Interview – Bill Swingler

A: It was a tremendous experience and a whole heap of fun. I went into the office on the first day at eight o’clock and talked to the Chairman about a few things we had to organise such as the capital structure of the Corporation, recruiting everybody, getting superannuation in place, computer systems so that we could invoice our customers, and so on.

We made a list of about twenty things and he said “OK, I’ll leave you with it”. As he got up I said “Excuse me Chairman, just a couple of administrative matters. . . what day is pay day?” “What do you mean what day is pay day? When do you want to be paid?” he replied.

I said “Well if you don’t mind, how about today, annually and in advance?” He answered “How about at the end of the month, monthly and in arrears?” There was absolutely nothing to start with. No procedures, no papers, no nothing and it was a tremendous experience to pull it all together. When the day came on the January 1 1988 (we had slipped six months from the target, but that’s another story) we started off with $1. 1 billion worth of assets and 1060 people doing what 1600 people had done in the Department of Transport and Communications.

On that day- New Years Day in 1988 – we thought you can’t take over 17 airports, a billion dollars of assets, 1050 people and not have the wheel fall off somewhere.

So we got into this conference room with a bank of telephones so that any thing that happened we could fix on the spot. There were no rules and we were just going to make work. We arrived about nine, and by ten o’clock nothing had happened. At about eleven o’clock we said it looks like everything is working, so we opened a bottle of champagne and that was the birth of the Corporation.

Q: Since that time, what would you say are the areas in which you and the FAC have been most successful to date?

A: If you look at the way airports were operated prior to that time they were run down, tired, dirty, dilapidated, dingy places that created an uninspiring introduction to anybody visiting or trying to do business in Australia. One of the priorities I had in coming from Qantas was to make sure we had facilities that were appropriate to Australia, that were modern, efficient and presented Australia in the best image.

One of the objectives which the Government set the Corporation was to provide convenient facilities for air travellers and it was one of the things that enticed me to leave a fun job I had in the airlines to come and fix up airports. I think a lot has been achieved, and at the same time prices have been held in real terms.

Q: As far as the Corporation is concerned, what would you say is the greatest challenge in your job at the moment?

A: The greatest challenge that I have had to face has been trying to keep all the various stakeholders satisfied. I am talking about politicians as shareholders, if you like, Government officials trying to influence by remote control the manner in which the Corporation goes about its business, the big customers and the small customers who have different interests and both of whom are very vocal and influential groups.

Then of course we have the employees of the Corporation and trying to keep all those groups of people satisfied is what I have found to be the biggest challenge in managing the Corporation. I confess that I am not being particularly successful in that because it seems to me that everybody is out to have a shot all the time.

To some extent I guess that is understandable. You can’t please all the people all the time, but I would like to think that I could do a better job in satisfying some of the people at least some of the time.

Q: Looking at the airline industry as a whole, we see numerous structural changes underway such as the advent of a single trans Tasman market and the recent merger between Qantas and Australian. How do developments of this kind impact on the operations of the FAC and how are you responding to them?

A: We have seen a lot of change in the aviation industry over the short history of the Corporation, and it has had a dramatic impact. If you talk about the boom of the Bicentennial in 1988; the massive capital works programme that we have put in place; the bust of the Pilots Dispute in 1989, the Gulf War, the creation of FAC and CAA; the announce- ment of deregulation; the coming and going of new entrant carriers twice – that is a massive structural change to try to assimilate.

The announcement the Government made on the February 26 last year on aviation policy reform is going to have broader and more far reaching impact than any of those other things we have seen over the history of the Corporation. The single aviation market has implications for the Corporation in that there is a different kind of passenger now. Where we had domestic passengers and international passengers before, we now have precleared or trans Tasman passengers; the international airlines have additional rights to carry domestic passengers on internal sectors within Australia; and Ansett now haspower to operate international services through their own terminals. From an infrastructure point of view there are massive changes required.

