Privatisation of Australian Airlines Rapidly Becoming Inevitable

Australian Airlines, for instance, was formed in 1946 to counter a perceived situation where a single domestic airline would gain control of the entire Australian air transport grid. This had occurred prior to the War to some extent in shipping which itself was roughly equivalent in transport terms to what the modern airlines are today.

So, in 1946, TAA was formed. Today, and into its fifth decade, many ask whether the Australian Government (and through it supposedly the people) needs to own a domestic airline. Recent polling has shown a marked interest in privatising governmental agencies where practical. Additionally, success in the UK in privatising such concerns as Telecom, British Gas, British Aerospace and more latterly British Airways have shown that this is not just a fly by night policy. Therefore when the Coalition launched their initial privatisation campaign in 1985 it came as little surprise to most observers, that a majority of the population endorsed this new policy. So much so that the Coalition adopted it as one of the primary planks of their aviation policy platform, which when launched a year ago met with widespread endorsement as being generally on the right wavelength of how the industry perceived its future. So popular had been the general acceptance of the policy that the Government has gone down a similar road on many of its more recent policies such as the CAC, FAC and the review of licencing, Flight Standards procedures review and yes, even privatisation of Australian Airlines.

When the Prime Minister suggested this officially in March, it was as much to test the water as anything. Indeed kite flying of the most astute form. Generally, the idea was well received by the public at large, the only groups to actively disagree were the usual pundits from what even the ALP terms as their Lunatic Left. Though the PM did back down fairly quickly on just how far he would go, it did produce the results that the Government was obviously seeking and brought out the party’s grassroots feeling on the matter.

So where would Australian be if privatised?

Our personal bet is simply that it would be better off. It is no secret that both Qantas and Australian would prefer to be free of their government and public service shackles. Qantas is fairly free in this regard though Australian operates under a day to day business environment that simply does not allow it to compete with the very aggressive and powerful Ansett group. To the travelling public, particularly the business sector, Ansett is largely seen as a symbol of style whereas Australian appears to be plodding a poor second to its glossy private enterprise competitor. And this is in the make believe world of competition nurtured in that benevolent greenhouse called the Two Airline Policy. If even partial deregulation came in, most observers feel Australia would be steamrolled by Ansett unless radical changes can be made to Australian’s basic corporate operating structure. And that quite simply spells privatisation.

Similarly, Ansett feels that it would be unfair to have to compete in a deregulated environment against a government owned competitor. Ansett logically believe that Australian could counter any of its fare initiatives on the basis that it would never go bankrupt owing to its public ownership. Fair comment and with both Ansett and more latterly East West both opting 100% for total deregulation then this places the government-owned domestic in an ever-tightening situation.

Many feel that Australian has lacked direction these past years. Their decision several years ago to pull out of propeller services completely, then do an about face and retain their loss making F27 western Queensland routes. The enormous length of time it took to eventually select a 727 replacement and then the choice of an aircraft many believe will ultimately be too small to replace the existing 148 seat Boeing. The purchase of Air Queensland at an inflated value without realising that it had a watertight carriage agreement with Ansett. The retention of the perennially loss making western Queensland routes despite the elimination of Queensland Government subsidies and the eventual replacement of the depreciated F27s with an aircraft that was largely unsuited to the economics of the region. The now imminent axing of these services and total disorganisation within ailing Air Queensland. Additional to this was perhaps the saddest public endeavour where the company spent more than half a year looking for a replacement General Manager and was unable to promote one from within its own ranks.

It may appear that we are knocking Australian unduly, we don’t mean to; though the above list of notable achievements have all been instrumental in giving it an image that is difficult to do away with. A name and livery change was a viable marketing move. Now, to really free it from its day to day public service doctrine may believe Australia must be privatised if it is to prosper in the far more competitive years ahead.

How much TN is worth is a decision only the market can decide. However, depending on which accounting method is employed most noted economists feel that it would be worth between $250m and $600m. Either way, not an inconsiderable fillip for the national treasury. However, we make the point that much of this should be turned over to the airline in order to get its presently abysmal (due to government policy) debt/equity ratio to a more viable level.

When might it happen? Well, the May economic statement could be teh catalyst to bring this about. If asked by the PM, who despite his party’s standing is still personally very popular, to take further cuts in public spending, then most Australians would probably accept the sale of Australians as fait accompli. If it was going to save their long awaited tax cut then how many would deny the sale on supposedly ideological grounds? Our guess is very few indeed. If this doesn’t happen then an incoming Coalition would sell it anyway, so inevitably Australia’s days as a government carrier are most definitely numbered.