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Aviation History
1961
1961 - 1069.PDF
FLIGHT, 3 August 1961 BOAC 1960-61 Sir Matthew Slatterv, Chairman, Reports on the Corporation's Year CRITICISMS in past years that BOAC's annual reports have not heenas full as they should have been cannot be repeated this year. The 1960-61 iinnual report and accounts, published on July 28, is the fullest andfrankest in the corporation's history. Some 130 pages in length, it is double the length of last year's report, and as fat even as the fattestpublished by the airline world's most comprehensive reporter, BEA. FORTUNE seems to have decreed that those responsible forBOAC's finances should continue to have a hot time. Untilrecently the pre-occupying problem was the excessive work- force that resulted primarily from the corporation having failed toexpand as planned in the post-Comet 1 era. The consequent cost level of some 40 pence per c.t.m. gave BOAC no opportunity formaking profits at 1ATA fares which were based on the costs of more streamlined rivals. Over the past few years substantial economies have broughtBOAC's costs down sharply. But the pot of gold still seems farther away than ever, for in 1960-61 a severe fall in revenue rates con-verted the previous year's marginal profit on operations into a £0.5m loss, while in the current year the average load factors havedropped so low that BOACs deficit for 1961-62 will be very heavy indeed. The accounts for 1960-61 accordingly tell a story of anairline in transition—transition from a frying pan where costs are too high, into a fire where traffic is too low. The story is told bythis Flight table: TABLE I: BOAC FINANCIAL SUMMARY BOAC operations—scheduled revenue —contract revenue... —charter revenue ... BOAC operations—total traffic revenue —less operating expenses ... —operating profit ... Subsidiaries and associates—operating loss ... Overall operating profit .. Less interest on capital * P/us sundry credits relating to previous years Net addition to accumulated deficit 1959-60 65.8 2.9 1.8 70.5 66.2 4.3 0.6 3.7 4.5 0.3 0.6 million 1960-61 79.5 3.8 4.7 88.0 83.7 4.3 1.5 2.8 5.3 0.6 2.0 * 1959-60—BOAC £4.0m. subsidiaries/associates £0.5m. 1960-61—BOAC £4.7m, subsidiaries/associates £0.5m. It would be unfortunate if these disappointing results wereallowed to obscure the remarkable record of cost-cutting which BOAC has achieved in the past few years. In 1960-61 this processwas particularly marked, the overall level of unit costs—including interest on capital—falling from just under 36 to just over 32 penceper c.t.m. This reduction was shared by all departments, with engineering showing the greatest economies. But while costs werebeing slashed, it was becoming increasingly difficult to sell the corporation's capacity and as a result the overall rate of revenuereturn fell slightly more sharply, from just under 36 to just under 32 pence per c.t.m. This was only to a limited extent due to reducedload factors, the main reason being simply that a larger proportion of the corporation's business consisted of low-rated traffic. Thusscheduled services showed a swing of passenger traffic from first- class to economy and of mail traffic from first class to second class,while low-rated contract services and charters accounted for a larger share of BOAC business. This cheapening of the product was, of course, one of the firstfeatures of the difficult situation which ICAO so rudely predicted a few years ago when it attempted to measure the consequences ofexcess capacity that would be endemic in the airline industry in the early 'sixties. If BOAC did badly in 1960-61—largely, let it be admitted, forreasons beyond its control—the corporation's subsidiaries and associates did even worse. In round figures their overall loss, aftertaking interest on capital into account, deteriorated from £lm to £2m. The main nigger in the woodpile continued to be BW1A. In1960-61 this operator managed to lose £645,000 on revenues of £3.7m, to bring its accumulated loss over 13 years to £3.5m. Theother main losers were Bahamas Airways, which achieved a financial miracle in losing £400,000 on revenues of £800,000, and KuwaitAirways, which lost well over £0.25m on revenues of £1.9m. The 171 only other really painful investment was MASCO (Mideast AircraftService Co) in Beirut; but in this case their loss of some £400.000 was exceptional as it marked the closing down of the organizationand the transfer of its business to Middle East Airlines. Small losses