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Outline 2001 / 22: Did the Australian Government do sufficient to assist Ansett?


What they said ...
More than 16,000 people rely directly on Ansett for their employment. Many more than that number rely indirectly on the company for their well-being. These employees have been let down by ... the government'
Age editorial published September 14, 2001

'There is no way [Ansett] can be revived ... Of course, if the Government was prepared to pump enough money into it - and straight down the drain - it could keep the planes in the air for a while ... But at an horrendous and utterly pointless cost'
Terry McCrann, writing in The Herald Sun on September 15, 2001

In September 2001, the media revealed that Ansett was running at a daily loss of $A1.3m, and faced closure without some kind of rescue package from the Australian Government, from its offshore owners, or elsewhere.
On 12th September, Qantas indicated it would not purchase Ansett; and on September 13, 2001, administrators from a firm of accountants moved in to take over, whilst rumours predicted grounding of Ansett aircraft within the day.
It was the Airline's second crisis this year, part of its fleet being grounded in April when cracks were found in spars on some of its Boeing 767s. And the previous December, six planes were grounded when it was found that certain safety checks had not been carried out.
The April groundings weakened the financial position of Ansett, under Air New Zealand ownership. In a report in the Australian Financial Review, financial market analysts had already predicted that Ansett's losses could blow out to more than $170 million by the end of the 2000-01 financial year.
The fleets of Ansett, and its subsidiaries Hazelton Airlines, Kendell, Skywest and Aeropelican were grounded on September 14th, 2001.
Thousands of jobs were threatened and many regional areas were left without an air link. Air New Zealand, as the owners of Ansett, was severely criticised, as was the Australian Government.
Critics argued that the Government should have done more to prevent the airline's collapse and that after the collapse they should have done more both to promote its re-establishment and to assist its employees.

Background
History of Ansett Airlines
Ansett Airlines was founded by Reg Ansett (later Sir Reginald Ansett).
Ansett had originally run a road freight operation. When changes to state law put an end to this business, Ansett set up Ansett Airways in 1935. The airline's survival was extremely precarious and it relied in part on the proceeds from its flying school. However, the Government set up the Department of Civil Aviation in July 1935, with authority to subsidise airlines, and Ansett, though it had not yet achieved any major profit, hung on.
The company gained some mail contracts in 1936 and in 1937 Ansett Airways Limited was incorporated in Victoria as a public company.
Ansett ceased regular operations during World War 2, except for its Hamilton-Melbourne service, and worked under contract to the USAAF, flying personnel throughout Australia and assisting in the evacuations of Darwin and Broome after Japanese bombing.
After the War, Ansett obtained three USAAF C-47 aircraft and converted them to DC-3 standard, operating them on routes between Melbourne-Mount Gambier-Adelaide, and Melbourne-Wagga Wagga-Canberra.
In May 1946, Ansett Airways became Ansett Transport Industries. Ansett set up a number of hotels across Australia, and bought some smaller companies, forming Ansett Flying Boat Services using an ex-RAAF Short Sunderland, two Catalinas, and two Sandringhams (variants of the Sunderland).
In 1954, Ansett's first pressurised airliner, the Convair 340, entered service. In 1956 they took delivery of their first nose-loading Carvairs; until then additional cargo could only be carried in the belly space of passenger airliners.
In 1957 Australian National Airways, founded by Charles Kingsford Smith and Charles Ulm back in 1930, was in difficulties, and Ansett bought ANA, then Queensland Air Lines and Butler Air Transport.
By 1958 their fleet consisted of six DC-6 and DC-6B aircraft, two Viscounts, eight Convair Metropolitans, two DC-4s, 20 DC-3s, and a Bristol Freighter, with four Vickers Viscounts and six Fokker Friendships on order.
On 16th October 1964, Ansett introduced the first jet airliner, the Boeing 727, to Australian service at Essendon, Victoria.
By 1969, Reg Ansett saw the airline he founded achieve the status of Australia's largest domestic airline, later becoming Ansett Transport Industries.
In 1979 control of ATI passed into the hands of Sir Peter Abeles (TNT) and Rupert Murdoch (News Ltd.) and in 1980 a totally separate company, Ansett Air Freight, was formed. Sir Peter Abeles was largely responsible for the running of the airline and has been criticised for setting up a very eclectic fleet, comprised of eight different types of aircraft. This made maintenance extremely expensive.
In 1996, Ansett Australia, Ansett International, Air New Zealand and Singapore Airlines joined in an alliance that was the largest in the Asia-Pacific area.
In January 2001, Air New Zealand, which had long wanted full access to the Australian market, bought out Newscorp's share of Ansett and became sole owners of the airline.
On acquiring full ownership of Ansett, Air New Zealand apparently discovered that the airline's maintenance schedule had been seriously neglected and that its ageing fleet needed to be upgraded.
In June 2001 Air New Zealand/Ansett sought recapitalisation by having Singapore Airlines purchase 49 per cent of the company. Singapore Airlines were already a significant stakeholder in Air New Zealand. Both the Australian and the New Zealand Governments appeared to block Singapore Airline's bid.
By September 2001 Ansett Airlines was losing millions of dollars a day and neither Qantas Airlines nor Singapore Airlines were any longer interested in purchasing or becoming stakeholders in the company.
Administrators were appoint at Ansett Airlines and New Zealand Airlines, having jettisoned Ansett, only appeared to survive with the assistance of a large injection of New Zealand Government money.
In November 2001 businessmen Solomon Lew and Lindsay Fox, offered $1.1 billion for Ansett's business on major routes. This is the most substantial offer made for any part of the Ansett enterprise to date and if it proceeds is hoped to save the jobs of some 4000 Ansett employees.

