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Jetconnect payments to Qantas tidying up

MATT O'SULLIVAN
Last updated 05:00 08/01/2014

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Qantas received one-off payments totalling $156 million from its New Zealand offshoot 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 was 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 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 Qantas-Emirates and Virgin and its largest shareholder, Air New Zealand. Between them, the two airline alliance groups carry about 97 per cent of passenger traffic between Australia and New Zealand.

Jetconnect reported a $8.8m profit for the year to June, compared with $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.

Virgin and Qantas do not 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 that 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 Inland Revenue Department which has been investigating a number of Australian companies for several years. The Inland Revenue claims the companies used optional convertible notes to obtain tax deductions when there was no expense.

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In Qantas' case, the deductions were used to fund its interest in Air New Zealand.

Jetconnect operates 95 per cent of Qantas' flights between Australia and New Zealand, employing about 570 staff.

- BusinessDay

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