Issue 44: May/June 1988

The fight now is squarely between the Right Wing and the Centre Left and Left Wing df the Labor Party. That this debate will rage through the June ALP Conference and lead to much public bloodletting is guaranteed as the factions become more vocal in their respective causes.

And just who is right and who is wrong?

The Right Wing want a number of appropriate public assets privatised, or sold off, to not only raise money but also to improve the all important debt to equity ratio of these presently heavily in-debt organisations. Privatisation would also free each of them from a wide range of public service management practices that inhibit their day to day ability to compete equally with an ever more aggressive and productive private sector. Australian Airlines vs ATI is a classic example of this situation.

The Left and Centre Left wants to retain as much as they can in public ownership as they have traditionally distrusted big business and all it stands for. Without wishing to wade into ideological issues, it is worth noting that almost none of the anti-privatisation lobby has ever run their own business or been deeply involved in the free enterprise system and as such don’t appear to appreciate the day to day workings of one’s credits exceed one’s debits in or,der to be able to put another meal on the table. If this sounds simplistic, then try it yourself, it will give you a real world lesson in non-Marxist economics that Harvard could never hope to match!

What the anti-privatisation brigade constantly fail to appreciate is that the privatisation issue is not about merely hiving off the national estate. It is simply about providing additional cash resources to the companies involved. No company, irrespective of what it does, can function profitably if it is saddled with a high level of debt. What Qantas and Australian require, urgently, is to be able to reduce their burgeoning debt to equity ratios in order to meet the fearsome commercial challenges of the next decade.

Qantas conservatively requires $1,000m alon. e in the coming year and a further $1,500m the year after in order to merely meet its projected outgoings on new aircraft. It needs a short-term cash injection to some $600m to reduce its debt to equity ratio from a debilitating 79:21. to a more manageable 63:37. By comparison SIA boasts a ratio of 58:42, Air New Zealand 55:45 and BA 33:67. Qantas will additionally require at least $5,400m over the next five years just to fund its near term re-equipment programme. With a new 747-400 costing in the order of $200m and Qantas needing a fleet of around 50 747s and two dozen 767-sized aircraft by the turn of the century, then it is not difficult to see that the airline either becomes capable of raising its own substantial cash reserves on the open market or it will collapse in a sea of debt.

The other option of course is for the Government to provide this not-inconsiderable funding, something that will inevitably have to be financed via higher levels of taxation – if you can understand this fact of life then welcome to the rapidly swelling ranks of the economic pragmatists!

Australian Airlines is in an even worse situation as unlike Qantas, it must finance everything in locally generated Australian dollars. Australian’s debt to equity ratio presently stahds at a dismal 86:14, it needs an injection of $250m now and a further $50m in 1989/90 to just get this to a manageable 70:30.

Australian will also need to fund a large re-equipment programme over the coming years. It has already deferred its A320 order due to lack of capital and is thus keeping its 727s in service longer than expected, routes have been hived off as has Air Queensland. While these events will strengthen the company in the longer term, they are not _the only prerequisites for a company which will have to take on Ansett Mega Air in a totally deregulated environment.

The options for and against privatisation should not be about the political ideology of the past, the argument is simply about where these two heavily in-debt airlines get their capital in the years to come.

They can get it either from (a) you and I via higher taxes; or (b) from the private sector who voluntarily choose to (and we think wisely) invest in these two long established transport giants: For the future well being of two great Australian companies, we sincerely hope that the politicians from both camps quickly and wisely get their acts together.

Australian is now so hocked-up that it cannot even afford to replace its ageing 727s with new generation airliners to compete with rival Ansett. Australian’s present debt to equity ratio is an appalling 86:14 and even an injection of $300m over the coming year will only serve to reduce this to a barely manageable 70:30. Most analysts agree that Australian will need something in the order of a billion dollars capitalisation from now till 1995 in order to be able to successfully meet the challenges of deregulation.

New Hope for Ksa?

Following the massive defeat of the State Labour Government in NSW during March, it is to be hoped that something in the realm of realistic policy will now allow the development of a second parallel runway at Sydney’s Kingsford Smith Airport.

KSA is literally bleeding to death and is in the process causing considerable damage to our all important tourism and travel industry. That Australia’s premier city, the virtual gateway to this great nation, suffers such an inadequate facility is beyond comprehension. Also as Badgery’s Creek is about as real as Dorothy’s visit to the Emerald City, in that context surely the commencement of preliminary engineering work on KSA’s third runway must be considered a priority task.

With the new generation of quiet airliners the local residents have nothing to fear from a second 16/34. The whole issue has been a much abused political red herring for far too long, it is now time for action – it’s over to you Mr Greiner.