Internet information
Channel Nine's Sunday program treated the background to the Ansett collapse in a cover story titled 'Who shot down Ansett?' The program was shown on October 28, 2001.
The program provides interesting background information, especially on the involvement of the Australian Government in the failure of Singapore Airline's bid to take up a 49 per cent holding in Ansett/Air New Zealand in July-August of this year.
It can be found at http://news.ninemsn.com.au/sunday/cover_stories/transcript_955.asp

The Age, in its issues section, has put together a collection of most of the items it has published on the Ansett crisis since September 11, 2001. An index for these items can be found at http://www.theage.com.au/issues/ansett/index.html

The Department of Transport and Regional Services indexes of all the media releases made by the Minister for Transport, Mr John Anderson. The index for September is particularly useful as it contains information on the measures taken by the Government to support those Ansett subsidiaries servicing regional Australia. It also includes the Minister's answers to some of the criticisms made by the Opposition of the Government's handling of the Ansett crisis.
The September index can be found at http://www.dotrs.gov.au/media/anders/archive/2001/sep_01/sep_01.htm

Radio National's Background Briefing broadcast a program on September 14, 2001, titled 'Going Under: Regional Aviation in Trouble'. The program looks not only at the plight of regional areas formerly serviced by Ansett subsidiaries, but also considers the difficulties being faced by all providers attempting to supply a service to regional Australia.
A full transcript of the program can be found at
http://www.abc.net.au/rn/talks/bbing/stories/s392175.htm

Radio National's AM program broadcast an interview with the Transport Minister, John Anderson, on September 14, 2001. In this interview, Mr Anderson claims, among other things, that he and the Government were taken by surprise by the extent of Ansett's financial difficulties.
A full transcript of the interview can be found at http://www.abc.net.au/am/s366469.htm

Radio National's AM program broadcast a report on September 17, 2001, on the impact of Ansett's collapse on regional Australia. A full transcript of the broadcast can be found at http://www.abc.net.au/am/s368303.htm

Radio National's PM program broadcast excerpts from a parliamentary debate between the leader of the Opposition, Kim Beazley, and the Transport Minister, John Anderson, over the extent of the Government's prior knowledge of Ansett's woes and who should now accept responsibility for addressing the problems created by Ansett's collapse. A transcript of this discussion can be found at http://www.abc.net.au/pm/s369663.htm

The ABC's 7.30 Report presented an interview with Transport Minister, John Anderson, on September 11, 2001. A full transcript of the interview can be found at http://www.abc.net.au/7.30/s363825.htm In this interview Mr Anderson discusses his government's involvement with the so-called 'Qantas option' for recapitalising Ansett.