There is no such thing any more as an international terminal or domestic terminal. They are both multifunction terminals. The service standard required by a domestic passenger is different to an international passenger in terms of throughput times, check in times, baggage delivery standards, and the amount of space that you have to provide for a passenger.

Not only are all our terminals multifunction terminals, but we are also designing them to be common user terminals. We have to have a degree of flexibility so that not only can a gate or terminal change from being domestic to international, but it can change according to time of day. You can have an aeroplane come in operating domestically and out international or visa versa. It means that there has to be great flexibility in the way the facilities are designed and built. Ultimately it will be a benefit to the travelling public, but there is going to be some pain for us as in achieving the goal in the short term.

The changes also threaten certain revenue streams for the Corporation, for example from duty free. When the trans Tasman market ultimately comes through and there are no duty free concessions between the two countries – and that’s only a stroke of a pen – then we lose 20% of the duty free revenue to the Corporation that comes from trans Tasman passengers.

Q: There is a general impression that the FAC is not hugely supportive of Badgerys Creek, since sooner or later it will be transferred to your asset register and you will be stuck with trying to earn your 7. 5% on it. How are you planning to deal with this prospect?

A: The position of the Corporation on Badgerys Creek has not changed since we were first asked for a view in early 1989. At that time we said that the land should be acquired at Badgerys Creek, designated as an airport, and there should be a minimum size airport constructed to provide a conforming land use to ensure that the purpose of the site is not jeopardised.

However, according to our projections, Badgerys Creek won’t be required for commercial aviation until about 2006 or 2010. Somewhere in that time frame, Kingsford Smith will reach saturation and there will be a need to develop a new commercial airport.

In the unconstrained demands scenario, there is a requirement for a new runway in the Sydney basin about once every six years, which is a tremendous growth in runways. So there is no question about Badgerys Creek eventually being required and being required to be built now.

What we have done is enter into a lease with the Government to operate Badgerys Creek airport for a period of ten years. Within 26 months of signing the lease we undertook to build an airport there which contained an 1800 metre runway capable of carrying up to 100 seat jets which is basically BAe 146s and F288.

The lease was signed on April 30 and we let the contract for the design the same day. We’re on track to have the airport opened on July 1 1995 which is 26 months from the day we signed. The first bulldozers will be on site out there this month doing some preliminary earth works and environmental works. The main construction contract we are dependent on at the moment will be ready in January. So it is all go.

At the end of the 10 years, it is not a question of Badgerys Creek coming on to our asset register it is just the expiration of the lease. At that time we have an option to either renew the lease or not. That will be at our discretion and if the Government is not happy with The single aviation market has implications for the Corporation in that there is a differ- ent kind of passenger now. Where we had domestic passengers and international passengers before, we now have precleared or trans Tasman passengers; the international airlines have additional rights to carry domestic passengers on internal sectors within Australia; and Ansett now has power to operate international services through their own terminals. From an infrastructure point of view there are massive changes required.

what we propose then it can go to anybody who wants to operate a good second hand airport out at Badgerys Creek.

Q: How much of your time is currently spent dealing with the numerous committees that are delving into the activities of the FAC at the moment?

A: Far too much. At the moment, there are something like eleven inquiries into the operation of the FAC and it has come to the point where I have created a task force to respond to these various inquiries. That has meant taking key operational people out of their normal roles to be able to generate adequate responses.

The range of inquiries is quite incredible. As well as the Prices Surveillance Authority, there is the Industry Commission report into intrastate aviation which was done last year and turned out to be a witch hunt on the FAC, and there has been no action taken on that yet. There is a review of GBE asset valuation methodology, a review of dividend policy for GBES, a review of rate of return criteria for the Federal Airports Corporation and the CAA, a customs inquiry, benchmarking – it just goes on and on.

Q: Is this a constructive process which will produce benefits or are you seeing it purely as an impediment to getting on with the main job?

