Interview- Brian Grey

BG: Air Niugini had been formed at the end of 1973 and it was going down the drain quickly. It was in a hell of a state.

It was so bad that to have a confirmed booking on a 36-seat F. 27, you could have 140 confirmed tickets lined up at the counter. It was absolutely incredible. They had gone into international services with a wet lease of a Boeing 720 from Tempair, and that was something I was landed with from takeover.

It only lasted six months because they went into bankruptcy. We re-equipped with former Qantas 707s and expanded to Hong Kong, Manila and Tokyo. Surprisingly, they had never tried to get rights beyond Brisbane, and the bulk of the market was in Sydney. We got in there.

In the three years, I was there we made a profit every year and the staff levels were reduced from 1700 to 1200. There was a great amount of capital expenditure, particularly on office space. When I first took over there was the hopeless situation of staff being scattered around 1 O office buildings in Port Moresby. In 1979, my contract was up and I decided to return to Australia.

JM: Was there anything political involved in that?

BG: No. I was out before all that. That was after Okuk arrived. I went out on the crest of a wave. I went back to Ansett at Sir Reginald’s invitation as executive director policy and in March of 1982, I left to take over East West.

JM: What made you leave Ansett?

BG: It was basically to take over EastWest. I had put up to Murdoch and Abeles the proposal that Ansett should take it over. One was keen on it, the other rejected it, I think for political reasons, and I decided that I believed it was feasible and decided to have a go myself. I put a proposal together and borrowed the funds to make it happen.

JM: It seemed a rather unusual source of funds. How did you get it, or even come to the conclusion that it might be available?

BG: I didn’t, actually. In putting together the package, I talked to Duke Minks, who was with Citibank at the time, and as with all the other finance companies, he said they would not look at it. He approached me a couple of months later and told me he had located the funds. He’d been doing a number of leveraged lease deals with Nauru in the shipping and aircraft fields and he had approached them with the East-West proposal on my behalf.

As it turned out, I had dealings with them a few years before when I bought two F. 28s from Air Nauru for Air Niugini. They had apparently watched Air Niugini’s progress while I was there and as a result, they said they were extremely interested in the aviation field, and although they had no aspirations in the domestic are a in Australia, they saw some compatibility with Air Nauru and they made the funds available. If I’d thought of Nauru I could have gone to them myself. There were all sorts of rumours that it was Abeles-backed, that he had put up the money, but it was all a lot of nonsense.

JM: I suppose it was a bit of a punt for Nauru?

BG: I suppose so. They weren’t at risk at any stage in putting it up. The money was made available only on the basis of the takeover being successful. They then reserved the right to take up equity to the limit of foreign review board approval.

JM: There was a lot of acrimony during the takeover. How has it affected the airline?

BG: It may have been exaggerated, but it was my strong impression during the takeover that the staff were very keen for it to succeed. They were concerned that EWA had gone through that disastrous exercise in the Northern Territory and that they had surrendered a number of routes in the Orange-Parkes-Forbes area. There was also the on-again, off-again introduction of the F. 28s. I think people were despondent in EWA. I found that since taking it over the staff have been absolutely magnificent, apart from the pilots’ strike. I don’t even hold any grudges there, because that was a matter of testing strength at the outset.

JM: When you first got your hands on the airline, how well were its resources being used?

BG: I don’t believe that given the limited network it has, there could be much criticism of it. There have been some schedule changes to allow service, in some instances where it is necessary, to come before the total economics. We got rid of situations like people in Kempsey having to fly to Grafton to come to Sydney. This is more expensive, but it should be offset by attracting back traffic from other areas and from other modes of transport.

JM: This question could be asked of any airline in Australia, but has scheduling been downgraded, or even disregarded as a marketing tool, given that your fleet resources are limited?

BG: Given that you have a limited amount of traffic, rather. The fleet is adequate for the task because there is a lot of empty time in the midday period. In many areas, you are working with limited markets and it is a matter of how you can stimulate traffic with a 48-52 seat F. 27, which is probably a little big for the routes in this economic climate.

When the economy does turn around, it is probably the ideal aircraft for the routes, but what do you do in the interim? You just cannot change and go to more economic smaller aircraft. One thing that the Department has recognised with its supplemental licence, and the Advance Airlines King Air incidents highlight this, is that the F. 27 is the smallest airliner in Australia.

