Stop Press

Meanwhile, Ansett saw its lead increase over Australian, a trend that has been consistent since the commencement of deregulation last November. Ansett Australia took 40. 4% of the total market whilst Australian slipped from 39% to 36. 7% though Ansett had also lost traffic, obviously at the expense of Compass. Eastwest though suffered poorly with its market share dropping from 6. 2% for the March quarter to just 4. 6% for June indicating that of all the carriers, the leisure based Eastwest is perhaps the most affected by the arrival of Compass event though the latter does not fly Eastwest’s primary routes linking the major east coast ports with Tasmania and Coolangatta.

Traffic for the 1990/91 year was at a record high, despite the recession, at 14. 2 million passengers. It is estimated that the current year should see the 16 million passenger mark breached for the first time. Full DOTC tables will appear in our next issue.

 Compass Announces Shock Bid for Australian Airlines:

Compass has surprised the aviation industry by declaring itself a potential bidder for rival Australian Airlines.

Compass officially advised the stock. exchange that it had, through a wholly owned subsidiary. Compass Aviation Developments, submitted a formal response to the Commonwealth Department of Finance Task Force on Asset Sales requesting that it be considered a potential bidder for Australian. Compass would be heading a consortium of investors and is the first major party to formally declare its interest in the carrier, though Singapore Airlines, JAL, Garuda and Air New Zealand are also believed to be interested in acquiring a stake in the major domestic. (Formal bids for Australian are not expected to be sought until later this year after the asset sales task force reviews all preliminary expressions of interest. )

Of Compass’ interest in Australian, Bryan Grey declared “There are significant areas of synergy between Compass and Australian but it is our intent that both airlines operate as separate entities to ensure the Australian. public continues to receive the real benefits of deregulation whilst the airlines achieve benefits from logical areas of joint interest. ” (Presumably, a Compass stake in Australian would improve relations on such disputed matters as terminal access!)

Analysts however are treating the Compass bid cautiously. One is quoted as stating “It can’t be true unless it has a major backer. The airline must be bleeding in the current competitive environment. ” But Compass statement did note that “Potter Warburg (the company responsible for the successful Compass float in 1990 and Compass have held preliminary meetings with a number of leading Australian institutions and these discussions give encouragement to submit a response to the Task Force. . . ”

Qantas Hoping to Resume South African Services:

Qantas is aiming to resume services to South Africa in October, following the virtual international withdrawal of economic sanctions against the country.

Qantas officials have already held talks with their counterparts from South African Airways, which at present is banned from flying to Australia. Both airlines are keen to resume services between the two countries, both being sure that the route will again prove quite profitable, as was the case prior to the Australia Government banning all fights between South Africa and Australia during the early 1980s. (Such was the success and profitability of the South Africa route prior to the Government ban, that Qantas dubbed it the Champagne Route. )

Qantas will have no trouble finding capacity for South African services, and will be able to readily allocate a 747 to the route. At least two flights per week to Johannesburg will be flown, with the existing weekly service to Harare, Zimbabwe to continue for some time, with the two routes probably being triangulated at a later date.

At the time of writing however, the Australian Government had not Efted its ban on South African services and may indeed wait until after the Commonwealth summit in September, should this be the case, Qantas may not have time to organise services to commence in October. But regardless of how soon sanctions are lifted, Qantas will be resuming services to South Africa.

 America West Opts for Chapter 11 Protection:

US carrier America West, in which TNT and News Corp hold a 26% stake through jointly owned Ansett Airlines, has successfully gained US Chapter 11 protection.

The airline had warned in early June that it faced Chapter 11 protection unless it could successfully negotiate deferrals of lease payments for its aircraft. But with a serious liquidity problem, use of Chapter 11 could not be avoided, so with legal protection from creditors it is now attempting to restructure, though it will be a difficult period for the carrier with US airlines slashing fares in the current summer travel period, which is usually the period of higher, profit generating fares. With fresh equity and/or a new foreign share-holder for America West being seen as increasingly unlikely, US analysts are beginning to question America West’s ability to re-emerge as a going concern.