were made by Aden Airways, Borneo Airways. Fiji Airways andMEA while Cathay Pacific. Gulf Aviation and Malayan Airways showed small profits. This is the only part of the report that is disappointingly sketchy;the affairs of the associated companies, which accounted for £2m of the total £2.5m loss, are not as detailed as might be thought justifiedby Sir Matthew's statement that BOAC is "deeply concerned at the adverse results of some of the airlines in which it has invested."There are no traffic figures for the associates, financial results for MEA are not yet available, and there is no information about theprice obtained for MASCO. More than two years have gone by since a Parliamentary select committee viewed with gravity asituation which BOAC now says—much as it said then—it is •'examining exhaustively" and "taking vigorous steps to remedy."BOAC's problem here is that it does not have the power to beat some of its associates with the big stick they deserve: touch problems of nationalism and politics call for tactful persuasion and not big sticks. Of course. BOAC can always sell its interests inmillstone associates; but what happened when it did just this in the case of Bahamas Airways? Within a year of management byprivate enterprise, Bahamas Airways was beaten to its knees, and BOAC—anxious for its traffic rights—had to mount a costly rescueoperation. The Bahamas Airways episode, about which the report is less than full, is an example of the lengths to which BOAC willgo to preserve the traffic rights that are the raison d'etre of BOAC Associated Companies Ltd. The report contains much of interest about BOAC's equipment.Half the capacity is jet, and Comets provided a third of the total capacity. These aircraft, thanks to their high passenger-content,produce a higher rate of revenue than the 707s. Here are the fleet operating statistics for 1960-61, a Flight compilation: TABLE 2: BOAC AIRCRAFT OPERATING STATISTICS, 1960-61 : Britannia ! 102 Britannia I Comet 312 4 Total or No of aircraft at year end 14 17 19 Output (c.t.m. million)1 112 ! 160 207 Revenue hours • 1,000 41 46 ! 65 C.t.m./hr • 1,000 2.7 3.5 , 3.2 Daily utilization (revenue hours) 7.5 7.6 ; 9.8 Aircraft operating costs: (£/hr) 238 268 i 284 (pence per c.t.m.) 21 19 21 10 15 75 49 ! 123 ! 667 20 j 15 195 2.6 8.3 3.6 5.7 246 24 4.8 504 15 7.6 278 19 The 7Fs "produced financial results better than anticipated."Late delivery of the 707s cost BOAC £2m; entire responsibility for the mods demanded by the ARB was accepted by Boeing. Deliveryof 15 standard VClOs is set for November 1963-August 1964. and of the 30 Super VClOs for October 1964-October 1966. By 1967BOAC's services will be entirely VC10/707, in the capacity ratio 67 : 33. Nigeria Airways will take two of the 15 standard VClOs. Adding together the results for BOAC, its associates and itssubsidiaries, 1960-61 showed an overall deficit of £2.5m after interest payment of £5.25m. After taking into account various creditswhich did not relate to the year 1960-61. a deficit of £2m was trans- ferred to the profit and loss account to bring the corporation'saccumulated deficit to close on £15m. The corporation now admits that this is lost capital. There is even a hint, in a lightly thrownaway parenthesis on page 13, of possible "redemption"—which could only be by direct Government grant (for which new legisla-tion would be required). However clean BOAC's house may become in the years that lie ahead there will be a big accumulated deficitunder the carpet for many years yet. Adverse as the 1960-61 results may be. an infinitely more funda-mental problem that is apparent is the one of finding employment for the fleets of the corporation in the next few years. Perhaps the cor-poration's planners should take their eyes o4 the North Atlantic for a while and have a long, hard look instead at those many thousandsof travellers between Europe and Australasia, and to a lesser extent between Europe and Southern Africa, who continue to preferBOAT to BOAC. TABLE 3: SOURCE AND DISPOSITION OF FUNDS, MARCH 31, 1961 Source Long-term BOAC stock Medium-term loans Short term—bank overdraft —net credit on current account £m 56 94 4 1 4 Disposition Fixed assets, net Unamortised development expenditure VC10 progress payments Subsidiaries/associates Accumulated deficit £m 117 4 10 12 15 158 158 Notes; (I) Average capital actively employed on BOAC operations in 1960-61 £IO3m. (2) Gross BOAC traffic revenue in 1960-61 = £88m.
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