February 8th 2003

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Articles from this issue:

COVER STORY: Old-growth forests and wildfires

COMMENT: Iraq's last chance to avert war

CANBERRA OBSERVED: Howard turns eyes to NSW poll

HIGH COURT: A further improvement in the High Court

STRAWS IN THE WIND: False Dawn / Iraq another Vietnam? / UN: ideal and reality

AGRICULTURE: Deregulation and low prices see sugar investment collapse

The fatal flaw in economic rationalism (letter)

Why men avoid fatherhood (letter)

Cattle grazing to cut bushfire risk (letter)

Firefighters deserve our thanks (letter)

Canberra's tragedy (letter)

Case against Saddam not established (letter)

Full story (letter)

Cane farmers' survey (letter)

PROFILE: Solzhenitsyn: the conscience of modern society

ASIA: China launches massive infrastructure expansion

VICTORIA: Taxpayers bankroll alternative lifestyles

ASIA: Taiwan's rural finance in trouble

BOOKS: ANSETT: the Collapse, by Geoff Easdown and Peter Wilms

BOOKS: Human Cloning and Human Dignity: The Report of the President's Council on Bioethics

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ANSETT: the Collapse, by Geoff Easdown and Peter Wilms

by Peter Westmore

News Weekly, February 8, 2003
ANSETT: the Collapse
by Geoff Easdown and Peter Wilms

Rec. price: $24.95

Ansett: the Collapse is the first detailed account of the collapse of Ansett Airlines, Australia's second largest carrier, which went bankrupt with the loss of 16,000 jobs in March 2002.

The demise of the company followed about eight agonising months, as Australians watched the administrators of the mortally wounded Ansett Airlines try to find a backer who would save the troubled airline, which had been put into voluntary administration by its owner, Air New Zealand, in September 2001.

A year later, we can look beyond the immediate collapse, to identify the principal causes of this major company failure.


The authors are well placed to fulfil this task. Geoff Easdown is a senior journalist with the Melbourne Herald Sun, specialising in business and finance. He followed closely the denouement of Ansett. His co-author, Peter Wilms, was involved in the second Ansett Administration, and is therefore able to give an inside view of the final collapse.

Easdown and Wilms show that the origins of Ansett's troubles went back 20 years, when the company was jointly owned by Sir Peter Abeles' TNT and News Ltd, following the retirement of the airline's founder, Sir Reg Ansett.

As the Federal Government moved to gradually deregulate the aviation industry, Sir Peter Abeles effectively took control of Ansett.

At the 1985 Paris Air Show, Abeles purchased $1 billion of A-320 Airbuses and seven F-50 Fokker turbo-prop aircraft, producing what Easdown and Wilms describe as a "Noah's Ark" fleet of aircraft, and later wasted $300 billion on the Hayman Island tourist resort.

The advent of full deregulation of the aviation industry in the early 1990s occurred shortly after an extremely disruptive pilots' strike, and the appearance of low-cost carriers to compete with Ansett and Qantas.

Yet despite these challenges, Ansett remained relatively healthy.

From the mid-1990s, both News Ltd and TNT wanted to sell out of Ansett, and eventually sold their stakes for $1.3 billion to Air New Zealand, the small government-run flagship airline which needed to expand into Australia to compete with Qantas and other international carriers.

Air New Zealand, which had been part-privatised, was considerably smaller than Ansett, so the economics of the takeover always depended on the willingness of the NZ Government, and major shareholders Brierley Investments and Singapore Airlines, to bankroll the airline.

In the process of taking over Ansett, the NZ Labour Government of Helen Clark blocked a bid by Singapore Airlines, one of the world's top airline operators, for a 50 per cent share in Air New Zealand, but allowed it a minority stake which gave it no influence over the airline's management or policy.

After Air New Zealand took control, Ansett faced massive challenges from two budget carriers, Virgin Blue and Impulse, and heavy fare discounting from Qantas.

Easdown and Wilms show how Ansett's high cost structure, an ageing aircraft fleet, the exit of key managers and declining market share, caused the company to stall, and in 2001, it ran heavily into the red.

The authors report that Air New Zealand was forced to pump $113 million into Ansett in the first ten months of that year. The NZ carrier became desperate to refinance the airline.

A paralysing stalemate ensued, in which the Australian Government backed a Qantas plan to buy Singapore Airlines' stake in Air New Zealand (which Singapore refused), and Singapore sought to increase its stake from 25 per cent to 49 per cent (which Qantas and the Clark Government vetoed).

The eventual result was that Air New Zealand walked away from Ansett in September 2001, writing off its entire $1.3 billion investment in the company, and leaving 16,000 Ansett employees without even their statutory entitlements.

This, however, was not the end of the story. Ansett went into voluntary administration, and for the next seven months, attempts were made to find a buyer for the troubled company.

The Federal Government immediately intervened to guarantee the employees' entitlements, and imposed a $10 levy on all air travellers to finance it.

Rescue bid

Meanwhile, the Administrators, Mark Korda and Mark Mentha from Andersen Accounting, set about trying to rescue the airline.

While Easdown and Wilms are careful not to point the finger at any one player - letting the story tell itself - it is clear that several parties wanted to rescue Ansett, but each bid was thwarted by its opponents.

Chris Corrigan's Lang Corporation wanted to take its assets, but not the Ansett name. This was blackballed by the unions.

The Ansett staff prepared a serious bid, but could not find a financial backer for the buyout, when both Australian and New Zealand governments, and the ACTU which had a hotline to the superannuation funds, sat on their hands.

The remaining bidder was the Lindsay Fox-Solomon Lew consortium, which in November 2001 signed an agreement to buy the airline, but welched on the deal in March 2002 when they failed to get government subsidies of $1 billion a year.

The collapse of Ansett marked the demise of an Australian icon, and hardship for tens of thousands of Australians caught up in it. With the emergence of the British-owned Virgin Blue as the second domestic carrier, it also saw the extension of overseas ownership in the Australian aviation industry.

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