Grounded

In what the US website ‘Cranky Flyer’ described as “a laundry list’’ of problems, owner Leigh O’Connor also blamed a shortage of pilots and fare discounting by Regional Express (Rex) – strongly denied by the rival airline – for its problems.

But it was the grounding of its only operational ninepassenger Cessna Conquest under a nationwide directive from the CASA on August 24 – following a “life limit” warning from Cessna for aircraft with more than 22,500 flying hours because of structural decay – in the midst of a costly maintenance program at its own facility for O’Connor’s ageing fleet which finally brought the airline undone.

Administrator Sam Davies, of insolvency and advisory group McGrath Nicol, said the airline had “simply run out of cash’’ as it suffered a heavy decline in revenue and ongoing trading losses, with debts of $4 million to $5 million, including about $1. 5 million owed to the Commonwealth Bank, to service.

There was early optimism from McGrath Nicol that a buyer could be found to keep the airline flying after the company went into voluntary administration on November 21. The administrator received 10 expressions of interest in purchasing the operation as a going concern, but hopes for saving the airline soon evaporated as the extent of the required maintenance work became known.

So McGrath Nicol was forced to pull the plug on O’Connor Airlines Group and the company’s subsidiaries – O’Connor Air Services, O’Connor Aero Maintenance, O’Connor Aero Parts & Leasing, and OCAS Nominees.

It allowed solvent Mount Gambier travel agency O’Connor Travel Centre to continue trading but that will have to be sold as a company asset, Sam Davies told Australian Aviation. There’s a possibility that company directors Leigh and Sally O’Connor will seek to acquire the travel business, although Sally O’Connor said it was too early in the winding-up process to make a decision.

O’Connor suffered what the US website ‘Cranky Flyer’ described as “a laundry list’’ of problems.

”Davies told a creditors’ meeting in January that the group would have to be broken up and its assets sold.

These include the fleet of three BAe Jetstream 32s, one Cessna Conquest, a Cessna 210 and two Cessna 150s, as well as a portfolio of spare parts including engines, maintenance plant and equipment, and property, including the O’Connor commercial headquarters and a warehouse at Mount Gambier.

At the time of writing Davies was unable to estimate the potential return to unsecured creditors, including passengers stranded by the collapse, but believed there would be a dividend for them, once all the assets were liquidated.

When CASA issued its Conquest directive, one of the Jetstreams had been permanently grounded, neither Cessna 150 was operating and the 210 was being used only for dwindling contract work.

At the time it went under, the airline and its subsidiaries employed about 35 people including 14 flightcrew.

Originally founded as a flying school at Mount Gambier Airport in 1973, it began a daily service linking Mount Gambier, Millicent, Naracoorte and Kingston to Adelaide under a bank contract to carry electronic data processing documents in 1977.

Under the contract, O’Connor Airlines grew into a strong regional aviation force. At its peak, Leigh O’Connor said, the airline served 18 centres with freight flights and carried passengers under a Regulation 203 exemption to the then twoairline policy.

But it lost the contract in 1983 to Wings Australia, an outfit controlled by Sir Peter Abeles, and was forced to sell its fleet of 11 Cessna 402s and totally restructure its operation.

“It was a very difficult time,” O’Connor recalled, and things got worse in 1984 when East-West Airlines sought to break the two-airline policy by flying through Mount Gambier between Adelaide and Melbourne, competing with O’Connor, Ansett subsidiary Airlines of South Australia, and Murray Valley Airlines also entered the market.

“It was ludicrous, there were about 2500 seats a week available in Mount Gambier,’’ he said.

But Murray Valley Airlines collapsed at the end of 1984 and East-West Airlines dropped the route after a year, encouraging O’Connor to buy its first Conquest in 1985 for Adelaide-Mount Gambier services.

