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Wednesday, 27 September 1972
Page: 1205

The PRESIDENT - Order! Is leave granted? There being no objection, leave is granted.

Senator WRIGHT - 1. The Commonwealth's purchase of 6 DC3 aircraft from Jetair Australia Limited has been discussed in the Parliament on a number of occasions. The matter was raised most recently by Senator Turnbull on 20th September. I gave then, as Ministers have done on all other occasions, a complete denial of allegations of impropriety on the part of any Minister of the Crown in regard to this transaction. I repeat that denial, and I make the same denial in relation to any officer of the Commonwealth Public Service.

2.   The negotiations for the purchase of the 6 DC3 aircraft from Jetair were instituted by departmental officers. The negotiations were conducted throughout by departmental officers, without the intervention of any Minister, and without the participation of any Minister, until the point was reached when the Secretary to the Department of Foreign Affairs made a recommendation to his then Minister, the present Prime Minister (Mr McMahon), that the aircraft be acquired by the Commonwealth for foreign aid purposes. Mr McMahon approved that recommendation.

3.   The history of this matter has been traced in previous statements in the Parliament, but I shall again state some of the main points in the sequence and history of the matter.

4.   In 1969 the Department of Foreign Affairs investigated the possibility of supplying 5 DC3 aircraft as foreign aid to Nepal - 2 aircraft - and Laos - 3 aircraft.

5.   Five Royal Australian Air Force DC3 aircraft, declared to the Department of Supply as surplus, were bought for this purpose at a total cost of $60,000. Two were purchased on 21st November 1969 and 3 on 15th April 1970. The aircraft were in a military configuration, and it was intended to convert them to the civilian configuration required, and to do work necessary to allow the aircraft to be issued with civilian certificates of airworthiness. As at December 1970, the estimated cost of purchase, conversion and delivery was $425,000, and delivery could not be expected until late 1971.

6.   On 5th December 1970, Jetair advertised its fleet of 6 DC3 aircraft for sale. The Department of Foreign Affairs was immediately interested, as 4 of the aircraft were passenger aircraft, and 2 were freighter aircraft, and all carried civilian certificates of airworthiness.

7.   It was apparent that these aircraft could be made available quickly to meet the urgent needs of Nepal and Laos, whereas the ex-RAAF DC3 aircraft would take most of 1971 to refurbish, convert and deliver.

8.   The overall delivered cost of these 6 passenger/freighter aircraft was estimated at $360,000, that is, $65,000 less than the cost of buying, converting and delivering the 5 ex-RAAF aircraft.

9.   These aircraft, although in excess of the 5 required for Nepal and Laos, interested the Department because it had learned towards the end of 1970 of the need of the Khmer Republic for aircraft. In response to a cable sent from Australia, this need was confirmed early in January 1971 as a high priority need for the Khmer Republic. It was a need which could be met by aircraft in the RAAF type configuration.

10.   Inspections of the Jetair fleet were first made on the 17th and 18th December 1970 by senior officers of the Aid Branch of the Department of Foreign Affairs and an engineer and 3 technical officers from the Aircraft Branch of the Department of Supply. The 6 aircraft were in a fair to very good condition; were in the required configurations, including one 21-seater; and, most importantly for Commonwealth purposes, had civilian certificates of airworthiness and could be delivered within a minimum of time.

11.   Officials discussed with Jetair a possible purchase price. Jetair sought a price of ยง60,000 per aircraft, but as discussions developed it was apparent that if a buyer were prepared to take the whole fleet Jetair would sell for substantially less per aircraft.

12.   There was general agreement among officials of the 2 departments that having regard to the condition of the aircraft, their internal configurations and the status of certificates of airworthiness, a price between $250,000 and $300,000 would be reasonable for the 6 Jetair DC3s plus spares.

13.   A submission was then made by the Secretary of the Department of Foreign Affairs to the then Minister, the Right Honourable William McMahon, the present Prime Minister. It is a lengthy document which the Senate will see in the papers. It is dated 31st December 1970 and is minuted by the Minister as approved on 1st January 1971.

14.   On 6th January 1971 the Department of Foreign Affairs wrote to the company offering $275,000 for the aircraft, and adding:

The actual purchase of the planes shall be carried out on our behalf by the Department of Supply, which will contact you in the near finnie.

When purchase details are completed we plan to issue a press statement announcing the acquisition of the planes and their intended destination as part of the Australian aid programme.

And until this was done the company was requested to keep the matter confidential.

