THE DISTILLERY: Borghetti barrage

Virgin Australia boss John Borghetti is helping to drive Australia's aviation industry into a brave new world. With a 60 per cent stake in Tiger Airways and alliance partner Singapore Airlines taking a 10 per cent stake in Virgin, Borghetti is proving to be a worthy and perhaps superior adversary than even Qantas Airways, his former employer, could have ever imagined.

The fact that the Virgin proposal is dropping at the same time that the Australian Competition and Consumer Commission is considering the 10-year alliance deal between Qantas and Emirates, is almost certainly not a coincidence, but also unlikely to be more troubling than if they'd come separately.

Given the seismic shifts that are occurring in the global industry, it's probably better for both airlines to be getting their own houses in order, while the ACCC gets a good look at all the moving parts before agreeing on a sustainable, and competitive, industry structure.

We start with The Australian's Damon Kitney this morning, because he's got the name of Borghetti's triple play for Virgin. The project code name is ‘aviary'.

"Unlike cages, aviaries allow birds a larger living space where they can fly free from the threats of external predators. And with this deal, the Virgin Australia chief and his Singaporean counterpart Goh Choon Phong are hoping they can grab more spoils from the domestic Australian aviation market while shutting the cage door on the flying kangaroo. Until yesterday, the wings of Borghetti's Virgin Australia were going to be consistently clipped by Qantas' low-cost offshoot Jetstar, unless he took action.”

Fairfax's Elizabeth Knight was particularly taken by the 10 per cent share issue to alliance partner Singapore Airlines.

"On completion Virgin will become a company whose ownership will be dominated by its international alliance partners including Etihad, Singapore, Air New Zealand and Richard Branson, the owner of Virgin Atlantic. Only Virgin's US alliance partner, Delta, will not have an equity interest. But the Tiger and Skywest deals need to be ushered through the competition regulator, on whose desk this deal has only just dropped.”

The Australian Financial Review's Chanticleer columnist Tony Boyd argues that it's actually an advantage for the competition regulator to be considering the Virgin proposal at a time when the Australian aviation market is undergoing a fundamental and all encompassing shift.

"Every aspect of potential structural change in the industry is now sitting on the authorisation table at the Australian Competition and Consumer Commission. This gives ACCC chairman Rod Sims an opportunity to set the framework for a profitable, vibrant and growing domestic aviation industry. Or he can take Australia back to the bad old days when airlines regularly went broke and Qantas happily dominated. Sims can tick off deals by Virgin and Qantas and, in doing so, admit that a country with a population of 23 million cannot avoid duopolies.”

Fortunate timing it may be, but The Australian Financial Review's Matthew Stevens urges readers not to underestimate how important Sims has become to the airline industry in this country.

"It is no exaggeration to say that the Australian Competition and Consumer Commission and its chairman have the shape of the Australian airline industry within their ken. ‘Yes, you could certainly say that is how is feels now,' Sims agreed yesterday. Ahead of yesterday's deal-making, the ACCC chairman was already knee-deep in an assessment of the global partnership designed by Qantas and its latest BFF, Emirates.”

There is another way to look at this, as The Australian's John Durie explains.

"The reality before ACCC boss Rod Sims is that the Australian airline industry has made its move and restructured, making it difficult to do anything about what, on the surface, is clearly yet more consolidation of the world airline industry... The ACCC now has the entire airline industry under consideration with the recent court case against Flight Centre, the Qantas-Emirates deal and ongoing freight cartel cases. The draft report on the Qantas deal is due out before year's end. The Virgin case will be that all the deals make it a better competitor. But in doing so, it is taking out two smaller carriers, so the ACCC needs to look at what sort of competitive threat they posed. The fact Tiger is a basketcase won't help the cause because the ACCC's well aware its parent company has plenty of spare cash.”

"Basketcase” is an apt way of describing Tiger. The Distillery found his way on one occasion to Melbourne Airport with an e-ticket printed from home for a flight to Adelaide departing at 4pm...that ceased to exist somewhere on the drive between the Southeastern suburbs and Tullamarine.

No matter, there was a flight with a matching flight number scheduled for 5:45pm, with no reference that it might have been delayed. That took off at 7:30pm…ish.

The Distillery understands that flying, regardless of the context, is miraculous. But communication and transparency are not Tiger's strong suits.

The Australian's Bryan Frith argues that this is yet more evidence of Borghetti, passed over for the top job at Qantas, outfoxing his former employer.

"While Joyce and Qantas have been preoccupied with their plans to revitalise the airline's struggling international operations through a global aviation partnership with Emirates Airlines, Borghetti has been quietly working on plans to attack Qantas on its home front.

The argument that Borghetti has outsmarted Qantas boss Alan Joyce has merit, but two points need to be made. Firstly, Virgin operates with slightly different conditions placed on it and is a little more nimble to manoeuvre. No doubt, Borghetti has piloted Virgin with great speed touch, but Qantas boss Alan Joyce has made a solid showing for himself as well.

For one, he made international headlines by grounding one of the world's most successful publicly traded airlines. That takes stones kids!

Business Spectator's Stephen Bartholomeusz points out that Qantas mightn't be too perturbed that Virgin has chosen to move now. Joyce has his own issues to deal with.

"It won't be unhappy that Virgin's John Borghetti is going to have his hands full bedding down his two acquisitions and trying to stem the losses within Tiger Airways Australia in particular. With three Air Operator's Certificates to manage and comply with there are going to be some distractions and costs in managing the suddenly more complex group. Moreover, Qantas knows that Borghetti might be a clever and aggressive competitor but he is also a vastly experienced one. Borghetti makes a point of never talking about his market share aspirations – indeed he says, repeatedly, that he has none. For him, he says, it is about profit and improving the returns Virgin can generate for its shareholders, which with today's addition of Singapore Airlines is starting to resemble a club of Qantas competitors.

Fairfax's Malcolm Maiden has a terrific piece on the Australia in the Asian Century white paper that raises the point that the word corruption doesn't seem to appear much in the report.

"As far I can see, it isn't in there at all. Traditional mindsets must be challenged as regional engagement is intensified, the white paper says, adding that Australian businesses that are successful in Asia ‘understand the importance of reciprocity and of differences in negotiating styles and social norms across Asian cultures'. That's about as close as the report gets to the thorny issue of institutionalised corruption in Asia, but it is the elephant in the room – a major focus of the due diligence that is performed on any significant financial link.”

Now, you have to be careful with pieces like this. Commentators can redefine their own set of standards that should apply to a report after it's released and then use those standards to show its apparent inadequacies.

But Maiden is no such cynic. Corruption is a big issue in most emerging economies and will inevitably become an issue as Australia reaches for greater engagement with our less affluent, but growing, neighbours.

The Australian Financial Review's economics editor Alan Mitchell argues that the Asian Century will change Australia irrevocably, not always for the better, and it will always be difficult to predict just how this will happen. Particularly, decades in advance.

And finally, The Australian's Barry Fitzgerald still sees some enduring life in iron ore and coal prices as China and other emerging Asian economies shift from construction to consumption.

Normally, that'd get some serious attention. But it was a busy day yesterday.