Naturally both TNT and News Corp, both themselves facing intense financial pressure, are deeply concerned about the situation. The chief worry is their leasing arm, AWAS, which has 11 Boeing 737-300s leased to America West for which it will now not receive two SUS2. 3m rental payments at least for the next two months, though fortunately it does hold SUS7. 5m in security deposits. However, of more concern than the rental issue is whether America West can ultimately survive. Should it not do so, an additional 87 aircraft (including AWAS’s 11) will be released onto an already saturated leasing market.

AA Comment:

Surprise, surprise. If there was ever an airline hell bent on fiscal suicide it was America West. This is the third time the carrier has gone to the brink and whilst it was able to haul itself back on the two previous occasions it may be more difficult this time given the enormous scope of its debt and far reaching and largely unprofitable route structure.

Like the Australian corporate high flyers of the eighties, America West was hell-bent on growth at any price. It didn’t want to be what it could be profitable and highly successful at (like Southwest), a high yield niche carrier.

America West wanted to take on the world and in doing so pioneered new routes into ports where it had little traffic base and faced head on competition from the majors. AW even bought 747s and lodged applications for the US/Australia route. The resultant heavy discount environment in which it continually operated allied with very low load factors were its obvious downfall. At least obvious to everybody in the industry except the AW board. Why this is so will remain one of life’s greater mysteries!

Air NZ Issue Aimed at Qantas, Australian Stake:

Air New Zealand’s one for two shares issue is reportedly aimed at raising $NZ140m to place a bid for a share in either Australian Airlines or Qantas.

The renounceable cash issue of one new SNZ1 share for every two shares already on issue was made following the announcement of ANZ’s financial performance for the year ended 31 March 1991, in which the airline suffered an 88% drop in profits to record an operating profit of just $NZ7. 6m. Air New Zealand’s two largest shareholders, Qantas and Brierley Investments, have however both confirmed their intention to take up their entitlements to the issue. Qantas therefore will have to pay about SA21m ($NZ27. 9) to maintain its 19. 9% stake in the New Zealand flag carrier, an ironic situation if it does prove that Qantas was in fact paying towards its own partial privatisation.

At Press Time Qantas Had Also Not Purchased either the Jal or American Airlines Minority Shareholdings in Anz as Suspected Widely in the Media in Recent Months.

Panam Near End After Assets Sale:

The end of PanAm is virtually complete with the sale of its last remaining key assets to Delta Airlines and probably also

United.

Delta paid a reported $US260m for an interest in 45 PanAm aircraft, its US northeast Shuttle operation, its New York to Europe services and its London routes from Miami and Detroit. It also agreed to underwrite SUS60m worth of PanAm’s debt, and an unspecified number of PanAm employees will transfer to Delta. With the sale of these assets finalised, United Airlines moved in with an offer to buy PanAm’s Latin American routes for $US500m; this sale had not gone. through at the time of writing, though should it do so PanAm would have virtually no assets left, and would effectively cease to operate.

Northern Territory to Deregulate:

Airline services in the Northern Territory will be deregulated from 1 January next year.

The decision to deregulate comes after an extensive review of airline services to remoter communities, with NT Transport and Works Minister, Fred Finch, saying that deregulation is the only practical option in the present circumstances and the most logical option for the longer term. Deregulation apparently is desired by most Aboriginal communities in the NT (several of whom wish to start their own private aerial services), and will overcome the problems of having the government subsidise unprofitable routes.

Mr Finch stated that “Existing licensed operators have indicated they will continue with existing regular services and schedules providing they continue to be profitable. ” Present licenses, which were due to expire this August, will automatically be extended until the end of the year. “Over the next six months all potential operators should ensure they plan their entry into a deregulated market in a business like manner because the marketplace will certainly cull out the ill prepared and fly-by-night operators. ”

Australian Considers Sale of Catering and Cargo Divisions:

Australian Airlines is considering the sale of bath its catering and cargo divisions as part of its drive to reduce operating costs.

The airline’s board has instructed management to evaluate the sales options, and it is believed that talks have already been held with transport giant Brambles Industrial for the sale of the cargo and ground handling operations, and with the US based Marriott group for the sale of the catering operations (Marriott already handles some of Qantas’ catering).