15.   On the same day, 6th January 1971, the Department of Foreign Affairs, by letter to the Secretary of the Department of Supply, advised the details, adding:

This department would be grateful if you could finalise purchase details with Jetair on our behalf. and requested the Department of Supply to check the company's title to the aircraft.

16.   On 25th January 1971, the Aircraft Division of the Department of Supply in a minute to Contracts Division, reported:

(4)   The aircraft were inspected by officers of this Branch and it was agreed that very little work would be required to bring them into the condition required for presentation to the 'aid' recipients;

(6)   . . . The price $275,000 compares favourably with the value assessed by means of the TAA formula $227,587.

I should explain that an addition to the formula must be made for the value and condition of passenger fitments and spares supplied. The minute continues:

(10)   From a value point of view 6 aircraft can be purchased from Jetair and placed in 'good second hand condition' for an amount approximately equal to what would be paid for the procurement and conversion, of 5 RAAF aircraft.

17.   Then questions arose as to the procedure adopted by Department of Foreign Affairs in approaching the sale negotiations, and in view of Treasury Regulation 52 (1), which reads:

Subject to any Act making provision with respect to contracts for supplies and subject to the next succeeding sub-regulation, contracts shall not be entered into, and orders shall not be placed, for supplies the estimated cost of which exceeds one thousand dollars unless tenders have first been publicly invited for those supplies.

Sub-regulation (2.) (e) (v), as in force at the time, provided that the requirement hi sub-regulation (1.) of Regulation 52 did not apply to supplies in respect of which the Secretary to the Department of the Treasury, or an officer authorised by him, certifies that the inviting of tenders is impracticable or inexpedient, being supplies approved by, or to be obtained by, the Contract Board of the Department of Supply.

18.   An exchange of correspondence took place between the 2 Departments, and on 3rd February 1971 the Secretary of the Department of Supply made a submission to his Acting Minister in which he exhibited concern about procedural aspects but nevertheless recommended 'that covering approval be given to the arrangements already made by the Department of Foreign Affairs for the purchase of 6 DC3 aircraft and spares from Jetair Australia Limited, for $275,000'.

19.   The Acting Minister for Supply was then the Honourable Malcolm Fraser, M.P., who endorsed the submission with 2 queries. These were answered by the Department, and on 9th February 1971 - 6 days after the submission was first put in - the Acting Minister endorsed the paper: 'Agreed, but bring to the notice of Senator Anderson when he returns'.

20.   There has been an allegation that the Government has tried to conceal a letter signed by the Acting Minister critical of the then Minister for Foreign Affairs. The Government knows of no such letter.

21.   On 12th February 1971, Senator the Honourable Sir Kenneth Anderson wrote the following letter to the Minister for Foreign Affairs:

I refer to the proposed contract with Jetair (Australia) Limited for supply of six DC3 aircraft.

As discussed between officers of our departments it is unfortunate that normal purchasing procedures were not followed; however in the light of the commitment by your department, I have approved that the Contract Board may place the necessary confirming order with the company.

You will understand that in the circumstances any approaches by news media or any question in Parliament in relation to the arrangement could most appropriately be dealt with by you or on your behalf.

22.   The Minister's letter was directed to the non-observance of normal purchasing procedures. The letter did not in any way detract from the conclusion reached by the Acting Minister, on the advice of the Secretary of the Department of Supply, regarding the substance of the transaction.

23.   What is abundantly clear from all this is, as stated in the Senate last week, that the Commonwealth has been able to supply 11 aircraft to 3 friendly South-East Asian countries for a total cost of $480,000. Had the Department not initiated action to acquire the Jetair aircraft the Commonwealth would have supplied 5 aircraft only for a cost of $425,000.

24.   This shows that the arrangement negotiated for the purchase of these aircraft from Jetair was a sound commercial transaction. The purchase enabled Australia to supply 11 aircraft to 3 countries, instead of 5 aircraft to 2 countries, at a cost which was only about $55,000 more than the total cost would have been had it not bought the Jetair aircraft.

25.   Tt will be noted in these papers that before seeking ministerial approval for a purchase order on Jetair, the Department of Supply meticulously pursued the whole range of inquiries that it customarily makes in dealing with contracts proposed to be confined to a single supplier - timely availability, other suitable sources of supply, price in relation to market value and so on. Having satisfied itself on all relevant points, the Department then sought from the Acting Minister for Supply approval to place the order.

26.   The procedures of the Department of Foreign Affairs involved a technical breach of Treasury regulations. The papers show that the departmental files were examined, and comment was invited from the late Sir Kenneth Bailey whose memorandum of advice dated 22nd February 1971 is as follows :

I think you asked me to look at the papers on the purchase of the 6 Jetair Dakotas, from the point of view of the Department's action.