The ABC's 7.30 Report presented an interview with Air New Zealand chief executive officer, Gary Toomey on September 17, 2001. Mr Toomey discusses what he believes was Air New Zealand's role in the Ansett collapse. A full transcript of the interview can be found at http://www.abc.net.au/7.30/s369736.htm

Arguments suggesting the federal government did not do sufficient to assist Ansett
1. The federal government did nothing to assist Ansett prior to its collapse despite advance warning of its financial difficulties
Air New Zealand's acting chairman, Jim Farmer, has claimed he told the Australian Government in 'no uncertain terms' in the last week of June that Ansett was in serious financial trouble. Mr Farmer is reported to have told the Australian Government that Ansett was losing $18 million a week.
The acting Air New Zealand chairman, Jim Farmer, sent a further letter to Transport Minister John Anderson and the Prime Minister John Howard. The letter, dated August 14, 2001, included the comment, 'I'm writing to inform the Australian Government of the extremely serious situation faced by the Air New Zealand Group, and more particularly Ansett Australia, in the current aviation situation.'
The Age in its editorial of September 14 stated, 'On several occasions last month, the Prime Minister John Howard and the Transport Minister John Anderson were advised that Ansett's losses were mounting and that unless serious action was taken it would founder. But the government at no time appeared to have a clear idea about what type of steps could be taken to avoid what was already an impending industrial disaster.'

2. The federal government did not promote Singapore Airlines bid to inject cash into Ansett Airlines
It has been claimed that both the New Zealand Government and the Australian Government discouraged Singapore Airlines' attempt in July and August of 2001 to gain a 49 per cent share in Ansett Airlines/Air New Zealand.
It has been suggested that the Australian government took a leading role in discouraging the take up of this offer.
Jenny McManus of the New Zealand Independent Weekly made the following comment on Channel Nine's Sunday program of October 28. 'The defining moment seems to have been John Anderson's trip over here at the beginning of August. We don't know why the New Zealand Government decided to be so dazzled by Anderson's arguments.'
Ms McManus is one of a range of commentators who believes that the Australian Government's opposition to the Singapore Airline bid was crucial in the New Zealand Government not approving that bid.

3. The federal government acted in the interests of Qantas rather than Ansett
It has been claimed that the Australian Government allowed itself to become a spokesperson for Qantas' alternate proposal re the recapitalising of Ansett. Qantas proposed that Singapore Airlines take over all of Ansett and that Qantas join with Air New Zealand.
In the event all the alternate proposals served to do was to complicate and stall negotiations.
The Australian's economics editor, Alan Wood, has stated, '... the Howard Government and its Transport Minister, John Anderson, allowed themselves to be bluffed by Qantas alarmism about Singapore Airlines emerging as the 100 pound gorilla of the region.'
The following claim was made in Channel Nine's Sunday program on October 28, 2001. This claim refers to the supposed spoiling role that the Australian Government played in Singapore Airlines' bid to acquire 46 per cent of Ansett/Air New Zealand.
'Then Qantas pulled out its trump card. Australian Transport Minister John Anderson travelled to Wellington on August 1 to personally lobby on behalf of Qantas. He pushed what was known as the "Qantas Proposal". This plan suggested Qantas buy Singapore's stake in Air New Zealand, and then Singapore buy Ansett from Air New Zealand. Anderson pushed it directly to the New Zealand Government.'