Sale of the catering and cargo divisions would enable Australian to concentrate more fully on its prime airline activities. Catering. cargo and resorts were made into distinctly separate business units earlier this year, and it is believed that resorts could also be sold off. The resort operation has a book value of $21m though last year recorded a $3. 7m loss. Several months ago the airline invited expressions of interest for its exclusive Bed- arra Island property, though the possible sale of other resort assets have not been

publicly discussed.

As for the regional airlines and Australian owned Westpac Travel business units, these are less likely to be sold off. Whereas the cargo, catering and perhaps even resorts operations are considered expendable, the regional airlines and travel agent operations are considered crucial in the deregulated airline environment.

 Compass Flies Into Adelaide, Despite Obstacles:

Compass Airlines, frustrated by what it calls “continued attempts by Australian Airlines to prevent it from entering the Adelaide market”, has retaliated by commencing services into the South Australian capital.

Compass has been negotiating with Australian (its landlord at both Sydney and Melbourne Airports) for suitable terminal space for about 12 months, however the negotiations had “reached a stalemate after many attempts to come to an agreement. ” Compass however was able to skirt this obstacle by signing an agreement with the Federal Airports Corporation to occupy an unused freight hangar at Adelaide Airport for its operations. The airline’s new Adelaide facilities were made ready for the start of Adelaide services on 15 July.

Compass is however still pushing the issue of terminal leases. CEO Bryan Grey said he would call on the Federal Government to cancel Australian’s terminal leases for trying to circumvent Federal Goverment policy and for refusing to honour their contractual obligations. By resisting the leasing of terminal space to the new entrant, Mr Grey claimed that “Australian are quite blatantly welshing on their obligations. ” Under the terms of the Federal Government’s airline deregulation policy of 1987 both Ansett and Australian were legally obliged to provide terminal space to new entrants subject to the normal commercial terms of such an agreement.

Meanwhile, the issue of Compass’ rent for Australian Airlines terminal space at both Melbourne and Sydney is still with Arbitration, Compass expressing the opinion that it is being grossly overcharged for the use of its facilities. Compass leases terminal space from Australian at Sydney and Melbourne, has its own facilities at Brisbane and Cairns and uses Qantas at Perth.

 BA Negotiates for 20% Astaas Stake:

British Airways is reported to have initiated negotiations with the Federal Govemment to buy a 20% stake in ASTA Aircraft Services, the heavy jet maintenance division of AeroSpace Technologies of Australia.

The BA negotiations follow on from the 29. 1% stake purchased earlier this year by Hong Kong Aircraft Engineering Company HAECO) BA, which already has contracts with ASTAAS for the maintenance of several 747s per year, has an option on the remaining stake available for sale. The Federal Government is prepared to privatise 49% of ASTAAS, and it is understood that HAECO is keen to increase its stake up to the 49% mark if British Airways does not take up its option.

Piper Grounded via Chapter 11:

Piper Aircraft has successfully filed for US Chapter 11 protection in the bankruptcy court, the result of a critical cash shortage and the difficulty of attracting investors. Even though Piper has an order backlog of over $US100m, the company has been unable to sustain production because of a lack of funds and US product liability laws, which have scared off several potential investors. In recent years court decisions have held aircraft manufacturers liable for a number of accidents, even though in several cases the aircraft were about 20 years old and had been modified by owners.

Piper in particular has long adopted the policy of fighting product liability cases (with some success), however this has proved costly and also brings publicity to the case, the last thing wanted by investors.

 Australian Support May Be Key to Australia Northwest Startup:

Little known new entrant Australia Northwest may finally achieve lift off through linking with Australian Airlines as its preferred carrier in Western Australia.

Australian is negotiating with Australia Northwest to provide the required terminals. computer and ground handling services that the new airline requires. Headed by little known entrepreneur, Richard Goldsmith (all AA’s overtures have only led to conversations with an answering machine!), Australia Northwest plans to use a fleet of Fokker 100 twinjets to compete on existing Ansett WA routes with a hoped for commencement of services by year end.

Australian has never had any effective feed from rural WA and has been evaluating a number of options in remedying this situation over the past year. It is expected that if a decisive agreement is not quickly reached with Australia Northwest that its already established Australian Airlink BAe 146 operation will eventually be expanded to include a number of WA ports.

