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Tuesday, 6 June 1989
Page: 3433

Senator GARETH EVANS (Minister for Foreign Affairs and Trade)(3.34) —At the request of the Leader of the Government in the Senate (Senator Button)-that is a formality, I hasten to add-I move the following amendment:

Leave out all words after ``ensure'', insert ``the continued viability of Qantas and Australian Airlines, and ensure, by the most efficient means, their capacity to fund forthcoming fleet expansion''.

Senator Alston —Are you going to tell us what it really means? It's a back-down!

Senator GARETH EVANS —Even Senator Alston, with his negligible claims to intellectual responsibility-and, I should add, his negligible claims to command of metaphor, with the sally we have just heard about putting one's foot in the water and getting burnt-should be capable of recognising that, so far as final Government decision making on the issue of possible privatisation of Qantas Airways Ltd and Australian Airlines is concerned, the jury is still out. There are a great many complex issues to resolve which, as I will explain shortly, we are very actively considering. In the interests of dredging a meaningful debate out of this piece of flyblown political posturing by Senator Alston, I have moved the amendment that I have. There is no question that this Government is committed--

Senator Newman —He's reading this!

Senator GARETH EVANS —Of course I am reading it; I do not prepare this sort of stuff any more. I have got too many other things to do than listen to Senator Alston--

Senator Newman —Madam Acting Deputy President, I understand that there is a standing order in this place that requires senators to speak, not to read speeches in this place. Would you call the honourable senator to order?

The ACTING DEPUTY PRESIDENT (Senator Bjelke-Petersen) —There is no point of order.

Senator GARETH EVANS —I can assure you, Madam Acting Deputy President, that at least seven-eighths of the words I have used so far have been entirely my own and are not on the piece of paper in front of me. I will have occasion to refer to the splendid piece of prose prepared for me this morning when I was otherwise occupied with other dimensions of Senator Alston's flyblown rhetoric on the telecommunications legislation. Be that as it may, let us get to the issues. There is no question but that this Government is committed to ensuring the future of both airlines. This is amply demonstrated by the policy measures that we have adopted during the past six years, affecting both airlines, and by the performance of the airlines during that period. During the past six years the Government has systematically worked to put the operations of its transport and communications enterprises-especially the airlines-on a sounder financial--

Senator Newman —Please read it with feeling.

Senator GARETH EVANS —I read it a damned sight better than you would read it.

The ACTING DEPUTY PRESIDENT —Order! Senator Newman, the Minister has the floor.

Senator GARETH EVANS —On a sounder financial footing, and to make them more efficient, more flexible and more businesslike. We have given that task a high priority because of the strategic importance of these enterprises in the Australian economy. It is not a task which we only recently started. Early in the life of the Hawke Government, essential capital injections were given to Qantas and Australian Airlines. When we came to office Australian Airlines, Qantas and the Australian National Line were all grossly undercapitalised. They had been starved of equity capital under decades of coalition neglect and their scope for future development was severely restricted. At the outset we took decisive action to provide the injection of equity that was so badly needed. That allowed the airlines to take advantage of the tourist boom and the massive growth in air traffic that came with it. In 1983 Australian Airlines had a paid-up capital of only $40m, and $25m of that had been injected only in the very last days of the Fraser Government. The airline's debt to equity ratio was over 90 : 10, which imposed a severe burden of high interest payments at a time of declining business in the airline industry. In the two years 1981 to 1983, Australian Airlines' losses amounted to more than three-quarters of what had been its paid-up capital.

This situation was completely untenable and was immediately addressed by the Hawke Government through an equity injection of $90m in our first Budget. That made the airline financially viable and put it on a competitive basis; and it has not looked back. Profits earned by Australian Airlines since 1945, when it was established, from all sources amounted to $176m. Eighty per cent of this amount, $143m, has been earned since 1983. Since 1945 Australian Airlines' dividends to the Commonwealth have amounted to $66m, of which $28m has been paid in the last two years. In other words, for the first time in over 40 years Australian Airlines is making decent sustained profits. In 1987-88 Australian Airlines earned $1.1 billion in revenue for an operating profit of $66.6m before tax. After tax and extraordinary items, that amounted to a return on equity of 21.5 per cent. The airline has been able to expand and diversify its operations and to improve the quality of its service. None of that could have been done without this Government's early financial support.

