Qantas Bailout Debate - Case Study Example

Student’s Name Professor’s Name Course Date Qantas Bailout debate Introduction Qantas Airline went into financial instability and later indicated the reasons behind it to the government. The management engaged in intensive with government to ascertain the uneven playing field as the sole cause of its mysteries. This paper presents an argument for the Qantas airline as well as the government in relation to the theories of the role of state in intervention. Qantas Airline Debate Side: First, the company’s management argued that Qantas was not Holden signifying that despite it helping to create billions of dollars of taxpayers’ money over a significant number of years within the car industry it has continued to operate without any form of taxpayer subsidies or even any form of tax concessions (Joyce 1-2). The company has never enjoyed any form of preferential treatment on any form of airport access or government based travel. It has in fact continued to compete in each of its daily operations in both the Australian and the international markets while at the behest of the Qantas Sale Act, which prevented it from accessing any form of foreign capital (Joyce 1-2). Secondly, the management team argued that it was never focused on seeking for protection from the aspect of free market mechanism. In fact, the team argued that the firm continued to suffer at the helm of absent free and fair market, which promoted the 2012 restructure of the Virgin Australia. The restructure of this airline was followed by intensive saturation of the Australian market with money resources in order to weaken Qantas operations. Third, the management of Qantas argued that it was never focused on seeking for any form of anti-competitive bail out from the government rather it was bringing into the limelight the fact that legislation and regulatory decisions reached at due to the bogus Qantas Sale Act, the Air Navigation Act as well as the Foreign Investment Review Board had resulted to an uneven and unfair operational environment (Joyce 2). Following this development, the airline argues that it has resulted to requesting the Australian government to make timely interventions and thus, allow easier transformation of the business. Fourth, the management argued that it was not in any way reluctant to engage in making challenging decisions in order to succeed but the efforts were downtrodden when Virgin adopted the new restructure hence allowing it access substantial levels of cash resources from its foreign investors and owners in order to cover up for its loss-making approach (Joyce 3). In its efforts to succeed despite the uneven and unfair operations of Virgin, Qantas management ascertains that it engaged in cutting down its unit costs by at least 19% but hardly managed to engage in any form of heavy maintenance activities. In essence, the firm reduced its loss-making global routes, eliminated its current staff personnel and even went ahead to develop newer gateway partnerships in order to facilitate the maintenance of its’ global market access (Joyce 3). Subsequently, the airline focused on improving its fleet investment so that now it enjoys a substantial amount of modernised as well as fuel-efficient aircrafts with minimal aircraft age since the privatisation process. Notably, the senior executives and the airline board embarked on a decision to engage in partial sale of some of the company’s fundamental assets as a section of its recently formulated strategic review process. Fifth, it has been argued that the airline has never made a mistake in putting a substantial amount of its investment in the Asian markets (Joyce 3). In fact, the firm’s capacity to attract a significant level of upfront capital from such foreign companies like Mitsubishi and ShunTak Holdings as well as the current intellectual property it enjoys put it at a fair position to expand operations through foreign funds (Joyce 3). The Government Response The Australian government reacted to the above-discussed arguments in a rather unsentimental manner and thus, it has ruled out providing any form of financial assistance to the company. In fact, despite the government earlier postulating that it would offer assistance, current indications ascertain that it has ruled out any form of debt guarantee to the airline. However, it has taken a responsibility to push the senate to at least provide support to the airline through creation of a level and even playing field through amendment to the 1992 Qantas Sale Act in order to allow it access foreign capital and ownership statuses. Applying Theories of the Roles of the State to Determine the Viability of Government Stance In ascertaining the issues related to the bailout challenges at hand, it is important to note that the immediate role of the state is closely interlinked with the social organisations under which the state is supposedly expected to exist from. For instance, under the Libertarian view, any form of state intervention is considered to be morally wrong except in certain distinctive scenarios that might include; theft, fraud as well as enforcement of contracts (Tătulescu 74). The view posits that by a state engaging in any form of intervention then it is unjustified and is only playing the role of a night-watchman hence does not facilitate any form of legitimate distributional roles only that it is focused on correction past wrongs (Tătulescu 75-76). Thus, the Australian government’s decision not to offer any form of financial assistance is considered to be morally upright except off course in cases where the government opts to push the senate to review and amend the 1992 Qantas Sale Act in order to cut down on any form of illegal enforcement of contracts that applies double standard on international based firms like Virgin while limiting access to foreign capital by the local firms (Tătulescu 75-76). Under the liberal views, the utilitarian goal rests with the distribution of goods in order to allow for the maximisation of total welfare. In essence, in this case, goods might be perceived to include; goods and services, rights, freedoms and also, political power (Tătulescu 75-76). Maximising of these items involves their efficient generation, allocation and distribution in accordance with the principles of equity (Tătulescu 75-76). Notwithstanding, the principle of justice requires the distribution of such economic items, opportunities and positions in a more transparent and fair manner. Following this line of view, it can ascertained that the Australian government failed to provide even playing field for its local airline while allowing substantial freedom and opportunities for other airlines like Virgin (Tătulescu 75-76). Under the neo-classical perspective, Pareto efficiency is said to be existence in general equilibrium conditions. The assumptions that indicate this assumption include; perfect competition, absence of public goods as well as externalities as well perfect information. It also relies on such assumption that there should be availability of immense levels of taxes as well as transfers to the government in order to affect a general equilibrium system (Tătulescu 77-78). Thus, it means that the approach advocates for government intervention in underlying situations in order to restore the existing general equilibrium hence any financial assistance offered to Qantas will restore this balance. Markedly, the view also provides a limited role for State intervention so that it can only deploy a lump sum amount of taxes and transfers. The argument for this line of decision ascertains that the lump sum amount of taxes will only have an income effect as opposed to the substitution effect (Tătulescu 78). Thus, it means that the Australian was wrong to deny financial assistance and in fact, it should have gone ahead to offer lump sum taxes and transfers as a way of promoting a redistributive activity, which is solely focused on the principle of rectification. In the event that the redistributive activity are considered illegitimate and as taxation is considered to be a form of theft as it extracts cash resource from citizens while it would have been allocated differently, and also, a form of slavery as people are forced to work for the government then the bail out to Qantas Airline will be necessary at all costs since it also pay taxes (Tătulescu 79). A market, such as the one Qantas Airlines operates in, is normally faced with a greater number of failures that might include; the immediate presence of externalities, oligopolistic and monopolistic structures as well as distributional inequalities. Externalities are considered to be certain forms of interdependencies that operate outside the underlying and existing market platforms or price structures that result to a distinctive discrepancy between the private and social forms of benefits. In the event of distributional inequalities, a state is expected to engage in activities focused on redistributing the inequalities in form of subsidies (Tătulescu 75-76). The approach is attained by imposing taxes only on scenarios where social cost is deemed to be greater than an underlying social benefit above a private benefit. Conclusion To sum up the discussion above, it can be ascertained that under different views the decision by the Australian government to not offer any form of financial assistance to the company was both morally wrong and upright according to the Libertarian approach while the neo-classical approach calls for immediate intervention of the government in order to restore equilibrium of the entire marketing system. Works Cited Joyce, A. Some myths in the level playing field debate. The Australian. (2013). Retrieved from http://d3n8a8pro7vhmx.cloudfront.net/fairgo4qantas/pages/30/attachments/original/1386885123/The_Australian_-_Op-Ed_by_Alan_Joyce__CEO_Qantas.pdf?1386885123 Tătulescu, A. An Overview of the main theories regarding the Role of the State. Economic Insights – Trends and Challenge, vol. II, no.4. (2013).p.73-82 Read More