 Bae-Ansett Flying College Considers New Aircraft, Military Contracts:

The BAe-Ansett Flying College at Tamworth NSW is considering new aircraft options in the wake of Piper’s production difficulties and move into Chapter 11 protection, and is now also actively marketing its services to potential military customers.

The College has been considering options to the Piper Warrior and Seneca for several months, having been made well aware of Piper’s cash shortage and subsequent production difficulties. A management meeting on 9 July determined that the College would give Piper about four weeks from that date to guarantee production and delivery of the Warrior order by the middle of next year. which is when they will be needed by the first College training course (an Ansett cadet course which commences on 7 October this year).

Failing that, the BAe-Ansett Flying College will instead order an attemative type which, although there are several options still being considered, is most likely to be the Socata Tobago in place of the Warrior. College marketing manager John McBride, however, stated that the College would prefer the Warrior because the course was originally designed around this aircraft and equipment has been ordered with the Warrior in mind.

Meanwhile, the College is now actively marketing its services to potential military customers, with Mr McBride stating that it has already been shortlisted for future RAAF ab initio training requirements (for when Point Cook is closed as a military training establishment) and a tender is expected to be called for in August. Should the College be successful, the purchase of the RAAF’s CT-4A aircraft is being considered; these will be updated to B standard to augment the College’s existing fleet, several of which have now been delivered from PAC in New Zealand. (The CT-48 was originally chosen by the College with military training in mind. ) Discussions have also been held with the Royal New Zealand Air Force and Japanese Air Self-Defence Force over similar flying training for their recruits.

Terminals Opening to Be Delayed:

It is now considered as inevitable that the opening of the new FAC terminals at both Darwin and Alice Springs will be delayed.

Cause of the delay in both cases is due to rental agreements not being settled between the FAC and their airline tenants. Hitting out at the Federal Government over the situation, NT Tourism Minister, Mr Roger Vale stated that “the FAC is proposing the airlines agree to an increase from something in the order of $80,000 per annum to an absolutely ridiculous level of $800,000”. Mr Finch also said the airlines were being asked to sign a draconian sixty page lease document which he said “reeks of bureaucratic incompetence. ” Regardless of the outcome it is vital that the airlines are able to utilise the new multi million dollar terminals as both existing facilities are legendary for their inability to cope with the rapidly growing demand for air services in the Territory. At times it is not unusual to see up to six jets on the apron at Alice. Springs, whilst Darwin is also an interational gateway in addition to a large domestic jet port.

 Northwest Criticises Ban on Qantas Share of Australian:

The purchase of Australian Airlines by a hostile international airline could be the end of Qantas, according to Northwest Airlines’ co-chairman, Al Checchi.

Mr Checchi, who whilst in Australia reaffirmed Northwest’s interest in acquiring an investment stake in Qantas (Northwest was the first airline to publicly declare its interest), was highly critical of the Federal Government’s ban on Qantas acquiring a stake in Australian Airlines. Using the US as an example, Mr Checchi stated that the once strong PanAm was doomed to failure as soon as US domestic airlines began acquir ing international routes, with a strong domestic network to fall back on and use for marketing purposes.

The combination of Northwest, Qantas and KLM (which owns 20% of Northwest) would produce the world’s largest airline conglomerate in terms of worldwide route network, Mr Checchi stated. Although Northwest management states that they are not interested in absorbing Qantas into the US airline (Qantas would remain a separate entity), a Northwest stake would enable it to dominate the South Pacific by adding Qantas’ routes in the region to its strong position in the North Pacific and mid-Pacific. . Northwest would also benefit from Qantas’ worldwide reputation for safety and high standards of service, while the sharing of routes would reduce the number of 747-400s needed by Qantas/Northwest by as many as three.

However, Mr Checchi noted that North-west could not be expected to buy into Qantas if the Federal Government allowed competitors such as Japan Airlines to also buy into Qantas, Australian Airlines or even Ansett, thereby undermining any advantage of a Northwest stake.