The improvement in the performance of Qantas is also striking. The Hawke Government has provided Qantas with an injection of $60m in capital, more than two-thirds the amount that had been provided in all the previous 37 years in which the airline had been operating in government hands. Since 1947, when the Commonwealth acquired all of the shares of Qantas, the company has earned profits from all sources amounting to $564m, of which, however, $485m, or fully 86 per cent, has been earned since 1983, when the Hawke Government came to office. A similar picture applies to dividends. Since 1947 the company has declared dividends amounting to a total of $137m, with $92m out of this amount being paid again since 1983. In the 15-month period ending 30 June last year, Qantas earned revenue of $3.9 billion for an operating profit of $272m before tax and an 11.6 per cent rate of return on assets. Obviously these indicators of Qantas's performance within the environment created by the Hawke Government are quite spectacular.

Business is booming for our airlines and the outlook remains extremely encouraging. This situation has come about in large measure because of the vision, reform, policy settings and initiatives of this Government. It has not come about by anything the Opposition did in over 40 years of neglect, waste and policy mismanagement bordering on dereliction. Both Qantas and Australian have very large expansion programs over the next five years which, indisputably, amount to clear testimony to the staggering success that this Government has had in creating a proper commercial environment for the airlines to operate in. By ending the domestic two-airline agreement, we will have full competition in the domestic aviation market, with new entrants by the end of next year. Internationally, there has been tremendous growth in inbound tourism in which Qantas has played an extremely valuable role for this country. However, there is very tough competition building up from overseas airlines which will put a lot of pressure on Qantas. To meet this situation, Qantas plans to spend about $6 billion, mostly on new aircraft, virtually doubling the present size of its fleet. For its own part, Australian Airlines will be spending almost $2 billion. By any measure, these are very large investment programs which will have to be financed largely by retained profits. Both airlines will obviously have to borrow a substantial sum of money as well.

In this respect, of course, it will be recognised that the current budgetary situation is such that we are trying to restrict the amount of government borrowings in capital markets. That was evidenced by the decisions announced as part of the Loan Council process a couple of weeks ago. Indeed, the amount that the Government sliced off Commonwealth authorities' global borrowing limits was $1,150m. On any view, that represents a very substantial cutting back of the borrowing potential of the airlines which themselves constitute a large part of that statutory authority borrowing requirement.

While the capital requirements of the airlines are realistic and necessary, there is some flexibility available in the short term, because higher gearing can be sustained under government ownership than would otherwise be the case. That is not to say that one can maintain a gearing ratio which is wildly out of kilter in the longer term, but certainly in the short to medium term one can sustain it. I have always readily acknowledged that in all the debates that I have had in the past about the significance of that gearing factor. While there is no immediate urgency which would in any way justify or require the sort of knee-jerk, bandaid solutions being espoused by the fire sale merchants on the other side-not that they have stayed in here to hear the reply to the debate-this Government has recognised and acted upon the need to place the airlines on a commercial footing. Our achievements in this area are on the record. We are committed to a very close further analysis of the capital needs of the airlines, and we are committed generally to further reforms. This contrasts quite markedly with the do nothing approach of the Opposition when it was in government. As I have said, the airlines were starved of funds, subject to intervention, moreover, which stifled the initiative of management and resulted in very poor performance and negligible returns to Australian taxpayers.

What are we doing now to address these capital needs and related issues? The Government's position is quite clear. We are not sitting on our hands doing nothing; nor will we contemplate, by the same token, the simplistic approach that the coalition is advocating which is all about walking up to the stock market to put a price on our airlines and hastily flog them off in the market dealer rooms. What we have done is set up a public sector airlines funding review to fully canvass all the issues which are and must be on the table when considering the future of these airlines. The process is one of extensive and wide-ranging consultations with all interested parties. The detailed terms of reference of the policy review were decided by the Australian Labor Party National Executive and released last August. The committee was elected in December. Since then, it has invited and received submissions from a wide range of individuals and organisations, including party units, trade unions, Qantas, Australian Airlines, members of the public and the Department of Transport and Communications. It has heard oral evidence from, among others, the two public sector airlines, and it has requested further details, especially from Qantas and Australian Airlines. The committee's terms of reference require it to examine the full range of capital-raising options available to the airlines. They also require the committee to examine the implications of adopting any of these options for the future activities of the airlines.