A: That’s a hard one. I think the reason all these inquiries have manifested themselves is because we have done an inadequate job in selling what the Corporation has achieved and what it is about. It certainly hasn’t been a priority of mine up until now; I have been more interested in getting the bloody job done rather than telling people about how I am going to do it. Perhaps now with all these inquiries, the positive thing that comes out is that it gives us an opportunity to put forward the achievements of the Corporation in a fairly objective and public way.

Q: Would we expect to see any major changes to the management or pricing policies of the FAC emerging as a result?

A: There have already been changes in the management of the FAC as a result of internal reviews. We took a survey of our customers 18 months ago to determine what their perceptions of the Corporation were. That was a pretty shocking report when it came to hand, so we took some action to try and make some changes to improve the situation. We did a follow up review about Christmas last which showed there had been improvements in the perception of the Corporation and the way it delivered its product but it was still far from a glowing report. We have gone back to review again the way we do business, to consult more effectively with our major customers to find out what their needs are and we have made some adjustments.

One of the changes that we have made is the appointment of a Chief General Manager of Operations whose responsibilities include ensuring a uniform and consistent application of policy and standards across all airports and dealing with our national customers on a national basis which is what they were screaming out for.

I had tried to say in the past: “Lets deal with our customers at a local level where the man on the spot knows the job better than the people who are sitting in the ivory tower at head office. ” However, some of our major customers wanted to be dealt with at a corporate level, so we made adjustments to be able to accommodate that.

Q: The Prices Surveillance Authority [PSA] published their final report into your pricing structures recently. What did you like most about their report?

A: I think what I liked most about the report is that they acknowledged we were doing a good job according to what we were set up to do by the Government.

While the substantial recommendations did not change very much from the time of the draft report until the final report, the tone and the nature of the recommendations changed quite considerably inthat they acknowledged a lot of the things they had recommended were processes that were in train. They acknowledged that it would take time to achieve some of the changes if we weren’t going to make major disruptions to the way the airport business and aviation in the country works.

Q: We have seen your very public campaign against the findings of the report, and indeed against the PSA itself, which many thought to be a rather unusual response. Why did you choose to make such a public issue of your objections to their findings?

A: The reason I took public exception to their findings is because they made such a public issue of their findings. It would not have happened had there been some consultation between the PSA and ourselves prior to the release of the draft report. I was particularly concerned with the tone of the press release that accompanied the release of the draft report, the fact that they had used inaccurate information, made false assumptions, and drawn incorrect conclusions to sensationalise their findings. Had there been a more moderated approach to the release of the draft report, my response may well have been more moderated as well. But I was not prepared to just sit back and cop it. Q: Can you tell us where the process is now and what happens next? A: The final report of the PSA has been produced and in accordance with the requirements of their it has been presented to the Minister assisting the Treasurer. Under normal circumstances, the report would then be assessed by Government and certain directions or recommendations made or instructions given.

In this particular case, that is not the chain of events at all. The report has been referred to yet another inquiry- one of the eleven I mentioned earlier – which is the Inter Departmental Committee looking at the capital structure of the Corporation.

That committee is charged with the responsibility of looking at all sorts of aspects including the taxation regime which applies to the Corporation, the PSA report, the return on assets criteria for the GBES, the operation of the Corporation, the long term impacts of our capital program, and the future profitability of some of the airports. It is scheduled to report this month, so we await with interest their deliberations.

Q: What do you anticipate as the likely outcome?

A: Anything I say there would be pure speculation. We asked to be members of the committee but that was declined. We are now seeking a forum whereby we can at least meet with the members of the committee from time to time, so that we can participate in their deliberations. At the end of the day the Government as shareholder has the right to determine the way in which it wants its business run, but I would like to think that they are making the decision in the most informed way possible. I would therefore like to make sure that our input is fed into the system before the decisions are made rather than having to fight a rearguard action afterwards, as we have had to do in the past.

