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104 Qantas |Annual Report 2007
Details of contingent liabilities, where the probability of future payments is considered remote, are set out below. The Directors are of the opinion that
provisions are not required with respect to these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is
not capable of reliable measurement.
Qantas Group Qantas
2007
$M
2006
$M
2007
$M
2006
$M
Performance guarantees and letters of comfort to support operating lease commitments
and other arrangements entered into with other parties by controlled entities 26.8 24.7 26.8 24.7
Performance guarantees and letters of comfort to support leveraged and operating lease
commitments to other parties on behalf of associates and jointly controlled entities 0.3 0.3 0.3 0.3
General guarantees in the normal course of business 129.1 119.9 129.1 119.9
Contingent liabilities relating to current and threatened litigation 6.1 9.5 6.1 9.3
162.3 154.4 162.3 154.2
Aircraft financing
As part of the financing arrangements for the acquisition of aircraft, the Qantas Group has provided certain guarantees and indemnities to various lenders
and equity participants in leveraged lease transactions. In certain circumstances, including the insolvency of major international banks and other AAA
rated counterparties, the Qantas Group may be required to make payments under these guarantees.
Qantas and certain controlled entities have entered into asset value underwriting arrangements with lenders under certain aircraft secured financings.
These arrangements protect the value of the aircraft security to the lenders to a pre-determined level. This is reflected by the balance of aircraft security
deposits held with certain financial institutions.
The Qantas Group has provided standard tax indemnities to the equity investors in certain leveraged leases. The indemnities effectively guarantee the
after-tax rate of return of the investors and the Qantas Group may be subject to additional financing costs on future lease payments if certain assumptions
made at the time of entering the transactions, including assumptions as to the rate of income tax, subsequently become invalid.
Freight investigation
Qantas previously disclosed that it had been co-operating with regulators in the USA, Europe, Australia, New Zealand and other jurisdictions in their
investigation into alleged price fixing in the air cargo market. These investigations revealed that the practice adopted by Qantas Freight and the cargo
industry generally to fix and impose fuel surcharges was likely to have breached relevant competition laws. Qantas continues to co-operate fully with all
regulators and will be providing them with all relevant information to permit them to undertake their investigations.
On 1 August 2007, the US Department of Justice announced that British Airways and Korean Air had agreed to plead guilty and each pay US$300 million
criminal fines for their roles in conspiracies to fix prices of passenger and cargo flights. British Airways subsequently announced that US$200 million of its
fine related to cargo.
Following these settlements, Qantas has provided $47.2 million (US$40 million) for a potential settlement in that jurisdiction. Qantas is continuing to
co-operate with regulators in other jurisdictions including Australia, Europe and New Zealand. However, no provision has been raised for possible fines
in these other jurisdictions or for possible liability to third parties under class actions, as they are not able to be reliably estimated. Qantas expects these
amounts will be able to be estimated over the next two years.
Travel agent litigation
A number of travel agents have commenced proceedings against IATA and Qantas and other airlines as a result of travel agents not being paid
commission on fuel surcharges. The claim amount has not yet been determined and Qantas is investigating the claim.
Tax investigation
The New Zealand Inland Revenue Department has issued the Qantas Group a Notice of Proposed Adjustment which seeks to disallow interest deductions
relating to the acquisition of Qantas’ former interest in Air New Zealand. Qantas has lodged an objection to the Adjustment and notes that any resultant
tax liability would be funded via unbooked available tax losses.
22. Contingent Liabilities
Notes to the Financial Statements
for the year ended 30 June 2007