It has a number of safety features built into it and all the fancy titles of supplemental licences will not change the situation that given certain circumstances the smaller aircraft do not have the fail-safe characteristics of an airliner such as the F. 27.

It becomes a matter of what the public wants. The economics per seat, as long as you have good load factors, are as good or better on the F. 27s than the King Airs and Bandierantes and Metros, and you have the more highly trained airline staff. Somewhere someone has to make the decision about whether you constrain the competition to the point where people get the safest kind of travel or introduce supplemental licences which, although they are upgraded from the commuter types, still don’t conform to the airline licence standards.

JM: Is this a departure from the long-held philosophy of the Department, in all its guises, that safety is paramount?

BG: I don’t know. For instance, the Kendell operation between Melbourne and Albury, which because it is an interstate operation qualifies as a supplemental airline. We are told now that under Section 92 the Department can’t do anything but give Kendell a licence. They very apologetically tell us that we are going to have competition on the route.

The interesting thing is When you ask whether any other airline in Australia is affected by the introduction of the licence, there is none. And you wonder why because there is no doubt that the type of aircraft being introduced to the route, which is marginal anyway, is not as technically sound as an F. 27.

You have to question the moral cutoff point as far as safety is concerned. At the same time, the department is introducing ditching certificates if you go more than 50 miles from land, and you just have to wonder about the whole thing. You have an airline system with airline standards and then you have an operator who does not have to meet the same standards licenced to operate over your route.

You start talking like that and people start saying you can’t stand competition. But I think competition is extremely important when the market can justify it. I don’t know whether competition generates new traffic – it just means there is a smaller slice of the pie for everyone.

JM: Were you happy with fleet utilisation when you first came into the airline?

BG: Yes. You could not be critical. I would accept that there had not been enough done to attempt to market additional activities such as in the charter field. On the licenced routes, you are very constrained in what you can do. Aircraft numbers are tailored to the services you provide. The utilisation on the scheduled services was probably as good as you could expect but there wasn’t enough effort made to get cargo or charter work and we are actively doing that. We are getting a lot more charter work and our cargo business really got moving from early last month.

Also we have a large number of licence applications before the Department. Under the applications for interstate and Territory-State licences it has been ruled by the High Court and others that the Commonwealth in considering those applications can only have regard to the safety, regularity and efficiency of those operations and there is no way we don’t comply. So we are rather at a loss to understand the alacrity with which they introduce a supplemental operator over one of our routes but the lack of speed with which they grant us our licences. We are still waiting.

We have put in for a number of Victorian-based routes, Melbourne Wagga, Mount Gambier, Warrnambool, Mildura, to get into that field, but we haven’t even had an acknowledgment, even though the applications were lodged in December. We already hold a licence for Sydney-Alice Springs, but we also have applied for Alice Springs-Port Hedland-Karratha, Melbourne-Maroo chydore and Melbourne-Newcastle.

We’ve had acknowledgements, but no action.

The Federal Government, under the laws, as understood, cannot refuse to give the licence, but they haven’t been forthcoming. On Territory-State routes, they certainly have paramount power there, but there is a Northern Territory Aviation Act, which says the territory should be treated as a State, so we should automatically get it under Section 92, for the Alice Springs-Karratha route.

As we will be bidders for routes in WA, Port Hedland-Perth and Karratha-Perth, it follows that if we already have the Federal licence in place it should help us with our application to the Western Australian government.

JM: How important is getting this expansion to the network in getting proper utilisation from your F. 28s?

BG: Obviously the Alice Springs-Western Australia services would be overnight, so it would give Lis better utilisation and give us the opportunity to expand and stay ahead of the pace. We are in a peculiar situation because Ansett and TAA get this tremendous protection from the two-airlines policy which enables them to do anything they want, they virtually get carte blanche. But we have the agreement saying we can’t go past a certain point, while at the other end of the scale the government is encouraging commuters to get supplemental licences. We are in a squeeze play.

Unless we can flex our muscles and move into some of these areas, we might have a very difficult row to hoe. There is no-one else in the same situation as us.

JM: This might be asking you to telegraph your punches, but are you going to take a high profile, ‘let’s battle them all the way’ attitude to getting your objectives?

