One suspects Ahmed Fahour and a number of people in Canberra, particularly on the Coalition side, would be watching the progress of the UK’s proposed largest privatisation – and one of its more controversial – since the Thatcher era.
Overnight Goldman Sachs and UBS were appointed joint global co-ordinators and, with Barclays and Bank of America Merrill Lynch, joint book-runners for the privatisation and float of the near 500-year-old Royal Mail.
The float, if it proceeds, is expected to raise something approaching $A5 billion and is expected to presage a new wave of privatisations by the cash-strapped UK government. An initial public offering is the government’s preferred option but it has reserved the right to examine other options, including selling an initial stake to a strategic investor.
Royal Mail has one of the largest parcel and letter delivery networks in Europe and last year generated earnings of about $A630 million.
That makes it significantly larger than Australia Post, which lifted earnings 16.6 per cent to $281 million last year.
Australia Post has generally been regarded as too politically sensitive a brand to privatise, despite the reality that most of its operations – and all of its profits – are in competitive commercial markets.
Its regulated mail businesses lost $148 million, which isn’t surprising given the continuing displacement of 'snail mail' by internet based services, while its non-regulated parcel and retail businesses earned $546 million.
Under Fahour, the former senior National Australia Bank executive, Australia Post has been expanding aggressively and innovating.
Fahour has announced a $2 billion investment program to transform the group’s logistics network and create a digital platform. He bought Qantas out of the StarTrack express freight joint venture, has rolled out a network of 24-7 parcel lockers for after-hours collections and only this week started trialing its digital mailbox service. There is also significant potential for Australia Post to expand its existing foothold (largely as a distributor of third party products) in financial services.
As Australia Post pushes further into competitive markets, and as its legacy letter delivery service and the community service obligation attached to it continue to diminish in scale, the argument for privatising its non-regulated services and switching from an internal cross-subsidy to cover its losses to an explicit on-budget subsidy will strengthen.
Both major parties have the privatisation of Medibank Private, which also competes directly against private health insurers, on their agendas and its sale will almost certainly occur in the next term of government. The discussion about its privatisation hasn’t generated much controversy.
An Australia Post privatisation would be a more contentious proposal. It is a heritage brand with a history that, while not as lengthy as the Royal Mail’s, does date back more than 200 years and for that or some other reason its sale has been seen as too sensitive and difficult a topic to raise even though the service it is most identified with is rapidly becoming an expensive anachronism in an increasingly digital world.
If the Royal Mail float occurs and is successful and Australia’s fiscal position were to deteriorate further, however, it would be difficult for a government to resist the very large lump of cash that would be released by the float of Australia Post’s unregulated businesses.