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The Us Faa Has Issued An Emergency Airworthiness Directive To Inspect Lockheed Tristars For Structural Cracking. Cracking Was Found In Longerons Along Both Sides Of The Cabin That Run About 76cm (30in) Above The Cabin Windows In At Least 20 Tristars, Prompting The Ad. The Cracking Is Thought To Be Caused By Pressurisation Cycles. The Ad Required That Aircraft With 20,000 To 25,000 Cycles Be Inspected Within 120 Days, And Aircraft With Over 25,000 Cycles Be Inspected Within 25 Days. There Are Over 110 Lockheed Tristars Remaining In Airline Service. (julian Green)
Airline Affairs
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Qantas Float Launched
The Qantas share float was formally launched on July 3 amid intensive advertising designed to push the ‘national icon’ aspect of the deal so as to increase its appeal to the so called ‘mums and dads’ investors. Private investors will get first bite of the 750 million shares on offer (75% of the company) for a nominal $2.00 each if fewer than 20,000 are purchased by private investors and $2.10 if more than this are purchased. The minimum purchase for private investors is 1000 shares and the exact price they pay will depend on how many are purchased and the response of the institutions when they get their chance to purchase immediately after the public offer closes. It is expected that up to 550 million of the shares on offer will be purchased by private investors. The public offer closed on July 21 with the institutions able to bid between July 24 and 28 with the final price and share allocation officially being announced on July 31, the same day as trading is expected to commence on the ASX. The institutions will pay between $1.80 and $2.10 per share. If the institutional final price is below $2.10, private investors will get a commensurate reduction in the price of their shares. Investors who retain their shares until after June 1 1996 will be entitled to ‘Loyalty Shares’ in the ratio of one for every 25 shares held. The price is considerably lower than the $2.66 needed if the government wanted to realise the full $2bn target price for Qantas, excluding the $665m British Airways has already paid for its 25% stake, for which it paid a relative premium in late 1993. The share offer prospectus also contains some interesting forecasts of Qantas’ performance for the 1994/95 financial year including revenue of $7.191bn, a pretax profit of $471m ($180m after tax), earnings of 18.1 cents per share and a 7.8% return on shareholders’ equity. Full details of the 94/95 year are expected this October. For this financial year the prospectus suggests that Qantas will gross $7.978bn for a pretax profit of $533m, an after tax profit of $237m and a return on investment of 9.6%. The all important debt to equity ratio is expected to be 46:54 by the end of June next year, a marginal improvement on the current 47:53 figure. By deliberately ‘under selling’ the perceived value of Qantas the Government is setting in place a strategy to ensure that the QF float is a major success in terms of market acceptance. Over 600,000 copies of the 114 page colour prospectus were ordered by potential investors prior to July 3 and at the lower than anticipated price on offer it is expected that there will be much grass roots support from the Australian public at large. The Government needs the Qantas float to be a major success as hot on its heels will follow a raft of major Commonwealth, State and large private sector floats including the AIDC ($300m), Commonwealth Bank ($3bn), Bank SA ($750m), BankWest ($750m), Victorian power utilities ($350m), Lihir Gold ($600m), David Jones ($800m) and eventually the NRMA at around $1.6bn. This does not take into account the public listings of any of the FAC airports which collectively could be worth a further two billion dollars over the next several years depending upon how they are finally packaged. Overall, Federal Government asset sales worth an estimated $2.1bn are slated for this year with a further $1.4bn being offered in 1996/97 amidst what is a fairly lacklustre trading environment. A successful Qantas float will increase the expected return on all these privatisations though if the float fails then the reverse could well be true. An in-depth seven page analysis of the Qantas float was presented in our July edition.
World Airline Finances Improving
Figures released by the International Civil Aviation Organisation (ICAO) show that the world’s scheduled airlines as a whole (excluding the CIS) recorded an overall operating profit in 1994 for the second year in succession following three years of losses in 1990-92. The overall operating profit has been estimated at $US6bn, or 3.2% of revenues. The US FAA has issued an emergency airworthiness directive to inspect Lockheed TriStars for structural cracking. Cracking was found in longerons along both sides of the cabin that run about 76cm (30in) above the cabin windows in at least 20 TriStars, prompting the AD. The cracking is thought to be caused by pressurisation cycles. The AD required that aircraft with 20,000 to 25,000 cycles be inspected within 120 days, and aircraft with over 25,000 cycles be inspected within 25 days. There are over 110 Lockheed TriStars remaining in airline service. This compares with a 1% return on revenues in 1993. Operating revenues rose by 10% in 1994 to $US247bn, faster than the increases in operating costs which were up 7%. While operating revenues per tonne kilometre performed remained similar to 1993 at 88.3 US cents, operating expenses per tonne kilometre fell to 85.4 US cents in 1994 from the previous year’s 87.6 US cents. The airlines’ net result for 1994 (after the inclusion of non operating items such as interest and subsidies and the deduction of income taxes) is expected to be marginally in the negative overall, although this would in itself be a vast improvement over 1993 when a net loss of $US4.4bn was recorded.
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