Q: With respect to the issue of peak period pricing, the regionals say that the peak period surcharges are far too high already and the PSA says they are not high enough. The major airlines would not mind at all if they were raised to keep the “riff raff” out and whichever way you turn it seems to be a no win situation where you can never please everyone. At the moment you don’t seem to be pleasing anyone. How are you going to resolve this situation?

A: The objective which we were trying to achieve initially was to get the optional traffic out of the peak to allow the RPT operators to have the best possible access during the peak periods to what is a limited resource.

We therefore suggested that there be a charge applied to non RPT traffic. It was designed to be discriminatory, but we were told that was illegal. We had to put a flat charge in place and being a flat charge of course it had a greater impact on the smaller aircraft than it did against the larger ones. But that wasn’t our intention. Our original suggestion was thatit should be a discriminatory charge against the non RPT traffic, because I think there is legitimate role for the regional traffic in Kingsford Smith and there is a need for those people to be able to operate during the peak period.

However, putting that charge in place, we tried to structure it in such a way that any of the optional traffic would still see opportunities outside the peak and so spread the peak. The peak period surcharge was a traffic management measure and not an economic measure to justify the parallel runway or any other development. It was intended purely to flatten out the peak, to take the optional traffic out of that peak to let the scheduled carriers in during the peak periods.

Now the PSA say that is not enough, because the peak period surcharges that we are applying are insufficient to change the behaviour of the carriers. If you charged the real price that was required to operate during those peaks then you might force other carriers out. Maybe so, but it’s not our intention or our objective to force other people like the intrastate scheduled carriers out of the peak, because we believe there is a for them to operate there.

If we were to double the charge as recommended by the PSA we would recover an additional $7 million a year from regional carriers operating into Sydney Kingsford Smith airport during the peak period. It is a burden that would have to be borne by the people in rural NSW or the people that are doing business with rural NSW. We don’t see the need for that at this stage because the level of charge which is in place is adequate to give us sufficient spread to reduce the delays during the peak period to an acceptable level.

Q: If the reason for not increasing the surcharge is motivated by concern for the regionals, then why not do them a real favour, scrap the surcharges altogether and let the CAA sort out the problem through revised air traffic control procedures?

A: The CAA have a priority system in place and that has been in place for a long time. It was proven to be inadequate in dealing with the traffic management situation and that was the reason we moved to a peak period surcharge.

In fact there is one other option which has been suggested and that is that you go to some sort of voluntary slot allocation amongst the carriers along the lines does. The idea was floated some years ago by us and we offered to do it. The industry said “No, you can’t do that, we will do it ourselves”, and they formed a group called the Australian Air Transport Association which was modelled along the ATA in the US. They were going to look at rationalisationtion of , disbandment of cluster scheduling, and so become a self regulatory body.

It has been ineffective and has not achieved any of its objectives up to the present time. But I have been talking to people in the industry in the last week or so who do see it as offering a way forward in traffic management. I see it as a more satisfactory alternative.

Q: The PSA reported that numerous groups including IATA, BARA, Qan- tas, Air New Zealand, Ansett and British Airways all rejected the concept of network or uniform pricing. Indeed it seems perfectly reasonable that an international airline flying from, say London to Sydney should not be made to pay for new terminals at Darwin or Alice Springs which it will never use. If your investment at Darwin or Alice Springs was based on the forecast revenue derived from charges for the services provided at those specific airports, would this not automatically give you the signals you needed as to how much expenditure was appropriate at each location?

A: There are two issues there. Let me address them in turn.

Firstly the airlines have argued against cross subsidisation while of course they practise this themselves. They have profitable routes and unprofitable routes and there are cross subsidies within the airline product mix. So they are not arguing from a point of view of theory but from what they see as being something of commercial advantage to them. They see that the cross subsidy may reduce their costs to operate at their airports.

