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Tuesday, 29 November 1960

Mr HAROLD HOLT (HigginsTreasurer) . - I move -

That the bill be now read a second time.

The purpose of this bill is to seek parliamentary approval of a borrowing by the Commonwealth of 30,000)000 dollars- £13,300,000 Australian - in the United States of America on behalf of Qantas Empire Airways Limited. The bill provides for an appropriation of Loan Fund to enable the proceeds of the borrowing, as they are drawn, to be made available to Qantas. It provides, also, for an appropriation of Consolidated Revenue Fund to enable repayment of the loan and payment of interest and expenses toy the Commonwealth. Arrangements will be made under which Qantas will pay the Commonwealth appropriate amounts before they are paid to the lenders.

Before I proceed further, I feel that 1 should explain to honorable members why this bill was not introduced earlier in the sittings. In the first place, the agreement to toe entered into between the Commonwealth, the Export-Import Bank of Washington, and the Boeing Airplane Company is, as can be seen from the schedule to the bill, extremely long and complicated. Only at the beginning of this week were its terms finally settled. In the second place, it is of great importance to Qantas, which has embarked on a re-equipment programme costing some 39,000,000 dollars- £17,400,000 - that it should be able to receive the first drawings on the loan by early January, 1961, when it has to meet heavy payments to its suppliers. Thus the bill could not conveniently be held over until next year's sittings of Parliament. I shall shortly introduce a similar bill seeking approval for the borrowing by the Commonwealth of 2,000,000 dollars- £900,000- on behalf' of the Australian National Airlines Commission. Although that bill could have been submitted to Parliament some time ago, itsprovisions are very similar to those contained in this bill, and I thought Parliament would find it convenient to consider the two measures at about the same time.

The proceeds of the Qantas borrowing will assist in financing the purchase of three new Boeing 707-1 38B aircraft and associated spares, and the conversion of theexisting Qantas fleet of seven Boeing 707- 138 machines into 707-1 3 8B aircraft. The turbo-fan engines, which will then be fitted. to all Boeing aircraft operated by Qantas, will give the planes an increase in cruising speed of some 40 miles per hour, will cut fuel consumption by 10 per cent., will increase their pay-load, and will increase their take-off thrust from 13,500 lb. to 17,000 lb. The possession of these modern planesshould be a major factor in strengthening the ability of Australia's overseas airline tocompete successfully on the world's international air routes, and should further confirm the position of Qantas as one of the outstanding international operators.

As can be seen from the bill and the attached loan agreement, the Commonwealth is in the first place to borrow upto 30,000,000 dollars from the ExportImport Bank and the Boeing Airplane Company. Various other suppliers of equipment" will be associated with Boeing in the arrangements. The Export-Import Bank's share of the 30,000,000 dollars to be borrowed will be 25,500,000 dollars, and the Boeing company's share will be 4,500,000 dollars. The Commonwealth is required by clause 7 of the bill to make the proceeds of the borrowing available to Qantas. An agreement to give effect to this will be signed between the Commonwealth and Qantas as soon as this bill is approved by Parliament and the main loan agreement itself has been duly signed.

The loan agreement entered into with the Export-Import Bank and Boeing follows the pattern of agreements for other loans arranged by the Export-Import Bank. The bank normally requires that the borrower should contribute an amount of not less than 20 per cent, of the total programme in respect of which a loan is sought. The Export-Import Bank then provides up to 85 per cent, of the amount of the loan to finance the remainder of the cost, and looks to the supplier to provide the other 15 per cent. Thus, in this case, Qantas will be expected to provide an amount of not less than 7,500,000 dollars- £3,300,000 - from its own resources. In fact, it appears that the total programme will cost about 39,000,000 dollars, or £17,400,000, and Qantas will thus need to finance an expenditure from its own resources of some 9,000,000 dollars, or £4,000,000.

As the provisions of the loan agreement are somewhat unusual, and as this is the first occasion on which the Commonwealth has borrowed from the Export-Import Bank, I will take this opportunity to explain "briefly the provisions of the agreement. In general, it can be said that very little cash will actually change hands between the lenders and the Commonwealth. In the first place, there are already contracts with Boeing for the supply of the three new "707-138B aircraft, to cost 15,100,000 dollars, and for the modification of the airframes of the seven existing Boeings at a cost of 6,000,000 dollars. Qantas has paid more than its 20 per cent, share of the amounts due on these contracts, which are referred to as " pre-delivery payments " in the loan agreement. Article Va provides that, as the remaining payments on these contracts fall due, they will be met jointly by the Export-Import Bank and Boeing, but will involve no cash payment to the Commonwealth. As I shall mention later, the amounts already paid by Qantas in excess of its 20 per cent, share are recoverable under Article V.

