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Wednesday, 8 March 2000
Page: 14106


Mr ANDERSON (Deputy Prime Minister) (10:03 AM) —I move:

That the bill be now read a second time.

On 3 June 1999, the Treasurer and I announced wide-ranging changes to Australia's international aviation policy, which will further liberalise air travel between Australia and the rest of the world.

The benefits of international air travel are increasingly important to the Australian community. Under this government, tourism is now Australia's largest single export industry, with export earnings of $16.3 billion in 1998-99. The overwhelming majority of our visitors arrive and depart on aircraft.

International air services also carried over $53 billion worth of freight to and from Australia in the year ending December 1999.

The addition of Ansett International in September 1993 strengthened the Australian international aviation industry as a whole, reversing what had previously been a decline in Australia's market share in the face of good growth and increasing competition in the market.

Now—six years on, in a market that has grown by some 37 per cent and despite competition increasing from 48 to 56 airlines—Australian market share remains at 40 per cent.

To ensure that our aviation industry maintains this strong presence we must ensure that our airlines remain as competitive as possible.

The rapid growth in inbound tourism and export opportunities for Australian industry has been made possible by the success of government efforts to negotiate passenger and freight capacity well ahead of market demand. We operate in a global market that is regulated by a unique arrangement of bilaterally traded rights. As far as the government is concerned, if there are going to be restrictions, they must not impede competition and innovation, to the greatest extent practicable consistent with our national interests.

Since March 1996, this government has increased capacity available for passenger services to and from Australia by the equivalent of no less than 338 Boeing 747s per week. In addition, the government has negotiated air services arrangements where freight capacity between Australia and 20 of our bilateral partners is not constrained by government regulation. The government has also increased capacity available for freight services in our other air services arrangements by the equivalent of 129 Boeing 747s per week.

This government believes that airlines should be given the best opportunity to get on with what they do best, developing an attractive product for consumers based on their assessment of commercial demand.

However, the system of bilateral arrangements between countries that govern international aviation acts as a serious impediment to this objective. Amongst other restrictions it imposes national ownership and control restrictions to regulate entry to the international aviation market. In principle at least, an airline can be unilaterally barred from a route if either of the two countries that are parties to a bilateral agreement is not satisfied that the airline is substantially owned and effectively controlled by citizens of the other party to the agreement.

To meet these international obligations, Australian law contains statutory limits on ownership and control of our airlines. And necessarily, while most of the world's aviation is regulated in this way, Australia will keep the essential element of such a policy—a 49 per cent limit on foreign ownership.

But this policy comes at a cost for countries like Australia, which has a relatively small domestic capital market. Our airlines have of course a global market in which to borrow to finance their growth. But the ownership and control rules mean that expansion by our international airlines can be assisted by drawing on foreign investment only to a limited degree. In this most cyclical of industries, the bilateral rules encourage the use of high levels of debt rather than obtaining equity to fund long-term expansion.

The importance of that access to global equity capital to competition in aviation can be readily demonstrated in our domestic aviation industry. The funds for the new interstate airlines—most notably Virgin, but others as well, according to reports—are overseas funds. This is a risky industry. The local market may find some elements of that risk unattractive. But Australians as a whole are likely to benefit from the investment in new, competitive air services—through additional jobs, and potentially through cheaper fares.

Australian international airlines must be part of the global market. There is no way we can conduct a pro-competitive international aviation policy aimed at growing the tourism industry and at increasing the access of our exporters to international markets in the absence of consistent supporting policies that allow our airlines to expand globally. If we restrict our airlines and their engagement in regional and international alliances, tie them to restrictive policies locally that prevent them flexibly responding to market trends, we condemn them to an ever lessening share of the local market and no opportunity to grow in foreign markets.

It is an undeniable fact of life in international aviation that an airline's ability to grow in the face of stronger competition is limited by the patient capital it can obtain and the alliances it can negotiate.