4. The federal government has ignored its responsibility to those who work for Ansett or whose employment depends on Ansett
It has been claimed that the federal government had a responsibility to act in the interests of those who either work for Ansett or depend on Ansett for their employment.
According to this line of argument, any industry that employs a large number of people and whose spin-off activities affect an even larger number of people becomes a legitimate concern of the government.
Critics of the Australian federal government's relative lack of action have looked with approval at the New Zealand Government which supplied Air New Zealand with a $NZ550 million credit facility to ensure the airline's survival.
The Age in an editorial published on September 14, 2001, stated, 'More than 16,000 people rely directly on Ansett for their employment. Many more than that number rely indirectly on the company for their well-being. These employees have been let down by ... the government.'
A similar point was made in an Age editorial published on September 15, 2001. The editorial stated, 'The Ansett collapse is an economic disaster for this nation. Tens of thousands of Australian families will be hurt by its closure. Its effects will ripple across the country, into many, many homes and businesses ... the Australian Government had a responsibility to fully safeguard the interests of Ansett workers ...'
ACTU secretary, Greg Combet has stated, 'It's an absolute failure of the Howard Government that it did nothing to protect jobs ... it's known about this for months and there is still no rescue plan.'
Some estimates have suggested that as many as 100,000 jobs could be lost directly and indirectly as a result of Ansett's collapse.

5. The federal government has a responsibility to ensure that all areas of Australia are properly serviced by air transport
It has been claimed that there are areas, especially of rural Australia, which were only serviced by Ansett Airlines. There are those who argue that where this is the case the federal government has a responsibility either to ensure that Ansett continues to operate or that another airline provides the service once supplied by Ansett.
It has been claimed that in circumstances such as these area transport should be viewed as a basic service such as roads and that it is therefore the responsibility of the government to ensure that this service is provided.
This point was made in an editorial published in The Age on September 15, 2001. The editorial stated, 'The Ansett collapse will hit regional Australia especially hard. Because Ansett had in recent years swallowed up many smaller country-based airlines, whole sections of non-metropolitan Australia [will be] without airlinks ... a remarkable and intolerable situation.'
It has been estimated that as an immediate result of the Ansett collapse there are more than 60 country towns without air services.
It has also been suggested that Melbourne, which relies heavily on Ansett (Sydney is Qantas headquarters), will be adversely affected by Ansett's collapse.

6. The federal government has a responsibility to ensure that there is effective competition in the air transport industry
It has been claimed that since the privatisation and deregulation of the air transport industry effective competition has a vital role to play in controlling the cost of air travel to the consumer. It has further been noted that in as large and far-flung a nation as Australia it is particularly important that air travel not be priced out of the reach of most Australians. It has been suggested that in these circumstances guaranteeing competition is a federal government responsibility.
This point was made in an Age editorial published on September 14, 2001. The editorial states, '... domestic aviation carries a national interest component. In a nation as vast as ours, the Commonwealth has a responsibility to ensure that a viable competition exists to produce the best outcome for consumers.'

Arguments supporting the Federal Government's actions regarding Ansett
1. The federal government was not aware of the full extent of Ansett's financial difficulties
The deputy leader of the Coalition, Transport Minister John Anderson, has claimed that his government had 'no idea' of the extent of the financial crisis facing Air New Zealand and its Ansett subsidiary.
It has been claimed that one of the reasons why the federal government was unaware of the extent of Ansett's financial difficulties is that they had been given a far more positive view of Ansett's financial position by the company's chief competition, Qantas.
Helen Dally, a reporter for Channel Nine's Sunday program has stated, 'Qantas lobbied hard, both in Wellington and with the Howard Government in Canberra. A major weapon in its armoury was to push Qantas' positive spin on Ansett's perilous financial position. Qantas even gave the Australian Government a confidential document, stating how financially healthy Ansett was.'
Geoff Dixon, Qantas chief executive officer has admitted presenting a slide show to the Australian Government in July, 2001, showing that Ansett was not in as difficult a financial situation as it claimed.

2. The federal government believed that other options than an Ansett/Singapore Airlines alignment needed to be investigated
The Australian Transport Minister, Mr John Anderson, has stated that he and his Government believed that other options than a Singapore Airlines purchase of 49 per cent of Ansett/Air New Zealand should be considered. Mr Anderson and his government also wanted the 'Qantas option' considered. Under this option Qantas would purchase Singapore Airline's share of Air New Zealand and Singapore Airlines would purchase all of Ansett.
Mr Anderson stated on Channel Nine's Sunday program on October 28, 2001, 'I felt that both options should be carefully evaluated.'
The federal government was concerned that if the Singapore Airlines proposal went ahead, then, as Mr Anderson stated, on October 28, 'Singapore, Air New Zealand and Ansett ... would be potentially a very large business indeed.'
The Australian government was concerned that this would undermine competition within the Australian airline industry and was particularly concerned about what Mr Anderson referred to as 'the competitive impact on Qantas'.