Another portion of the loan will be drawn by means of the letters of credit procedure established under Article VI. of the agreement. The letters of credit will be issued by a commercial bank with the approval of the Export-Import Bank in favour of the suppliers of the equipment. Thus, following payment by Qantas to the supplier of its 20 per cent, share of the contract price of the equipment, the Commonwealth will ask the Export-Import Bank to establish a letter of credit for 85 per cent, of the balance of the amount due to be paid to the supplier. When Boeing is the supplier, paragraph A of Article VI. provides that, as Boeing draws down the letter of credit established by the Export-Import Bank, it is itself deemed to have been extending its 15 per cent, share of the credit.

Rather different arrangements apply when the supplier is the United Aircraft Corporation, which is to supply equipment and services amounting to approximately 9,400,000 dollars. This is because United is not involved, as Boeing is, in extending any credit to the Commonwealth under the loan agreement. The procedure for drawing on the loan for payments to United is that Qantas will again have to pay its 20 per cent, of the contract price, and that the Export-Import Bank will establish a letter of credit, this time in favour of United. Before then, as provided by Article VI., paragraph B, Boeing has to arrange to extend credit to United to cover Boeing's 15 per cent, share of the loan.

The contracts with Boeing and United cover approximately 35,800,000 dollars of the estimated cost of the project of 38,900,000 dollars. The remaining 3,100,000 dollars will be paid to other suppliers. In this case Article V. provides that Qantas has first to pay the full amount of the contract price. The Commonwealth then claims a reimbursement from the Export-Import Bank of 80 per cent, of the amount, and the bank meets this claim after obtaining from Boeing its 15 per cent, share of the credit. In the event of a delay in the payment to the Commonwealth of those amounts, the advance procedure authorized by sub-clause (2.) of clause 7 of the bill M.,Y operate, if required, to enable the Treasurer to reimburse to Qantas the amounts which Qantas has already spent, pending the receipt of the funds 'from the Export-Import Bank.

The reimbursement procedure under Article V. .will also apply to the " predelivery payments " already made by Qantas to Boeing in excess of its 20 per cent, share of the relevant contracts. As 1 have said, these contracts involve the purchase of three Boeing 707-138B aircraft and the conversion of the airframes of the seven existing Boeings. The claim for reimbursement -will be made by the Commonwealth when the loan agreement has been approved and signed.

The only other feature of the loan agreement which differs to any degree from previous agreements entered into for the purchase of aircraft overseas for Qantas and Trans-Australia Airlines relates to the issue by the Commonwealth of a special form of promissory note. According to Article IV., the Commonwealth is to issue a note for the full" amount of the borrowing - 30,000,000 dollars - before any borrowing is -made. However, suitable protective provisions are included in Articles VIII. and X. of the agreement to ensure that the Commonwealth is finally required to repay only the actual sum borrowed, and to pay interest on this amount calculated from the dates on which each instalment is received.

The Export-Import Bank agreed in principle to the loan last June. Following signature .of the agreement and compliance with the necessary conditions, the loan may be drawn as 'required, any time up to December, 1961, or such later date as is agreed to by the Export-Import Bank and Boeing. Repayments of the loan will commence in March, 1962, and will be made thereafter in semi-annual .instalments, concluding in September, 1968. The first ten instalments will .be 8.6 per .cent, of the total borrowing, and the remaining four instalments will be 3.5 per cent, of the borrowing. Interest will be payable at the rate of 5i per cent, per annum on the amount of the loan from time to time outstanding.

As this is a borrowing that will come within the 'Commonwealth's Loan programme, Australian Loan 'Council approval was obtained to the terms and conditions of the loan at the June, 1960, meeting of the Loan Council, and the borrowing was included on the Commonwealth's borrowing programme for 1960-61. The general principle of this borrowing is very similar in nature to the earlier borrowings made by the Commonwealth on behalf of Qantas in November, 1956, and June, 1958. In each case the Commonwealth has acted as an intermediary between the lender and Qantas. As in the earlier loans, the Commonwealth will incur no net financial liability, but will give Qantas the benefit of its high credit standing overseas.

I commend the bill to honorable members.

Debate (on motion by Mr. Crean) adjourned.

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