BG: Sure. We already have an application to the Department to import two DC-9 Super 80s and to introduce specialised services with one-third off current economy airfares to introduce what the Labor Party has said it wants – no-frills air services on the major routes. The political statements indicate they are in favour of no-frills. I believe that with two Super-80s operating in Melbourne Perth on a daily basis, Brisbane-Towns Ville on a daily basis and Brisbane Sydney-Melbourne-Hobart, we could easily reduce the fare by one-third and still make a very handsome return on the operation. There are already precedents with the establishment of no-frills services on the Sydney-Canberra route.

The fact that Air New South Wales took up that service would indicate to me that Ansett has accepted that definition of no-frills as being specialised under the airline’s agreement is correct, and, by an extension of that, the Minister under the specialised services section of the Act is required to go to Ansell and TAA and ask will they introduce such services if we are willing to do it. If they are not, he then has a right to issue us with an import licence.

That is not to say he will do it, but he has the right to do it. We have done our sums and believe we can reduce fares by one-third and still make a very handsome profit on the operation.

One thing that worries us is that we are very much in the TAA camp as far as terminals are concerned. All the terminals are built around the two-airline policy. EWA ‘has been bluffed in the past on what it can do and where it can go and it is just going to be a matter of where the department can put us. If they grant us a licence I accept that is the biggest problem. It would become a problem for the government to find us space at the airport so we can be totally independent.

JM: The Canberra’s no-frills services were an abject failure. In the light of that experience is there a market for no-frills?

BG: There was a prop jet competing with a ‘jet and I think Air NSW didn’t really want to market it anyway. The short-haul route Should appeal to an F. 27 type operation, but 95 per cent of people out of Canberra are probably travelling on government warrants and time and price don’t mean anything.

Our no-frills, service would have no inflight service. We would carry only the required number of flight attendants for 155 passengers on the Super 80, to be there against an emergency.

JM: do you see East-West evolving as a Two-tier airline, with one part providing the expected type of service and the other entirely no-frills?

BG: I wouldn’t mind seeing it evolve entirely as a no-frills airline. You have to get rid of all the extra frilly bits and to get productivity up.

At the moment aircrew on Ansett and TAA are flying 350 and 400 hours a year. That’s just for the birds. In the United States, they are getting up to 800 and the statutory maximum in Australia is 900 hours. You ought to be able to get at least 700.

JM: Why did East-West decide to stick with the F. 28s over the BAe 146, and why did it decide to re-equip with F. 27s?

BG: We’re not really disclosing what we did with the F. 28s, but we did get them at a fantastic price and we also got the F. 27s at a highly discounted rate, so we got a win on both sides. As far as the 146 is concerned, I personally liked the aircraft and I think it had a lot of advantages because of its potential to operate within curfew hours. But there was this underlying question about whether the aeroplane would be around. We have also heard subsequently that there could be a lot of difficulty with the Lycoming people as far as engine backup was concerned, even though we did not know about it at the time. Really, it was just a fear that the programme would not continue and that they couldn’t deliver on time. We were very heavily committed to meet the Department of Aviation requirement on the 90-minute concession under which we operate to Norfolk Island – which would not be extended beyond July.

The way we see it, with the introduction of the second F. 28 in December and the conversion of nine F. 27s to six F. 27s we will have a fleet of eight against ten.

We’ll have a standard fleet, whereas at the moment in our fleet of 10 F. 27s, there are no more than two of the same. There will be some great engineering and tenancy savings. There will be some fuel savings and the financial side of the sale was such that the economics are good.

We will also be expanding by having the Brisbane-Norfolk route to ourselves because we have done a deal with Norfolk Island Airlines, whereby they have surrendered their services to us.

JM: The F. 27 could be described as an old aircraft, with its pneumatics, and it needs a water-methanol boost. Are there things you would have preferred to avoid?

BG: We are having presentations from Fokker, as part of the financing deal, that we look at the re-engining of the F. 27S we bought in a couple of years’ time with the new Pratt and Whitney engine. That has a specific fuel saving of about 25 per cent we believe, which is most significant.

The proposed package is extremely attractive, and the F. 27, when you look at it, the 30-36 seat aircraft field, at their capital costs against what we have purchased the F. 27 for, it is difficult to believe their seat-mile costs are going to be any better – or even their trip costs. We still have the flexibility for growth and for freight handling. Four of the F. 27s we are buying have a large door for QC operations.