Qantas needs all the debt it can get.
News of a new debt facility of $400 million for Qantas should send investors zipping up their wallets. Qantas Group is Australia’s largest domestic and international airline.
Back in 2000 the balance sheet of Qantas comprised:
› $2.8 billion of shareholders equity
› $3.1 billion of bank debt
For financial year 2000, Qantas reported earnings of $517 million giving an ROE of 17.45%.
But more recently, Qantas recorded a normalised loss of $16.3 million. The 2012 loss follows the $317 million profit of 2011, the $175.2 million profit of 2010 and the $164.6 million profit of 2009. All of these were lower than what the business reported its earnings to be in 2000 – eleven years ago.
The company however has seen its debt balloon in that time to $6.5 billion and shareholders equity is at $5.9 billion. Meanwhile any simple bank account, with an additional $12.4 billion of capital injected, would be earning more than it did a dozen years ago.
Owners have put in another $3 billion of equity on top of the $2.8 billion injected by 2000. But despite the life support, the company still lost $16 million in 2012.
Even with the very best management running the show and the most generous bankers, there’s no escaping these economics.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Andrew Legget
:
In my mythical imaginative world i can picture the shell of a giant Qantas jumbo jet forming part of “The Temple of Lost Value”, perhaps just after the infamous “bottomless pit of capital” (it doesn’t matter how much money you throw down there, you never see it again).
What better sign of a company to avoid than one that is earning significantly less than it did 10 years ago. What better example of the concept of time being the friend to a good business and an enemy of a bad one.
Roger Montgomery
:
Indeed! Perhaps a printing company might match it in percentages of not absolute terms.
Daviid
:
In relation to Qantas the worst is now behind them, they will never fail due to gov’t backing. They have taken many hard hits to transform there business to reduce costs. They will continue to improve in the next couple of years you also fail to mention current assets which have a large cash component.
Cheers just my view.
Roger Montgomery
:
Hi Daviid,
What does that government backing look like (apart from preferential custom)?