DAVID KNIBB SEATTLE
Policy conflict will continue to plague Australian aviation following the re-election of Prime Minister John Howard's government for a third term.
On the one hand, the election clears the way for final negotiations over the sale of Ansett. But on the other, Canberra seems likely to continue balancing its dislike for airline handouts with its hopes of thwarting a Qantas monopoly.
The announcement on the eve of the election of a tentative deal to sell Ansett may have been designed to rush government officials into certain concessions. Ansett's administrators and creditors hoped to pressure the government into changing its stance on a controversial ticket tax. That ploy failed, but negotiations with the re-elected government over Ansett's sale have already started.
Two Melbourne businessmen, Solomon Lew and Lindsay Fox, have offered to buy Ansett for A$1 billion ($515 million), as part of a proposal that includes government concessions and their A$2.5 billion commitment to acquire and operate 29 new Airbus A320s on mainline routes throughout Australia.
Lew and Fox, who lack airline experience, hope Singapore Airlines (SIA) will agree to manage Ansett, which they plan to keep in the Star alliance. So far, SIA has only agreed to draft a business plan, but it has not ruled out a larger role.
One stipulation in the Lew-Fox bid is that the Howard Government should not seek to recoup any sums it pays for staff benefits. The government's stance on this has varied - it imposed a A$10 tax on airline tickets to fund up to A$195 million in benefits for laid-off Ansett workers. It now says it is entitled to recoup from Ansett assets any amounts it pays, and it is free to use the tax proceeds for other aviation purposes, such as promoting tourism.
Ansett's administrators, creditors, and unions argue that the tax should reimburse the government for benefit payments, but Ansett's assets should remain unencumbered. Agreeing with them, the opposition made this an election issue, but were unsuccessful.
The opposition was also more open to helping Ansett. In principle, Howard opposes government aid, but in practice he has wavered. Some of his pre-election aid, such as a A$21 million exemption from air traffic control charges, went to small carriers in rural regions that traditionally support him.
His government is also worried about Qantas' growing dominance. Qantas now flies 85-90% of Australia's domestic capacity and it is growing. A recent deal with oneworld partner American Airlines saw Qantas take over American's orders for 15 Boeing 737-800s at discounted prices, with options for up to 60 more.
Canberra is openly encouraging Ansett and Virgin Blue to challenge Qantas monopoly routes. The government has agreed to underwrite half their costs on these routes if load factors fall below 60%. In response, both have expanded their networks. Transport minister John Anderson defends this: "We want to see a strong aviation sector and a strong aviation sector means more than one dominant player."
Understandably, Qantas is protesting. Chief executive Geoff Dixon says: "Using taxpayers' funds to prop up our rivals is the antithesis of what has been preached in Australia about competition."
Lew and Fox want to toughen Australia's competition law so that a dominant airline would face tighter rules. Tougher laws might be a better approach than subsidising competitors, but so far the government has taken no position. Winning the election apparently does not compel it to try and reconcile its conflicting aviation concerns.
Source: Airline Business
