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Wednesday, 20 March 1957

Sir ARTHUR FADDEN (McPhersonTreasurer) . - I move -

That the bill be now read a second time.

The purpose of this bill is to authorize the borrowing of 27,000,000 dollars by the Commonwealth from the International Bank for Reconstruction and Development and from a group of institution leaders in accordance with loan agreements signed in New York on 15th November last.

This borrowing has been made to furnish part of the dollar funds required by Qantas Empire Airways Limited over the next three years for seven Boeing jet aircraft, four propeller-driven Super Constellations, and other ancillary equipment and spare parts. An agreement is being effected between the Commonwealth and Qantas whereby Qantas will assume full responsibility for meeting payments of principal and interest and all other costs of the borrowing. In the long run, there will thus be no net call on Commonwealth cash resources because of this borrowing. All funds received under the borrowing will be immediately transferred to Qantas and all payments due to the lenders will be made in the first place by Qantas to the Commonwealth.

The Qantas decision to buy jet-engined aircraft was due mainly to its need to maintain a competitive position in international air transport. Although various airlines are now operating, as an interim measure, turboprop and improved piston-engined types, the undoubted trend is towards the so-called " big jets " which have much more to offer in speed and comfort on long-range international routes. After a most intensive study of all types on offer, Qantas has chosen the Boeing 707/138 as being most suited to its needs, particularly as the scheduled delivery dates in 1959 fit in very well with the inevitable replacement of its present fleet of Super Constellations.

My colleague, the Minister for External Affairs (Mr. Casey) signed the loan agreements in New York with each of the lenders on behalf of the Commonwealth. As this was a borrowing in the name of the Commonwealth under the authority of the Commonwealth loan programme for 1956-57, it required the approval of the Australian Loan Council. Before the Minister for External

Affairs signed the loan agreements, the proposed terms and conditions of the borrowings were submitted by me, as chairman of the Australian Loan Council, to other Australian Loan Council members and received their full concurrence.

The amount to be borrowed from the International Bank will be 9,230,000 dollars, the remaining 17,770,000 dollars being provided by a small group of institutional lenders. This is the first loan received by Australia from the International Bank for Reconstruction and Development for purposes other than general development. Including 50,000,000 dollars to be received from the International Bank under the agreement entered into last December, the International Bank has either lent or agreed to lend 308,500,000 dollars to Australia for general development purposes, and this Qantas loan will increase to nearly 318,000,000 dollars our total borrowings :from the bank.

The agreement signed with the International Bank is reproduced as the first schedule to the bill. Honorable members will note that the principal conditions of the borrowing are that the interest rate will be 4i per cent., including the bank's usual commission charge of 1 per cent, required under its Articles of Agreement, and that the loan will be repayable over a period between June, 1964, and December, 1966. It is expected that the first instalment of these funds will be received from the International Bank next May, and that the final proceeds will be received about the middle of next year. As is usual with loans from the International Bank, there will be a commitment charge of three-quarters of 1 per cent, per annum on the principal amount of the loan remaining to be withdrawn. Interest payments of 4i per cent, will, of course, be payable only on amounts actually received from the International Bank from time to time.

The Loan Agreement with the International Bank is similar to the agreements for previous general development loans which have each received the approval of the House. We were fortunate in being able to borrow from the International Bank at the rate of 4i per cent, because interest rates have since risen and the bank is now charging 5i per cent, on its loans to member countries.

The remaining 17,770,000 dollars was borrowed from a group of institutional lenders, with the New York underwriting firm of Morgan Stanley and Company acting as agent for the Commonwealth. Separate agreements were signed with each lender and the form of each agreemnt is set out in the second schedule to the bill. The interest rate under each of these agreements will also be 41 per cent, and repayment will commence in December, 1960, continuing until June, 1964, when repayments to the International Bank will begin. Under these arrangements, 7,770,000 dollars have already been received and is at present credited to the Commonwealth Loan Fund. The final 10,000,000 dollars will be received towards the end of 1958. A commitment charge of one-half of 1 per cent, is being made on the principal amount not yet withdrawn, but the interest of 4i per cent, per annum is payable only on such instalments as have been received from the lenders. The timing of these instalments has been arranged to fit in as closely as possible with the schedule of prepayments to which Qantas is committed before the delivery of the jet aircraft commences in 1959.

The immediate purpose of the bill will be to appropriate the amount of 7,770,000 dollars from Loan Fund for the purpose of lending this amount to Qantas. As the remainder of the loan money is received in due course, the bill will also authorize the lending of each instalment to Qantas on the terms and conditions to be agreed with the Commonwealth.

It may assist honorable members if 1 summarize the overall terms and conditions of the borrowing. The total amount to be borrowed is 27,000,000 dollars and the interest rate is 4* per cent. The funds will be received over a period between late 1956 and late 1958 and will be repayable between December, 1960, and December, 1966. The full cost of the borrowing will be met by Qantas, with the Commonwealth, in effect, acting as agent for Qantas for the receipt of funds and for the payment of interest, principal and other charges to the lenders. As repayment of the loans from the Consolidated Revenue Fund will be made from funds to be provided by Qantas, it is not necessary to make other special sinking fund arrangements, and clause 1 1 of the bill accordingly exempts the borrowings from the application of the National Debt Sinking Fund Act.

I may add that, before submitting these terms and conditions to the Loan Council for its consideration, I had arranged a thorough examination of all other possible forms of finance but found no other method which offered more satisfactory terms. So far as I am aware, no other finance of a similar nature has since been arranged overseas for the purchase of aircraft by foreign airlines on terms and conditions more favorable than those negotiated on behalf of Qantas.

Debate (on motion by Mr. Calwell) adjourned.

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