2.   It seems to me quite clear that the letter sent to the Company on 6th January last was without authority. The procedures for such a purpose arc regulated either by the Treasury regulations or by the Supply and Development regulations, or both. In general, action is required on the part either of the Commonwealth Stores Supply and Tender Board or of Hie Contract Board (I am myself not sure which). In the event the

Department of Supply has taken the necessary action to make the proceedings regular. I would not think any element now remains either of illegality or of administrative irregularity.

I emphasise the words contained in that last sentence -

This however is a matter on which, if it becomes necessary, the Attorney-General's Department would need to advise.

3.   As I understand the position, no legal effect is now attributable to the Department's letter to the Company of 6th January last. It is somewhat confused in expression, but I think may best be regarded as an intimation to the Company that the Department would recommend to the Department of Supply the purchase of the aircraft at the price stated.

I repeat those words:

.   . that the Department would recommend to the Department of Supply the purchase of the aircraft at the price stated.

27.   The Auditor-General's office inquired into the matter on 7th May 1971. Its inquiries as to the breach of Treasury regulations appear in the papers.

28.   On the question of Department of Foreign Affairs procedures, the Secretary of that Department wrote to the AuditorGeneral's office on 9th July 1971 as follows: . . It is agreed that there was a technical breach of Treasury Regulation 52. It was, however, unintentional and at no time do we believe there was any intent to circumvent the intention of the regulation. At all stages in these negotiations, including inspections and price discussions, we ensured that the Department of Supply was present. Also, our letter to Jetair made reference to the necessity of the Department of Supply actually making the purchase (and a copy was sent to Supply). Our error was in assuming that, by keeping one Division (the Aircraft, Guided Weapons and Electronics Supplies Division) of the Department of Supply, fully informed and present in negotiations, we were fulfilling Commonwealth procurement requirements. It has since been pointed out to us, by Supply, that we should also have had full consultations with the Contracts Branch of Supply and not assumed (as we did) that the Aircraft Division would keep Contracts Branch of the same Department informed. At this time, Jetair were wanting to wind up that part of their organisation which had been retained to handle the disposal of their DC3 fleet, and were seeking written expression of Government intent. Having received approval to commit funds for this purpose, and mistakenly believing that all appropriate sections of the Department of Supply were supporting the purchase, the letter of intent dated 6th January 1971 was sent, and a confirmation of acceptability dated 7th January 1971 was received from Jetair.

No further action by the Department was called for.

29.   The transaction -

(a)   was initiated by the officers of the Department of Foreign Affairs on noticing public advertisements offering for sale aircraft very suitable for the Department's aid requirements;

(b)   enabled the Government to avoid heavy costs of conversion of military aircraft to civilian configuration;

(c)   enabled the delivery of 11 aircraft as aid to 3 friendly countries at a total cost of $480,000, in lieu of 5 aircraft to 2 of those countries at $425,000;

(d)   although there, was an initial breach of Treasury regulations requiring public tenders, the Contracts Board and Department of Supply ensured by full inquiry that the aircraft purchased were the only ones available suitable to the Commonwealth requirement;

(e)   the price was carefully considered, and was, in the opinion of competent officers, reasonable.

30.   As I have said, the arrangement for the purchase of these aircraft from Jetair was a sound commercial transaction.

31.   It is abundantly clear that there was a total absence of any impropriety on the part of any Minister or official. The papers now being tabled confirm this beyond question. Specifically they show how absurd are the suggestions and innuendos which have been made about the personal involvement of the. Prime Minister.

32.   For convenience, certified copies of the papers are being laid on the table. The original papers are available for perusal by any honourable senator upon request.

33.   In accordance with ordinary parliamentary practice, there have been some exclusions from the papers tabled. These are in a separate group and are available for perusal upon request by the Leader of the Opposition in the Senate and the Leader of the Democratic Labor Party. The latter documents are of the following categories:

(a)   documents containing confidential matters relating to other governments;

(b)   a detailed listing of tenders received by the Department of Supply for the sale of Dakota aircraft 1968 considered to contain confidential commercial information;

(c)   the Trans Australia Airlines formula for valuation of aircraft which was obtained in confidence from TAA for purposes of the transaction;

(d)   several volumes of papers dealing with technical aircraft matters, and the execution of purchase contracts and other contracts for refurbishing and ferrying of the aircraft - excluded because of their bulk.

34.   Mr President,I table the papers of the Departments of Foreign Affairs and of Supply relating to the purchase of the aircraft.

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