Astral Ceases Operations:

Astral Air Services, the New Zealand commuter service set up to feed Napier traffic into the Ansett NZ trunk route (under the Tranzair banner), has ceased trading after only six weeks of operation.

SW Andrews & Associates, Dornier agents for New Zealand, took on the ticket liability for Tranzai, a registered Ansett NZ trade name to promote feeder services; Astral leased three Dornier 228s and employed 12 pilots to operate the feeder services of Napier/Wellington and Napier/Auckland.

Maintenance for Astral was performed by Rex Aviation, which also operates two Banderaintes out of Wellington to Palmerston, Blenheim and Nelson. When Astral ceased trading, Rex Aviation were able to continue operating under the Tranzair banner because Ansett NZ assumed ticket liability. (Gavin Pringle)

Coolangatta Upgrade a “Lost Cause”:

The Gold Coast must stop seek- ing to transform Coolangatta Airport into an international gateway and instead throw its weight behind the upgrading of Brisbane Airport, according to the Gold Coast Visitors and Convention Bureau.

The Bureau chairman, Peter Hughes, and chief executive Judith Maestracci have expressed the opinion that the bid for inter- national status is a lost cause. The Federal Airports Corporation is not supplying the necessary funds to fully upgrade the airport to international standards, and international services to Coolangatta would in any case have “a serious impact on people living in the vicinity. ” Given that Coolangatta is only a relatively short distance from Brisbane, and that curfew restrictions for the Gold Coast air. port would restrict its use by carriers, the Bureau believes that it should instead give a 24 hour Brisbane International Airport its full backing.

Gen Powell to Address Rusi Seminar:

The Royal United Services Institute of Australia is presenting its next triennial National Seminar in Canberra on 27/28 September 1991, with General Colin Powell, chairman of the US Joint Chiefs of Staff, as keynote speaker.

The Seminar, which is being held at the Defence Force Academy (ADFA), has the theme “Realignment of World Order: implications for Asia/Pacific security”, a topic of much interest in these times of worldwide political upheavals. Besides offering a rare opportunity to hear General Powell speak, the Seminar will also be opened by Senator Robert Ray, Minister for Defence, and addressed by senior defence personnel from both Australia and overseas.

Further information can be obtained from The National Secretary, RUSI, GPO Box 1085, Canberra 2601, or Ph(06) 265 3105.

Northwest Flies Into Vietnam:

Northwest Airlines has become the first US airline to fly into Vietnam since the end of the Vietnam War, hot on the heels of Qantas and several other international carriers who have initiated or plan to start flights to the nation.

Like Qantas, Northwest is now operating charter flights into Vietnam with hopes of securing scheduled services when these are approved and commercially viable. At present Northwest’s weekly 747-200 charter flights primarily carry Vietnamese emigrants resettling in Western nations, though it is hoped to expand the passenger market in future. Though the US Government still does not recognise Vietnam and still imposes a strict trade embargo on the country, the US approval for Northwest’s flights does signal a significant thaw in relations. When proper diplomatic relations are resumed, Northwest hopes to have ready access to begin scheduled operations to cater for the increasing number of tourists and expatriate Vietnamese visiting Vietnam.

 Air Nuigini Examines Fleet Options:

Air Nuigini has added turboprop airliners to the list of possible aircraft in its domestic fleet update program.

The airline is currently reviewing replacement options for its seven Fokker F28s and two Dash 7s operated on domestic routes. It had previously shortlisted the Fokker 100, BAe 146-200 and -300 and the Boeing 737-500 as probable replacement types, however it has added two proposals from the ATR consortium for consideration. The first is for up to three ATR42s to replace the two Dash 7s and supplement the new jet type, while the second involves acquiring up to three ATR42s and seven ATR72s to replace the entire domestic fleet (in which case no new jet types would enter domestic service).

Air Nuigini is carefully examining the ATR proposals. One of the advantages to the turboprop option is that to offer all jet operations on the domestic market, almost all of Air Nuigini’s 20 serviced airports would require upgrading, at an estimated cost of about SUS40m, though national income from mineral and oil sales promises to make this possible. However, Air Nuigini is not keen on developing an all turboprop fleet and then having a new competitor enter the deregulated PNG airline industry with jet aircraft.