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Wednesday, 1 November 1967

Mr SWARTZ (Darling Downs) (Minister for Civil Aviation) - I move:

That the Bill be now read a second time.

This Bill seeks the approval of Parliament to the borrowing by the Commonwealth of $US68.7m or $A61.4m from the United States Export-Import Bank and the Boeing Company to assist in the financing of jet aircraft and related equipment being purchased by Qantas Airways Ltd.

The money to be made available under the proposed loan agreement, the form of which is annexed to the Bill, will be used by Qantas for the purchase of ten Boeing 707-338C Aircraft and related equipment, spares and services. After the delivery of these aircraft Qantas will be operating a fleet of twenty-one Boeing 707-338C's. Five of these aircraft which are now in service were purchased with the assistance of a loan from certain United States commercial banks approved by the Loan (Airlines Equipment) Act 1966.

The general arrangements for the borrowing are similar to those approved by Parliament for other loans for Qantas and TransAustralia Airlines in recent years. The Commonwealth will be the borrower in the first place, and the full proceeds of the loan will be made available to Qantas on terms and conditions to be determined by the Treasurer (Mr McMahon) pursuant to clause 7 of the Bill. These terms and conditions will be the same as those under which the Commonwealth itself borrows the money. As the airline will be required to meet all charges under the loan agreement, the Commonwealth will, as usual, merely assume the function of an intermediary in these arrangements.

The main lender on this occasion is the Export-Import Bank, an institution whose primary function is the financing of United States exports. The Commonwealth has previously borrowed from the ExportImport Bank on two occasions for the purchase of commercial aircraft. The first time was in 1960, when $US30m or $A27m was borrowed to help Qantas finance the purchase of three new Boeing 707 aircraft, and extensive modifications to other Boeing 707 aircraft. The second occasion was earlier this year, when $US13m or $A12m was borrowed to finance the purchase of three DC9's for the Australian National Airlines Commission.

Australia has traditionally been a net importer of capital. It has been the Government's continuing policy to arrange overseas finance for a large proportion of the cost of new aircraft purchased by its two airlines. In a growing economy such as ours it is inevitable that there will be a continuously increasing demand for imports of materials, capital equipment and other items which must be obtained from abroad. To assist in financing such imports, the Government believes that it should take advantage of opportunities, as they arise, to borrow overseas on reasonable terms and at acceptable rates of interest.

The proposed agreement with the ExportImport Bank and Boeing follows the current pattern of agreements with the Bank. The

Bank usually requires the borrower to find 20% of the total cost of the programme for which finance is provided. The Bank then provides up to 90% of the loan and looks to the supplier to provide the other 10%. In this case, Qantas will be expected to provide $US17m, or $A15m, from its own resources out of the total programme which is estimated to cost $US86m, while the Bank will lend $US62m, or $A55, and Boeing $US7m, or $A6m.

The loan agreement provides three methods by which Qantas can make drawings on the loan. The first of these is to obtain reimbursement in respect of amounts already paid by Qantas for items of equipment. Secondly, drawings may be made by letters of credit established with a United States commercial bank in favour of the suppliers of equipment, which would then be met by the Bank and Boeing. Thirdly, the Export-Import Bank may be asked to pay part of its share of the loan direct to Boeing when pre-delivery payments are due on items being financed under the loan. As the second and third procedures will not involve payments to the Commonwealth, which the Commonwealth as the borrower would pass on to Qantas, clause 12 has been included in the Bill so that such disbursements by the lenders will in the first place constitute borrowings by the Commonwealth, and then loans by the Commonwealth to Qantas.

The agreement will be signed as soon as convenient after this Bill becomes law, and drawings are planned to commence when the necessary arrangements can be made. The final date for drawing is 30th June 1969 unless the parties agree to an extension. In accordance with normal banking practice in the United States, a commitment fee is to be paid on the undrawn amount of the Export-Import Bank's portion of the loan, and this fee accrues from April 1967, when the Bank formally approved the loan. The loan is to be repaid by fourteen semi-annual instalments, the first of which is payable on 31st December 1968. The interest rate provision, which appears in clause B of Article II of the Schedule to the Bill, is different from any which has appeared in previous loan agreements entered into by the Commonwealth. Under this provision the Commonwealth is required to pay interest on the amount of the loan outstanding from time to time at the minimum rate of 6% per annum. However, the Export-Import Bank has the right to sell the Commonwealth's obligations in respect of the amounts advanced by the Bank. If the Bank finds it necessary to offer a higher yield than 6% in order to sell any part of its share of the loan, the Commonwealth is required to meet the additional interest cost involved up to a maximum rate of 7% per annum, and could also lose its right to prepay before maturity that part of the loan which has been sold. The higher rate may include a fee of 0.5% per annum payable to the Bank for issuing its guarantee at the time it sells the obligations. A provision of this nature is now customary in Export-Import Bank agreements for aircraft loans. The Bank has found its funds depleted by the heavy demand for aircraft loans, and sees the sale of borrowers' obligations as a means of building up its resources for future lending.

I might mention, at this stage, Mr Deputy Speaker, that Qantas will be requiring large sums in the years ahead to help it to maintain a fleet that will keep the company in the forefront of international airline operators. It is therefore in the interests of Qantas and the Commonwealth for the Export-Import Bank to replenish its funds, if necessary, through sales of borrowers' obligations, and thus be in a position to assist airline operators in financing purchases of aircraft in the coming years. The terms outlined in the agreement are the most favourable available to the Commonwealth at the present time for the financing required by Qantas. However, the Bank is required, under the provisions of Article XI of the agreement, to consult with the Commonwealth before any sale of our obligations which would alter the rate of interest or limit our right to prepay the loan. We would therefore have the opportunity at that time to seek alternative forms of financing. The borrowing will be authorised under the 1967-68 programme approved for the Commonwealth at the Australian Loan Council meeting in June 1967 and will be additional to the Commonwealth's approved programme of $123m for State housing purposes. The terms and conditions of the loan have been approved by the

Loan Council. This is the ninth occasion on which parliamentary approval has been sought for a borrowing by the Commonwealth in the United States on behalf of Qantas. The earlier loans provided $US168m, or $A150m, for the modernisation of the Qantas fleet, of which $US83m, or $A74m, has already been repaid. The present loan will make a further $US69m available to help in financing an important step in the modernisation of the Qantas fleet. I commend the Bill to honourable members.

Debate* (on motion by Mr Crean) adjourned.

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