3. The federal government is under no obligation to involve itself in the affairs of a failing enterprise
The federal government is under no legal or ethical obligation to try to ensure the survival of a failed business venture.
According to this line of argument, all business activities involve a degree of risk that is taken by the shareholders and the directors of a company. If a business appears likely to fail either through mismanagement or misfortune, no government, either state or federal can be expected to use taxpayers' money to shore it up. This is especially the case where the business would require the injection of a great deal of capital for a doubtful result.
Terry McCrann, writing in The Herald Sun on September 15, 2001, has made this point. Mr McCrann states, 'There is no way [Ansett] can be revived ... Of course, if the Government was prepared to pump enough money into it - and straight down the drain - it could keep the planes in the air for a while ... But at an horrendous and utterly pointless cost.'
It has been claimed that at the time it was put into the hands of administrators Ansett's losses had spiralled from $2 million to $10 million a day.
This position was summed up in an editorial published in The Australian on September 8. The editorial stated, 'Knee-jerk government rescue packages offer nothing. Airlines are capital-intensive businesses, vulnerable to booms, busts and price wars. Ansett is losing $1.3 million a day; it must have a multi-billion-dollar fleet upgrade. John Howard offered some clarity by saying he was not attracted to the Government making direct equity investments in any company.'

4. The responsibility for Ansett's failure does not lie with the federal government
It has been claimed that the failure of Ansett is a business failure, based on factors such as the high maintenance costs associated with Ansett's ageing and varied fleet and the financial mismanagement of Air New Zealand after it bought Ansett.
It has been claimed that the purchase was ill informed and ill considered. Bob Ansett, the son of Ansett's founder, Sir Reginald Ansett, has described the purchase as being like a 'guppy trying to swallow a whale'.
Air New Zealand is said to have fallen into financial difficulties of its own, in part as a result of acquiring Ansett, and to have been primarily concerned with securing its own survival.
ACTU secretary, Greg Combet, has accused Air New Zealand of 'gross mismanagement' of Ansett and has suggested that in its dealings with Ansett, 'Air New Zealand has no credibility at all.'
Criticisms such as these have been used by some as a means of suggesting that the primary responsibility for Ansett's collapse does not rest with the federal government.

5. After Ansett was put in receivership the federal government set a $10 ticket levy to guarantee Ansett workers' entitlements
The federal has put in place a $10 levy on all airline tickets sold from October 1, 2001. The money raised through the levy will be used to ensure that all Ansett employees who lose their jobs as a result of the company's collapse will receive their unpaid wages, annual leave, long-service leave and pay in lieu of notice.
The Workplace Relations Minister, Mr Tony Abbott, has said that the tax will remain in place until the full cost of the scheme being set up to meet the Ansett workers' entitlements has been covered.
Mr Abbott further claimed, 'It is not fair that we tax the whole of the community to support this need, but it is appropriate to impose a tax on airline users.'
The Government has argued that a levy of $10 per ticket will have no significant impact in terms of dampening travellers' readiness to fly.

6. All workers not directly employed by Ansett but who lost their jobs as a result of Ansett's collapse have had their entitlements guaranteed by the federal government
On September 20, 2001, the federal government announced that it would establish a scheme that would guarantee the entitlements of sacked workers in 90 per cent of company collapses.
The government's Employment and Workplace Relations Minister, Mr Tony Abbott, claimed that this scheme had been planned for some time, but that the Ansett collapse had prompted its early announcement.
The scheme is intended to cover all unpaid wages, annual leave, long-service leave and pay in lieu of notice. The scheme is intended to over full protection to workers earning up to $75,200 per annum.
The scheme will be backdated to September 12 and is intended to cover the employees of companies associated with Ansett that had collapsed because of the airline's failure.

