Profit, safety and share prices

by 20 Feb 2007

By Craig Donaldson

Much has been said of Airline Partners Australia’s (APA) takeover bid of Qantas. It’s a sign of the times where investment banks and private equity firms are gobbling up large profitable companies to extract even more profit for their overseas coffers.

However, caution needs to be exercised with a takeover of Qantas. Unlike a buy-out in most other industries, where jobs can be lost without overly drastic consequences, safety is of paramount importance and lives are in the balance when it comes to airlines.

There have been many murmurings of corners being cut and offshoring of maintenance and safety processes within Qantas already. As the story on the left details, a survey of Australian Licensed Aircraft Engineers at Qantas found that more than three-quarters have been placed under commercial or management pressure not to work strictly to maintenance procedures over the past 12 months.

I recently met a pilot who has been with Qantas for more than a decade. He expressed similar concerns with safety at the airline and told me about the ‘Swiss cheese’ effect. Like holes in layers of Swiss cheese aligning, multiple errors and system flaws must come together in order to reach the critical level at which accidents occur. The pilot said there were more and more indications that the layers of Swiss cheese were aligning and many pilots had similar concerns about safety levels as a result of corners being cut – and this is before a takeover of the airline which is for the sake of the dollar, not conscience.

HR has often been criticised for not understanding the business of which it is a part. Similarly, it would be wise for the Macquarie/Texas Pacific (APA) consortium to understand the business of Qantas and the importance of maintenance and safety. The aforementioned pilot said any airline is only one crash away from financial ruin, and HR at Qantas is in a pivotal position between the executive and the frontline in ensuring the safety balance is maintained –something that will also reflect positively on Qantas’ share price.