There are a couple of other factors which come into play. For example they always point to the GA airports as being a drain on the Corporation and a loss maker. If we were to increase the charges of the GA airports by an average factor of 12 times – not 12% but 12 times – we believe that would have a dramatic impact on the number of peo- ple that remained at GA airports and their future would be in jeopardy. The traffic would need to be accommodated at what are currently primary airports which means that you would build up more and more congestion at the primary airports or build another runway at the primary airports to accommodate the GA traffic. The GA airports have been established as reliever airports to take the itty bitty traffic away from the main commercial airports – that’s what they have been designed for. They are also training grounds for pilots.

On the other point of Darwin and Alice Springs, it’s important to understand the background to the decisions to build those facilities. I am not pre-tending for one moment that they were made in isolation on commercial grounds.

In March or April 1988, three or four months after we had taken responsibility for the first batch of 17 airports, I saw an advertisement inserted by the Northern Territory Government seeking expressions of interest for the development of commercial aviation facilities at Darwin Airport. I thought that strange, because as far as I knew, it was Commonwealth owned.

I phoned Canberra and found that the Northern Territory Government had expressed interest in acquiring Darwin airport, but they had jumped the gun a bit. I said “Since you have just created a perfectly good Government Business Enterprise to own, operate and develop Australia’s airports, would you be interested in receiving a bid from us for Darwin airport?” They said “Would you be interested?” I said “I haven’t looked at the numbers yet but we could be. ” I had a look at the numbers and when I did the discounted cash flows (with the caveat that these new civil aviation facilities had to be built on the northern side of the airport), it came out to be quite a substantial negative number. So I said I wasn’t interested. I was then told that the Northern Territory Government was also looking at Alice Springs and Tennant Creek. I said straight away I would not be interested in Tennant Creek, but Alice Springs might be a go. Ihad a look at the numbers and I thought that I could make money out of Alice Springs but not out of Tennant Creek or Darwin. But I was told it was a package deal for the three and so I accepted.

Now with Darwin it was a joint user agreement between the Northern Territory Defence. I thought that if it worked between the Northern Territory Government and Defence, it would also work between the Corporation and Defence. So there was no reason why that joint user agreement couldn’t be extended beyond Darwin to include other joint user airports such as Townsville and Canberra.

Townsville was pretty much touch and go but at Canberra I could make money. So we added up the NPVs [Net Present Values] of all these airports, looked at all the cash flows over the planning period, looked at what the up front expenditures were on the airports and it came out to be a zero sum.

In other words what I’m saying is that I bought a batch of six airports as a network. I didn’t say I’m going to buy this one and lose money on it and I’m going to buy that one and make money on it – I said I’ll buy the six of them, make money on some and lose money on others, but the overall net bill was an NPV which was a very small amount. In fact $3. 6 million is what I paid for the six airports, because some of them were very profitable and some of them were loss makers.

So that was how the decision was made. It was a commercial decision but not on individual investments but on an investment in six airports.

Q: But isn’t that one of the major issues here? The PSA and other economic groups say that this sort of thing should not happen if there is no cross subsidisation.

A: What we are doing now is changing the rules in the middle of the game. If I had known that was the rule, then I wouldn’t have bought Darwin airport at the time with that caveat on it. But I bought a network of airports, some of which were profitable and others which weren’t. The net deal was a good one for the Corporation. If they want to change the rules now, then let’s start a new game, but let’s not change the rules of the game in mid play.

Q: To finish on a more positive note, what would you say is the most positive aspect of your job at the moment?

A: It’s fun. I think that the Corporation has made tremendous achievements in its short history. If you look at the state of the facilities around Sydney and Mel- bourne and soon in Brisbane, compared to what existed in 1987 before we took over, if you talk about things like a second airport in Sydney as being un- der construction, a parallel runway half completed, it’s a tremendous achieve- ment and again all against a background of no increases in prices in real terms. That is the positive thing that I would like to stress.