Then there was a new battle with Sir Peter Abeles and his Ansett stable. “Abeles had done a deal with (Prime Minister) Bob Hawke to restrict Tullamarine to 10-seat turboprop aircraft, which favoured Kendell and excluded us. ’’ That restriction was removed, enabling O’Connor to fly its Conquest into Melbourne Airport and add a second Conquest in 1988. The first 19-passenger Jetstream joined the fleet in 1997.

In 1998 O’Connor started services between Adelaide and Mildura, operating 12 times a week, under a deal with Qantas, and using Qantas facilities at Adelaide Airport as well as joining the airline’s frequent flyer program as an associate airline.

O’Connor added the steel city of Whyalla in September 2000 – soon after the fatal crash of a Whyalla Airlines Piper Chieftain into Spencer Gulf in May 2000 which later led to that airline’s closure.

The timing was coincidental.

“Qantas had won a worldwide contract from BHP in 1999 and had approached us to fly Adelaide-Whyalla for the BHP contract. It took about a year to negotiate a deal. ’’ That year, O’Connor Airlines carried 41,700 passengers.

In 2006, the airline took over the exclusive licence for the Adelaide-Port Augusta route, when the former operator Port Augusta Airways (which had been renamed Airlines of SA after being acquired by Airnorth) closed down. And it briefly flew to Renmark during 2001.

But the expansion and the competition, coupled with the growing maintenance costs, were taking their toll, and O’Connor began winding back its operations in the middle of last year.

It dropped the Melbourne- Mount Gambier service on July 1, then with the sudden loss from service of the remaining operational Conquest under the CASA directive, it ceased operations to Whyalla in September.

As costs continued to mount, the company was facing insolvency and was forced to seek voluntary administration on November 21.

“All the aircraft had been with O’Connor for at least

“Rex stitched us up,’’ he told Australian Aviation. “They got rid of us with their pricing. ’’

”Rex chief of staff Jim Davis strongly refuted the allegation and told the ABC his company’s fares were set only with its customers in mind. 10 years, all with a previous history, and the ageing assets were becoming more costly to maintain,’’ Davies said.

By the time the airline group went into voluntary administration, maintenance had become “a significant cost” for the company.

Apart from maintenance, Leigh O’Connor blamed tough competition and fare discounting as major contributors to the failure.

“Rex stitched us up,’’ he claimed to Australian Aviation.

“They got rid of us with their pricing. ’’ It was no coincidence that Rex was now sole operator on 34 of its 39 routes, he said.

Rex chief of staff Jim Davis strongly refuted the allegation and told the ABC his company’s fares were set only with its customers in mind.

“We haven’t gone out of our way to target any competitor.

We just put our prices as cheap as we’re able to, even when we’re the only operator, and that’s been the way Rex has gone by providing a cheaper product or a better price,” he said.

Wagga Wagga based Rex, the largest regional airline operating in South Australia, operates four daily return services with its Saab 340s between Adelaide and Mount Gambier and also links the southeast SA town with Melbourne. Davis said the airline was operating up to 64 services a week through Mount Gambier and had sufficient capacity on the route to accommodate the additional passengers from O’Connor.

The airline had contingency plans to add more flights if necessary, without needing any extra crews or aircraft, he added.

Nevertheless, the local business community would like to see new competition on the Mount Gambier route. Grant King, the chief executive of the Limestone Coast Regional Development Board, said the board would keep a close watch on developments.

Its primary concern was to ensure “an adequate and affordable’’ air service.

Mount Gambier was a significant generator of airline passenger traffic, and the board did not want travellers disadvantaged by having only one operator.

However, while there was “some interest’’ among potential competitors, the board was not actively seeking entrance of a new competitor at present, and there were no signs Rex was misusing its monopoly position, King said.

One of the board’s hopes is Virgin Blue, which has expressed an interest in flying to another SA regional city, Port Lincoln, with its new Embraer jets, and might be tempted to add Mount Gambier to its network.

Spokeswoman Amanda Bolger said Virgin Blue was likely to assess Mount Gambier as a future destination “but there’s nothing in the short term’’.