The issues that have been raised in discussions to date in the committee have included the airlines' capital needs to meet the projected growth in demand for air travel; further expansions of the airlines' activities into such related areas as tourist resort development and aircraft heavy maintenance; the capital requirements necessary to fund these investments for growth and diversification as well as to enable Qantas and Australian Airlines to compete effectively in prospective, more competitive domestic and international aviation environments and to protect themselves against financial difficulties in the event of any future downturn; and the prospects for additional equity capital and for borrowing on the account of the current shareholder in the context of future economic, financial and political constraints on the Government and of competing Budget priorities. They have also considered alternative means of providing the necessary capital for growth, including employee share ownership, subordinated debt, joint ventures, Australian Industry Development Corporation funding, airline amalgamation and the provision of equity from strategic corporate investors. They have also considered whether the publicly owned airlines, now and in a future deregulated industry, have any important social roles which cannot be satisfied in other ways. In other words, the full range of technical issues about capital formations and fundamental issues of principle about whether social needs are being addressed and satisfied in a way that might not be possible were these enterprises to be in the private sector are on the table manifestly as part of this policy review; and, moreover, all of them are being actively considered and discussed. At this stage, the committee is waiting for further information on these and other issues before proceeding to consideration of its report.

It should be abundantly clear from what I have said about the submissions made to date that the issues to be considered and resolved are extremely complex ones. They simply do not lend themselves to quick fix generalisations or conclusions. That is something that I have always personally acknowledged in my own efforts to get some rational consideration of these issues. It is the quick fix, demonstrating the cheap and nasty solutions which are, of course, so obviously appealing to those opposite and to people like Senator Alston-who has just strolled insouciantly back into the chamber, having missed most of the substance of what I have said, to pick up the concluding remarks. The committee will continue to work towards a soundly-based and well-informed report and recommendations, even if that does take a little bit longer than was originally anticipated.

I support and have confidence in the committee's work. During my previous incarnation as Minister for Transport and Communications, I was, as Senator Alston has not been loath to point out, closely involved in the debate then occurring on this issue. From my own fairly extensive study of the issues involved, I came to strongly believe three things, which I spelt out in a speech in May last year and which I repeat: first, that some of our major wholly publicly owned enterprises are facing serious capital formation problems, in particular, the two airlines; secondly, that their relative position in the marketplace-and perhaps in some cases their absolute viability as well-will rapidly deteriorate unless answers can be found to those problems; and, thirdly, that there are simply no obvious soft options for the solution of these problems.

The question then arises as to what would happen to these enterprises if the issues that are mentioned were not fully addressed and the best solutions not implemented. If the equity required by Australian Airlines and Qantas to fund their capital expansion programs is not provided, either by equity injection or through access to the loan market, the simple reality that has to be faced is that they will not be able to grow and take up the opportunities which do exist in their respective rapidly growing markets. Progressively, but inexorably, private sector airlines would increase their share of the domestic and international aviation markets at the expense of Australian Airlines and Qantas. In that environment, Australian Airlines and Qantas would stagnate and others would grow. As the others grew, the public enterprise share would diminish accordingly, which is something that is not dear to the hearts and minds of those who are wedded to the virtues of public enterprise ownership.

These are the kinds of consequences that flow from failure to provide the airlines with the capital injections they need. The problems are there. I frankly acknowledge it. The Minister for Transport and Communications, Mr Willis, was frankly acknowledging it the other day. Others who have commented on this subject have always acknowledged it. They simply have to be resolved if we are not to bear the stigma-as I said last May-of letting our enterprises slide to second-rate bit-player status at severe, long-term costs to the whole country.

I say these things-I repeat them in the way that I have said them before-because I think it is important to demonstrate that we are not turning our faces away from the need to rigorously consider the needs of the airlines; the need to ensure the continued viability of Qantas and Australian Airlines; the need to ensure, by the most efficient means, their capacity to fund forthcoming fleet expansion. We need to consider all of those things. But the point that I am making is that we are not closing our eyes or our minds and becoming obsessed with other considerations at the expense of those realities. We are committed to ensuring that the airlines do not slide down into second-rate bit-player status. But, in order to avoid that outcome, we are taking the time to do the job properly. We do not see it as a simple business; we do not see it as a quick fix exercise. We see the issues as enormously complex-as issues which have to be addressed sensibly on a case-by-case basis. We will arrive at the correct conclusions in the interests of all Australians and we will do so without any assistance at all from the feeble, empty, rhetorical posturing of those opposite.