Sydney:Qantas Airways Ltd, Australia’s biggest airline, will cut 5,000 jobs and defer new jets as chief executive officer Alan Joyce steps up the case for government assistance after a A$252 million ($226 million) loss.

Qantas will sell or delay delivery of more than 50 planes from Airbus Group NV and Boeing Co., eliminate one in seven employees by 2017, and freeze pay until the company returns to profit, the Sydney-based carrier said in a statement on Thursday. The stock fell the most in almost three months.

Joyce argues the 93-year-old airline can’t compete in a domestic fare war with Virgin Australia Holdings Ltd., whose three biggest shareholders are state-controlled foreign airlines that he says want to weaken Qantas’s international business. The government may assist by lifting a cap on foreign ownership of Qantas and by offering a debt guarantee after the company was stripped of its investment-grade ratings.

“The government guaranteeing Qantas financially is the most sensitive question now in terms of market valuation and the share price is unlikely to rise until this is announced," said Peter Esho, chief market analyst at Invast Financial Services Pty. in Sydney. Qantas is shrinking as a business and its international success into Asia is still many years away, if ever.

Net loss

Qantas shares fell 7.9% to A$1.17 as of 11:11am in Sydney, extending the declines in the past year to 25%. That lagged a 7.6% gain for the benchmark S&P/ASX 200 index in the same period.

The cost of protecting Qantas debt against non-payment through credit-default swaps increased to 235 basis points as of 11:05am in Sydney, according to Australia and New Zealand Banking Group Ltd prices.

The company recorded a loss before taxes and one-time items of A$252 million in the six months ended 31 December. That compares with the average loss of A$277.5 million from four analyst estimates compiled by Bloomberg. The net loss was A$235 million for the period.

“Capital spending on planes and other equipment will be cut to A$800 million in each of the next two fiscal years," Qantas said. The airline will defer orders for eight A380 superjumbos, and three Boeing Dreamliners for its Jetstar unit. Some aircraft will be retired ahead of schedule.

“The airline will also raise A$112 million selling its terminal lease at Brisbane airport," it said on its website.

Smallest workforce

“The job cuts will leave Qantas with its smallest workforce in at least eight years," according to data compiled by Bloomberg.

“It’s clear that the market Qantas operates in has changed, with structural economic shifts exacerbated by an uneven playing field in Australian aviation policy," Joyce said in Thursday’s statement. “We have met these challenges head on."

Prime Minister Tony Abbott’s government has said it wants to level the playing field for the national carrier and introduce legislation to change the Qantas Sale Act, which caps foreign ownership of the airline at 49% and stops it moving some operations offshore. Abbott may struggle to get any amendments through Australia’s Senate, where his coalition doesn’t hold a majority.

‘House in order’

The government, which has called on Qantas to get its house in order, has indicated it may also guarantee the airline’s debt.

“Qantas is making as blatant a case as they can to the government that they need some sort of help," Jeremy Hook, who helps manage about A$350 million as investment director of TMS Capital Pty. in Sydney, said by phone before today’s results. “Who’d want to invest in them? I don’t know a lot of people who would."

Joyce, 47, the Irish-born son of a cleaner and cigarette factory worker, has struggled to restore the fortunes of the Flying Kangaroo since taking over the top job during the global financial crisis in November 2008.

He’s taken on trade unions by grounding Qantas’s global fleet; seen the carrier’s first A380 put out of action for 18 months after it suffered a mid-air engine explosion over Indonesia; and faced competition from Asian and Middle Eastern carriers on international routes.

Emirates deal

“A deal struck with Emirates in 2012 helped pare long-haul losses last year, as Joyce sought to make the international unit profitable by the year ending June 2015. That won’t now happen," he said on Thursday.

At home, he’s fighting Virgin Australia chief executive officer John Borghetti, who’s added business-class seats, renovated lounges, taken control of a discount carrier and a rural airline, and set up a frequent-flier programme in an attempt to break Qantas’s 65% share of Australia’s domestic market.

Shareholders Air New Zealand Ltd, Singapore Airlines Ltd, and Etihad Airways PJSC have supported Borghetti’s ambitions with cash, buying into a stock sale that will reduce Virgin’s net debt by about A$350 million, according to a company presentation.

“The purpose of this sovereign foreign capital is to fund Virgin Australia’s strategy in the domestic market and weaken Qantas so that its international operations are less competitive," Qantas said in a regulatory statement 5 December.

Joyce pledged at the time to cut at least 1,000 jobs from Qantas’s 33,265 workforce, trim A$2 billion in costs, review capital spending and look at ways to change the company’s structure to release more value for shareholders.

Yields drop

First-half revenue at Qantas slipped 4.1% to A$7.9 billion and yield, a measure of ticket prices, dropped 3% to 10.10 Australian cents, beneath the previous decade low of 10.28 cents in 2009, the company said on Thursday.

Earnings before interest, tax and one-time items in the Qantas domestic business fell 74% to A$57 million from A$218 million a year earlier, while the loss on Qantas’s international routes deepened to A$262 million from a A$91 million loss previously.

Ebit at the Loyalty business which includes the carrier’s frequent-flier programme rose 7% to A$146 million, while budget carrier Jetstar slid to a A$16 million loss from a A$128 million profit. The discount airline group will freeze some expansion in Asia.

Industrial action

The value of Qantas’s net debt and liabilities on aircraft leases climbed to A$5.33 billion, from A$4.85 billion a year earlier.

Joyce has fought with unions representing engineers, ground staff and pilots who opposed his plans to reduce local maintenance bases and funnel investment into subsidiaries based outside Australia.

Industrial action came to a head when Joyce grounded Qantas’s global fleet in October, 2011 in an attempt to force a resolution to the disputes. Qantas needs to have more flexible work practices and be cost competitive, Joyce told an August, 2011 investor call.

Qantas’s costs are too high, David Fraser, an analyst at BBY Ltd, wrote in a 17 January note to clients. Non-fuel operating costs on Qantas’s domestic network are about 36% higher than those on Virgin’s competing flights, he wrote. Bloomberg