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Aviation History
1962
1962 - 2382.PDF
I i nc conclusion seems clear: B.U.A.C. must be planning on an IHil ;:::: all-jet fleet of 707s and VC-lOs. And they appear to be counting iilll jjijj on big increases in traffic to fill them. IQHJ lijij Even more illuminating is a matching of B.O.A.C.'s traffic and iliji niinnnl ;" capacity in 1962. If traffic grows at the average world rate, JFr Warn'"* , jgg B Q.A.C. will find themselves with 35 per cent too much capacity M Qctober K:|: —even assuming that all Britannia 102s and DC-7Cs are sold by ijjjj 2 lijlj 1962. And the Corporation may still have too much capacity in jjjj? iijU 1962 even if a higher (20 per cent) annual increase in traffic is If jjjjj achieved between now and that date. From"Flight,"June7,19S7 BOAC cannot, five years later, blame these Britannia delays for a loss of £22m. It was apparent more than five years ago that BOAC were going to have too many aircraft. And, as discussed last week, and as pointed out in a strong letter in The Times of October 13, the corporation's depreciation policies have been less strict than they should have been. It may also be said that the corporation's tariff policies have inflicted an above-average rate of depreciation. The outcome of the Britannia story might well have been happier if BOAC's tariff experts had fought really hard four or five years ago for a propeller differential. As it has turned out, the public announcement of the decision to shorten the life of the Comet 4 fleet has not helped de Havilland's Comet 4C sales prospects. The manufacturer has at least three aircraft being built on faith, and the availability in the next year or two of used Comet 4s at a quarter of the price could prove embarrassing. An article on page 623 discusses sales prospects for new Comets, in the production of which is invested per haps as much as BOAC have just written off in respect of old Comets (£5m). A most detailed account is given in the report (pages 10-14) of the brutal shortfall in traffic which accounted for a £10m plunge on the operating ledger. It gives a vivid account of an airline grappling with that hideous monster, sudden excess capacity. But it contains a passage remarkable for its self-deception: "It is worth recording that at the close of 1960-61 BOAC's long-term forecasts of overall market growth were proving remarkably accurate." BOAC pub lished in 1957 (Flight, September 20 of that year) their long-term forecast of traffic growth. This graph was reproduced in Fligh as recently as July 19 to show how far BOAC's traffic had fallen short of their long-term estimate. Over-optimistic traffic fore casting is forgivable: the claim that a mistaken forecast—and a vital one—was accurate is puzzling. As in past years not a word appears in the pages of the report on the financial workings of BOAC's pool agreements, which are so fundamental to the corporation's economic performance. The shareholders have no idea whether BOAC subsidize their partners or not. They may well feel disappointed, too, that despite outside criticism year after year, there is scant information about the This graph of BOAC's depreciation policy has been drawn up from BOACs 1961-62 report and from figures provided by BOAC in re spect of original capital costs. The aim has been to discover the probable resale values of the surplus DC-7Cs, Britannia 102s and 312s, and Comet 4s. Although some guesswork has been necessary, it seems likely that the approximate asking prices per aircraft, includ ing spares, will be: DC-7Cs, £10,000; Britannia 102s, £40,000; Britannia 312s, £70,000; Comet 4s, £300,000 each 35r •7m WRITE - DOWN IN 1961-62 COMETS 625 affairs of associate companies on whom £14m has been lost to date. There are good reasons why Bahamas Airways managed to lose nearly £600,000 on revenues of £800,000—revenues which actually decreased compared with the previous year. But these reasons ought to be stated, and traffic figures given; and there ought to be a mention of the subsidy which BAL receives from the Bahamas Government. And while BOAC have given the impression that they have disengaged themselves financially from MEA, there remains, tucked away at the bottom of page 97 of the report, the remarkable figure of £3£m still invested in the company. Is this the "various debts owing to BOAC" mentioned in the report? Is this the £3im which Sheikh Najib last year said was only £lim ? This ought to be explained, and it is time that the price for which MEA bought Masco, in which BOAC invested at least £5m, was disclosed. At last week's BOAC news conference it was said that BOAC are to apply to the Government for a subsidy for developing and introducing the VC10. The cost, said Sir Basil Smallpeice, would be at least £3m. The application would, he said, conform with the recommendations of the 1959 Select Committee. That committee did not actually recommend that the corporation should receive a subsidy for developing new British aircraft. What it said was that it was not surprised that BOAC should expect a subsidy. Moreover, it based its view on the myth that "American airline operators have the advantage of having development flying done for them by the Services." As we remarked in a leading article on November 6, 1959, this is partly true of the 707 but it is most definitely not true of the DC-8, the Electra, the Fairchild Friendship, or the Convair 880 or 990. The airlines that introduced these aircraft footed the introduction bills for these new airliners unaided. There may be a case for a VC10 development subsidy but it must not be based on a misconception based on a misconception. One other small comment on BOAC's loss is called for: the report attributes £3m of the £14m trading loss to an engineers' strike, and an impression is given that this was not BOAC's fault. The report of the investigating committee said that "Little was done by BOAC's management to give the complete picture of the facts to the men." BOAC's deputy chairman, Sir Wilfred Neden, who is an expert in labour relations, may well have been concerned at this finding; but it does not justify any impression that the £3m strike loss was mainly the fault of something other than management. By far and away the brightest figure in the report is the 52.4 per cent level of the corporation's overall breakeven load factor. This is a wonderful achievement—a slash of 11 points since 1957-58— and it is the result of really striking improvements in productivity and efficiency, particularly on the engineering side. If BOAC can hold or better this level in the years ahead they should, given good traffic growth—more than 10 per cent a year would be required— earn enough to service their capital, though not to wipe out their £64m accumulated deficit. Summary of BOAC's Financial Results. 1961-62 (sums rounded off to nearest £lm) Revenue: passengers excess baggage ... mail freight sched. contract ... charters incidental... Total revenue Total expenses Operating profit Interest payments Extra depreciation ... Sundry capital items Subsidiaries ... Net deficit 1961-62 62 1 II 8 3 7 1 94 99 -5 6 33 -3 -3 -50 1960-61 61 1 II 7 4 5 1 89 86 +4 5 Nil + 1 -2 -2 BOAC 1961-62: Economic Indicators J956-57 57-58 .58-59 59-60 60-61 61-62 62-63 63-64 Average revenue rate (pence per l.t.m.) ... Average unit costs (pence per c.t.m.) Actual load factor (percent) Breakeven load factor (percent) 1961-62 56 26 46 52 1960-61 59 30 56 56
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