As a result, the government decided last year to liberalise access to foreign equity for Australian airlines. The 49 per cent ownership and control limit is, of necessity, something we will retain—the bilateral rules require it; and we prefer that Australian international airlines remain demonstrably Australian. But the subsidiary restrictions that exist currently in the Air Navigation Act 1920 are an unnecessary impediment to maintaining as large an Australian owned presence as possible in the international market. Currently, no more than 35 per cent in aggregate of equity in an Australian international airline can be held by foreign airlines—with a limit of 25 per cent of equity to be held by an individual foreign airline.

Australia benefits from competition between Australian carriers. We should look to maximise the opportunity for Australian carriers to enter a highly competitive market where new carriers experience high start-up costs and need to be able to sustain losses in the early years of operation. We should not have a situation where Australian law adds unnecessarily to that burden by placing unnecessary conditions on access to overseas equity.

The Aviation Legislation Amendment Bill (No. 1) therefore simplifies the ownership restrictions in Australia's international airlines. As far as ownership is concerned, the simple requirement will be that no more than 49 per cent foreign ownership in an international carrier will be permitted, with no distinction between foreign airlines and other foreign investors.

This action will be supported by negotiated amendments to Australia's bilateral arrangements, which will seek agreement to broaden ownership and control criteria.

The government will also advocate liberalising ownership limits multilaterally within the General Agreement on Trade in Services framework, the GATS.

The objective overall is that our international airlines remain clearly Australian—we will not alter the requirements on them to be headquartered here and to retain the core elements of the international aviation business here. But the need for sustainable ownership structures, rather than ramshackle mechanisms designed to suit regulations from a different era, will be at the heart of these reforms. If we want to retain our substantial presence in international aviation, we are going to have to give our airlines every chance to attract long-term investors and partners.

This legislation does not represent government approval of Air New Zealand's proposal to purchase News Corporation Limited's share of Ansett Holdings, which is being dealt with separately, nor do the amendments proposed to the Air Navigation Act on this issue apply to Qantas.

At the time Qantas was fully privatised in 1995, undertakings were provided to the Australian people by the previous government that determined how the privatised entity would be owned.

Accordingly, the government does not propose to change the ownership and control rules for Qantas without further and separate public consideration.

This bill also amends the Sydney Airport Curfew Act.

It cannot be denied that communities around Sydney airport are exposed to significant levels of aircraft noise. Ideally aircraft would be silent, but unfortunately they are not. We therefore have to find a balance between the need to provide the Sydney community with efficient aviation services and the need to satisfy local residents' legitimate aspirations to protect the amenity of their homes and the health of their families.

The Sydney Airport Curfew Act is fundamental to the management of the airport's noise. Sydney is Australia's busiest jet airport, and the surrounding suburbs are overflown by large numbers of aircraft during the day. However, the night-time is the most sensitive time for noise and the government is committed to ensuring that the community is protected as far as possible from disturbance during this period.

We are proud of our record on the Sydney airport curfew. Members may recall that the Sydney Airport Curfew Act 1995 only came into existence because a private member's bill introduced in June 1995 by the Prime Minister, when he was Leader of the Opposition, forced the then Labor government to take some action. The act has proven very successful in controlling night-time aircraft movements over the suburbs. We are not prepared to see these gains eroded.

Last year, for the first time since the act came into effect, a company was prosecuted for breaching the curfew. Evidence produced before the court indicated that the fines currently imposed by the act are not acting as a sufficient deterrent. The government is therefore proposing in this bill to increase the fine fivefold. This will bring the maximum fine for a curfew breach, at the current value of penalty units, to $550,000.

I trust that this will indicate to aviation operators the seriousness with which the government treats breaches of the curfew. The rules of the curfew are clear—if an aircraft does not have approval to undertake an operation during the curfew it must not take place. We are committed to maintaining peace for Sydney residents at night. I present the explanatory memorandum.

Debate (on motion by Mr O'Connor) adjourned.