Airline Partners Australia sold to a third party?

JANET WHITING: Yes, that’s right. But if you’re just looking at the deed of undertaking, and Airline Partners sold to Australian investors or an Australian company, then they wouldn’t need to deal with the third hurdles so then what would happen is you’d need to look at the Qantas sale act, and as to whether or not that applied and had a knock on effect.

And again, you then need to look at how the Qantas sale act actually applies to the company, rather than the business itself.

PETER RYAN: So do you believe there are enough loopholes in the fine print to change the meaning of this agreement?

JANET WHITING: I don’t think this agreement even pretends that it’s going to bind successive owners.

It’s only seeking to bind these owners. If it really wanted to bind successive owners, one of the things… an undertaking that could be given by Airline Partners is that a precondition to a sale of any of their interests, or a majority of their interests would be that the purchaser enter into a deed of undertaking in similar terms.

Now that isn’t in this agreement and it’s not an unusual clause, so one assumes the parties have addressed it.

PETER RYAN: But an assumption is not necessarily part of making an agreement. Why would the Federal Government have left that out of it?

JANET WHITING: Well, I suppose Peter, to be realistic; it also has be seen in a commercial context, and what we have here is a company that’s owned by a whole range of shareholders.

It isn’t owned by the government any longer. Back in the early 90s when they decided to sell it, when it got listed, you then have to give a whole lot of power to the shareholders because they’re the present owners.

And to now seek to say, well despite all that, we’re going to say that at no time in the future can you deal with this business in certain ways, I think that devalues the asset itself.

I would imagine that Airline Partners had they been asked to provide such an undertaking to bind successive owners would have baulked at the idea.

PETER RYAN: So the real question is how long is this agreement enforceable for?

JANET WHITING: Yes, and that’s quite clearly set out. The agreement only seeks to be in existence for the period that APA and it’s related company has a controlling interest.

ELEANOR HALL: Commercial law specialist Janet Whiting speaking with our Business Editor Peter Ryan.

Report by The Mole from the ABC