Qatar deal for Virgin is all about Bain Capital’s bottom line

Qatar has delivered an effective rebuke to last year’s federal government rejection of its requested increased flights. Picture: AFP

Bain Capital is the big winner from Qatar’s proposed investment in Virgin, which boosted the exit price from its four-year investment, but the claimed consumer benefits through increased competition are at best marginal.

Qatar has delivered an effective rebuke to last year’s federal government rejection of its requested increased flights, and will be a beneficiary if the proposed wet lease deal allows it a backdoor increase in flights to Australia.

The wet lease is part of the package from Qatar being considered in Canberra, and just how the equity injection is affected by any changes to the lease deal is unclear, with those in the know declining comment.

Qatar needs regulatory clearance for increased flights to Australia, which ranks as arguably the most profitable long haul route in global aviation.

Once Canberra is sorted it will also have plenty of work to do because Virgin is being run for the proposed float next year, with costs cut to the bone and with chief Jayne Hrdlicka going, awaiting a new chief. Her replacement will be Qatar’s choice if it gets clearance.

Hrdlicka reportedly is close to Qatar, which explains why she stayed until the deal was done, no doubt complete with a bonus ­payment.

Qantas among other inter­national carriers will protest against the wet lease deals on the grounds that they undermine Australian operating licences, unless there is a sunset clause of a couple years as with the Qantas-Finnair deal.

A wet lease allows Qatar to fly in and out of Australia with their own crew and services which undermines the rational for international licences in the complex web of international aviation regulation. A dry lease would mean Virgin flies Qatar planes with its own staff and services, boosting Australian jobs. This is more expensive, which explains Bain’s enthusiasm for the concept as it gears up for a float and a potential Qatar recruit to run Virgin.

The Qatar purchase of a stake in Virgin mirrors that by Etihad in 2012, when it was joined in a crowded share register by Air New Zealand, Singapore and ­subsequent Chinese airline ­investments.

The competition spin is just that, aimed at trying to get approval for the investment and the wet lease with little evidence of anything other than a financial bonanza for Bain, which has already recouped its original $700m 2020 equity investment.

Granted, a Qatar investment boosts Virgin’s long-term sustainability but just how it boosts competition is unclear in an international market where 52 carriers are already landing in Australia.

The fact Qantas is waving the red flag of course also adds to the competition claims.

Bain injected $700m in equity to buy Virgin out of administration in 2020 and assumed $3.5bn in liabilities.

Qatar will also be hoping the appeal lodged by the Australian women strip searched at Qatar’s Hamad International Airport in October 2020 will not come ­ before Canberra’s regulatory ­decision.

The Federal Court rejected their case against Qatar Airways earlier this year on the grounds the search was not conducted on the aircraft.

Morrow merger

Former NBN (2014-18) and Vodafone Australia (2012-14) boss Bill Morrow is still on the tools, now trying a last-ditch attempt to save the US satellite industry for owner TPG through the merger of its ­DirecTV and Echo Star’s Dish.

DirecTV boss Morrow reportedly said the merger would position the satellite companies to extract good deals for the content providers like Disney who stream their product directly without a middle man.

TPG paid $US7.6bn to buy AT&T’s 70 per cent stake in DirecTV and acquired Dish for $US1 in equity and assuming $US9.8bn in debt. In Australia, Foxtel is streaming as well as providing its own content platform.

Dreams and reality

The contrast could not be clearer between this week’s withdrawal from the hydrogen market by Origin and the bullish talk that will come from next week’s Global Nature Positive Summit in ­Sydney.

Origin’s withdrawal from the proposed hydrogen hub in Newcastle is a big blow to joint venture partner Orica, given the ready market for hydrogen from Orica’s albeit ageing Kooragang Island ammonium plant.

On the one site was feedstock and a ready market, but even before a looming government funding deal, Origin has withdrawn from the project and all hydrogen development.

Project development firm Cyan Ventures will next week release a study showing Australia could create $298bn in value by 2035 through investment in nature-positive projects but $70bn in annual capital expenditure is needed to fund the projects.

Its report shows where the opportunities are across food and agriculture, better land use and energy with the potential to create 1.6 million direct jobs.

Environment Minister Tanya Plibersek will address the conference and hopefully unveil some actual decisions, not just more talk.

One initiative is to back more First Nations farming initiatives to tap their expertise in sustainable farming.

Chris Andrew, an enterprise adviser to the Waluwin Foundation, Paul Girrawah House, and Bruce Chapman from ANU push the concept of revenue-contingent loans which operate like HECS debt so you only pay back the bank when you earn sufficient money.

This prevents land overuse and promotes more sustainable farming. It was backed by Wendy Craik in her review this year of the federal-backed Regional Investment Corporation (the Barnaby Bank).

Government backing would offset bank reluctance to fund so-called mother earth loans but federal commitments so far have matched the lack of bank interest in promoting a scheme to get more First Nations expertise on farms.

Projects like the one being led by Peter Bednell at the Esperance Tjaltjraak Native Title Aboriginal Corporation, representing the Wudjari People, the Odonata Foundation and carbon developer Carbon Neutral are restoring a wheat and sheep property into a biodiversity-rich area based around planting 4.5 million trees on the 3955ha property.

The project has helped deliver freehold land title to the local First Nation’s people, who are running the project on their land, backed by French beauty group L’Oreal, international reforestation group OneTree Planted and Australia-based sustainable hat producer Will + Bear.

Supermarket study

The ACCC’s annual budget is around $388m, so the $30m in extra funding to chase the big supermarkets certainly helps.

Fact is the regulator’s interim report on the retailers was not too supportive of the present anti-supermarket narrative: food and drink prices have risen 23 per cent in the last five years, the CPI ex this sector was up 21.5 per cent, and according to the ACCC food price inflation in Australia is less than most OECD countries.

The study will focus on 14 products with widely differing supply chains, which will provide a more nuanced picture than the price gouging claims promoted by some.

In most areas a handful of big multinational processors control supply. In beef and lamb 75 per cent of supply is exported, and in pork, processed products like ham and bacon use imported product.

Packaged goods are dominated by multinationals, as shown by the drastic price swings in detergent prices.

Fruit and vegetables is a clear case of supermarket domination, when you consider Coles, Woolworths and Aldi handle 78 per cent of sales and most products have short shelf lives with minimal branding.

Big box retailing also has its nuances, as shown by the fact Metcash has kept the Total Tools brand for its tools in the $9bn market and Bunnings has created Toolkit Depot.

It’s a highly competitive market, and as in other products, some high-end suppliers tend to avoid the mass market retailers, preferring specialists.

Undeterred, Bunnings is spreading its brand from pet food into auto parts and solar, among other products.

The weak home building market and weak economy have slowed Bunning’s growth in the last 12 months after its Covid bounce.