Tidy accounts cost Jetconnect

MATT O'SULLIVAN
Last updated 07:42 07/01/2014

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Qantas received one-off payments totalling NZ$144 million from its New Zealand offshoot, Jetconnect, last year in what the airline says was an effort to tidy up the way it accounts for the subsidiary.

Annual accounts filed in New Zealand for Jetconnect, which operates trans-Tasman flights for Qantas, show it returned $98m in capital in March last year to the Australian airline group, as well as paying it a dividend of $58m.

It reduced Jetconnect's retained earnings to less than $4m. It is the first time Jetconnect has paid dividends to its parent since November 2010.

Qantas emphasised the capital shift was an internal transaction that did not affect its financial position. It said the transaction was done to ''streamline the way we account for Jetconnect''.

The airline also said it was unrelated to the refinancing of loans in April last year, which occurred just weeks after the capital was moved across the Tasman to the group's balance sheet.

The trans-Tasman market has become a two-way fight between the Qantas-Emirates alliance and that of Virgin and its largest shareholder, Air New Zealand. The two airline alliance groups carry about 97 per cent of the passenger traffic between Australia and New Zealand. Profits down

Qantas's wholly-owned New Zealand subsidiary reported a $8.8m profit for the year to June, down from $10.6m in 2011-12. Jetconnect's labour bill dropped by $2m to $37m.

Accounts for Virgin's New Zealand operations show its operating expenses rose 3 per cent to $293m for the year to June despite staff costs falling slightly.

The airline said the increase in expenses reflected its efforts to reshape its operations as part of its long-term ''transformation plan''.

Virgin has 10 Boeing 737-800 aircraft and a 500-strong workforce in New Zealand. Neither Virgin nor Qantas break out the performance of their New Zealand subsidiaries when they report their group results every six months.

A lower wages bill is the main benefit for the airlines of basing their trans-Tasman flying operations in New Zealand.

Qantas has long maintained the accounts do not represent the true performance of Jetconnect, which crews and operates Qantas-branded aircraft on trans-Tasman flights on behalf of the parent.

Instead, they reflect the costs Jetconnect charges back to the Qantas Group plus an operating margin.

The subsidiary has made contingencies in its accounts for potential penalties by the New Zealand tax office. The office claims the companies used optional convertible notes to obtain tax deductions when there was no expense.

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In Qantas's case, the deductions funded its interest in Air New Zealand last decade.

Jetconnect has been a point of contention among unions because it pays its pilots and cabin crew ''New Zealand rates of pay'', which are substantially lower than those for their Australian-based counterparts.

- AFR

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