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By Robert Fenner and Jacob Greber - Oct 30, 2011 5:42 AM GMT+0700

Qantas Airways Ltd. grounded its fleet after sporadic strikes by unions, paving the way for Australian aviation’s biggest disruption in two decades.

The grounding of international and domestic operations will keep 108 planes that fly from 22 airports out of the air and cost the carrier A$20 million ($21 million) a day, Chief Executive Officer Alan Joyce told reporters in Sydney yesterday.

“Sixty-eight thousand Australians and the tourism industry have been grossly inconvenienced by this high-handed ambush,” Assistant Treasurer Bill Shorten told the Australian Broadcasting Corp. today. “There is no case for this radical overreaction. In industrial disputes, sure, employers have views and unions have views, but what I don’t support though is the no-warning nature of what’s happened.”

The suspension adds to the 600 flights already canceled since union walkouts disrupted traveling plans for 70,000 passengers. Among those without flights are 17 heads of state at a conference in Perth. Joyce, 45, calling the unions’ campaign for higher pay and job-security clauses “impossible demands,” said he’s ready to halt operations until workers relent. An overnight hearing by the nation’s labor tribunal, which ended without resolution after three hours, will resume at 2 p.m. today in Melbourne.

Close Down

“If this action continues as the unions have promised, we will have no choice but to close down Qantas part by part,” Joyce said. “The airline will be grounded as long as it takes to reach a conclusion.”

Workers at Qantas from three labor unions will be locked out from 8 p.m. Oct. 31 “until further notice,” Joyce said.

Qantas, Australia’s largest airline, has lost A$68 million this year from the conflict with unions representing long-haul pilots, engineers and baggage handlers, as strikes led to flight cancellations. The stock has fallen 39 percent in 2011.

Based on its August traffic figures, the Sydney-based carrier flew more than 63,000 passengers on average every day.

Unions have stepped up action since Qantas announced plans in August to eliminate 1,000 jobs, reduce routes and establish new ventures in Southeast Asia and Japan.

Qantas engineers want to ensure maintenance on new aircraft such as Airbus SAS A380s and Boeing Co. 787s is done in Australia, as older planes like 767s are retired. The baggage handlers are seeking to stem the use of contract labor, while long-haul pilots want to be under the same employment conditions whether they fly for the Qantas-branded unit or Jetstar.

‘Pre-Meditated’

The grounding is “pre-meditated, unnecessary and grossly irresponsible,” the Australian & International Pilots Association said in a statement.

The government applied to the labor regulator, Fair Work Australia, to terminate all strikes at Qantas. The tribunal, after a three-hour meeting that ran into early Sunday, didn’t make a decision. The hearing will resume today to hear additional evidence from the government, Qantas and all three unions, said Justice Geoffrey Giudice.

If Fair Work orders a termination, Qantas will submit a “safety case” to Australia’s aviation regulator to resume operations, Joyce told Sky television in an interview today. Once approved by the regulator, Qantas can begin flying within six hours, he said.

The disruption comes amid the Commonwealth Heads of Government Meeting in Perth, a summit with leaders from 54 nations including Canada, Australia and the U.K., many of which share Queen Elizabeth II as their head of state. Seventeen leaders are searching for alternative travel arrangements, the group said.

Not Embarrassing

Prime Minister Julia Gillard, speaking at a press conference in Perth yesterday, said the strike was “not at all” embarrassing for her government.

CEO Joyce “needs to break the unions like Margaret Thatcher did with the coal miners,” said Odia Ukoko, a 44-year- old Melbourne-based businessman who was in Perth to seek meetings with CHOGM delegates. “If he breaks the union, I won’t buy Qantas tickets but I’ll buy Qantas shares.”

The stock has plummeted 39 percent this year, while Australia’s S&P/ASX 200 Index is down 8.3 percent. The shares lost 1.6 percent to A$1.55 on Oct. 28 in Sydney, valuing the carrier at A$3.5 billion.

The grounding may become the biggest disruption to aviation in Australia since a six-month national dispute in 1989 saw domestic pilots impose a limit on work hours during a campaign for a 29 percent pay rise. The Royal Australian Air Force stepped in to keep domestic travel running.

Short Notice

Transport Minister Anthony Albanese said the government was given less than three hours’ notice of Qantas’s decision.

“I indicated very clearly to Mr. Joyce that I was disturbed by the fact that we’ve had a number of discussions and at no stage has Mr. Joyce indicated to me that this was an action that was under consideration,” Albanese said. “It’s certainly a breach of faith with the government.”

Flights on the company’s Jetstar budget unit, Qantaslink regional carrier and those by its Jetconnect business to New Zealand will continue. Qantas has about 65 percent of Australia’s domestic market and less than 20 percent of international travel.

International Consolidated Airlines Group SA’s British Airways, a Qantas partner in the Oneworld airline alliance, said its flights aren’t affected and it offered refunds and rebooking for ticket holders booked on BA services operated by Qantas.

Stranded Passengers

Virgin Australia, the nation’s second-largest carrier, will try to assist stranded domestic travelers and may put on more services. It is also speaking to partners Etihad Airways, Air New Zealand Ltd., Singapore Airlines Ltd. and Delta Air Lines Inc. to help with international travelers.

In a statement, Etihad said options being discussed with Virgin Australia include operating a shuttle service between Sydney and Melbourne on certain days of the week using Etihad airplanes, and a daily flight between Sydney and Bangkok.

Locked-out employees will not be required to work and won’t be paid while other staff are required to operate as normal, Qantas said yesterday.

“This is one way of bringing it to a head,” said Peter Harbison, executive chairman at Sydney-based CAPA Centre for Aviation, an industry adviser. “This looks like an attempt to put it behind them before the Christmas period.”

To contact the reporters on this story: Robert Fenner in Melbourne at rfenner@bloomberg.net; Jacob Greber in Sydney at jgreber@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net