Further implications and author's comment
Since the deregulation and privatisation of all Australian airlines in the 1990s it would appear that no government, either state or federal, has an obligation to involve itself in the affairs of an Australian airline. However, such a position ignores the importance of national airlines both as employers and as major transport links in an island continent with widely spread population clusters.
It would also appear that the current government has undermined its claim to disinterest and objectivity by involving itself in Ansett's affairs as a spokesperson on behalf of the airline's principal competitor, Qantas.
The current government appears to want to have a foot in both camps. It appears to want to influence the development of the airline industry and then largely shies away from involvement when intervention would prove extremely expensive and problematic.
It also appears that the fostering of competition within the airline industry, a development specifically encouraged by both recent Liberal and Labor governments, may have helped to undermine the viability of Ansett and to a lesser extent Qantas. Qantas has recently announced that it will be laying off some 2000 of its employees.
Australia will clearly never return to the days when governments ran airlines, however, they are clearly enterprises of major national significance and cannot be run exclusively as profit-making enterprises. Some aspects of Ansett's functions had the character of a national service, as Ansett flew to many regional areas, not all of which were very profitable.
While we have federal governments encouraging competition from smaller airlines such as Virgin Blue which service only the main routes at discount rates ( a practice known as cherry-picking) government policy is acting against the interests of Australians living in country areas.
Governments have an obligation to involve themselves in the airline industry, and not simply to guarantee the rights of employees who lose their jobs when airlines fail. Air transport is vital to this country and it is time we had an overall airline policy framed in the national interest and not some blind and partial adherence to the virtues of competition. It is probable that Ansett would be flying today had the Australian government not been so concerned to keep Qantas competitive.

Sources
The Age
8/9/01 page 5 analysis by David Elias, 'A sorry saga of ownership battles and aged aircraft'
12/9/01 page 1 analysis by Caroline Overington, 'How an airline fracture ... became a total disaster'
12/9/01 page 6 news item by Philip Hudson & Gabrielle Costa, 'Government warned on Ansett collapse'
12/9/01 page 13 comment by Cameron O'Reilly, 'Canberra's aviation pigeons come home to roost'
14/9/01 page 18 editorial, 'National interest has been grounded'
15/9/01 page 1 (News Extra) analysis by David Elias, 'The fatal cost of passing the buck'
15/9/01 page 6 (News Extra) analysis by David Elias, 'Ditching a plane-load of trouble'
15/9/01 page 8 (News Extra) editorial, 'Facing the truth on Ansett's demise'
15/9/01 page 9 (News Extra) comment by Kenneth Davidson, 'Ansett: the price of Canberra's competition policy is mounting'
16/9/01 page 3 news item by Richard Webb, 'Ripple effect on trade, employment feared'
21/9/01 page 4 news item by Phillip Hudson, 'Air tickets levy starts in 10 days'
21/9/01 page 6 news item by Annabel Crabb, '$66m workers' fund'
24/9/01 page 4 news item by Josh Gordon, 'Ansett nothing but a carcase'

The Australian
8/9/01 page 11 comment by Alan Wood, 'Public money is no silver lining'
12/9/01 page 1 news item by Steve Creedy, 'Letter that gave Canberra early warning is revealed'
15/9/01 page 6 analysis by George Megalogenis, 'Collapse will rock the nation'
15/9/01 page 7 news item by Michael Bachelard, 'Hand over money: unions'
20/9/01 page 1 news item by Steve Creedy et al, 'Howard orders Qantas to stick with Australia'

The Herald Sun
15/9/01 page 2 comment by Terry McCrann, 'Dead cat on the tarmac'
15/9/01 page 10 analysis by Ian Royall, '20 years of flying on a wing and a prayer'
15/9/01 page 11 news item by Jen Kelly and Rachael Hodder, 'Firms teeter on brink'
18/9/01 page 6 news item by Jen Kelly and Rachael Hodder, 'Job losses tipped to reach 100,000'