Vaile push to advance regionals

The Straits Times, February 23, 2007
by Steve Creedy


THE failure of a succession of carriers servicing his rural NSW electorate in recent years has given Transport Minister Mark Vaile first-hand knowledge of the uncertainties of regional aviation.

The closure of the most recent, the local government-backed Big Sky Express, left Vaile's home town of Taree with an impressive airport but no airline.
That will change this month when Regional Express starts 36 weekly Saab 340 services from Sydney to Grafton and Taree, and attempts to build up the route.

Vaile, who is also Deputy Prime Minister and leader of the Nationals, is optimistic the nation's biggest independent regional operator will succeed, but notes it could well mean running the service at a loss as passenger numbers climb.

His awareness of the industry's difficulties is one reason he will be lobbying during the upcoming budget sessions for a continuation of the en-route subsidies provided to regional carriers after the collapse of Ansett devastated the industry.

The federal Government began rebating en-route air traffic control charges in 2002 and in 2005-06 provided $5.6 million to more than 40 regional carriers.

The four-year program is now drawing to a close, but regional carriers have been lobbying for it to continue. Vaile, who believes the subsidy is important in encouraging the growth of regional services, will push for another four years.

"It's got to go through the budget process this year, and I can't give a clear indication if it's likely to get through, but I'm certainly going to argue for it," he says.

"I think that we need ... to run the program on for a few more years to make sure (the regional carriers) are in a stable enough position that they're able to withstand some shocks if they come. This country can't operate without good regional air services, particularly in the larger states. Victoria's a bit different but NSW, Queensland, South Australia and Western Australia need strong, reliable regional air services."

Vaile appears to be settling comfortably into the transport portfolio with its byzantine mix of aviation, road transport and maritime politics. He has an advantage over his predecessors in that he was aware of what he was letting himself in for, having already served in the portfolio in 1997-98. Even so, he is quickly discovering the meaning of the ancient Chinese curse about living in interesting times.

Since his arrival in late September, the proposed $11.1 billion private equity takeover of Qantas has blown up into a national issue, Singapore-backed Tiger Airways has announced it will start domestic services and Virgin Blue's board has given the green light to establish a new Australian international airline.

The Qantas bid has started a debate about the fate of the national icon and reignited arguments about Singapore Airlines' desire to fly across the Pacific. But if the Singaporeans had any hope a new minister might further their cause, they have had to think again.

Vaile acknowledges the sensitivities caused by Qantas's dominance on routes to the continental US, but notes there remain opportunities for US carriers other than United and Hawaiian to fly the route.

He will also be meeting with the Canadian Transport Minister at an APEC meeting in Adelaide next month to discuss the trans-Pacific route.

But he says the main reason for keeping Singapore off the market at this stage is to allow Virgin to get its international carrier up and running.

"The position the Government takes today is not one of protecting Qantas, it's one of encouraging Virgin to get started as soon as possible," he says. "They are very keen to get going as soon as they can get hold of aircraft.

"As soon as that happens - and they know and Qantas knows - we will be looking to continue to increase capacity ahead of demand to make sure we can accommodate tourism, particularly inbound tourism."

Because of the Qantas takeover, everyone - from the airline's chief executive Geoff Dixon to the unions to the takeover consortium members - has beaten a path to Vaile's door.

Vaile says he has told the bidders, Airline Partners Australia, they must meet "unambiguous and inflexible" criteria in the Qantas Sale Act and the Airport Act if the deal is to go through. He is also less worried by the huge debt that led John Anderson question the deal.

"APA has an explanation in terms of how that's to be managed in the face of some shocks - say, a SARS shock or a fuel shock or a 9/11," he says.

"They maintain they'll have a buffer of cash reserves in order to manage that.

"Still, for the average punter out there, that level of indebtedness is hard to comprehend and how they will service that is hard to comprehend, and that's been reflected in public comments.

"But at the end of the day, it really is a matter for the market."

That observation is accompanied by a strong warning that the consortium will be on its own if the high level of debt weighs it down. There will be no government bail-out.

"I've said that we as a Government won't countenance that," he says. "These guys have got to structure themselves so they survive and they've got the appropriate contingency plans in terms of managing their indebtedness."

Is he convinced they will?

He has seen the APA presentation which favourably compares the Qantas debt levels with those of other private equity targets such as PBL, but observes that the aviation sector is a much more volatile and sensitive industry.

He says it is possible Treasurer Peter Costello may put national interest conditions on the bid but notes that the test looks at the national interest in terms of foreign investment.

"Really the foreign investment structure per se is not changing. It's remaining at the level it currently is as a listed company but it will be with private equity owners."

Nonetheless, he says, Transport Department officials will closely scrutinise the bid to make sure it complies with all the relevant laws.

Turning to other aviation issues, Vaile is still waiting for a Civil Aviation Safety Authority response to queries about its handling of Lockhart River operator Transair.

He says he has seen the Australian Transport Safety Bureau draft report on Australia's worst air crash in almost 40 years but is not at liberty to discuss details.

However, he has firm ideas on what the regulator should do.

"As a new minister coming into the portfolio and one who was here nine or so years ago, the absolute focus of myself, my department and CASA must always be on the safety of fare-paying passengers," he says.

"If someone buys a ticket to travel on an RPT (regular public transport) aircraft, it is reasonable for them to expect that this has the imprimatur of the safety regulator, that they're safe to travel and they'll get off on the other end. We must always ensure that happens with RPT.

"Charter operators are a different story, because individuals make decisions."

He is also aware of the push to reduce scrutiny of private pilots and says he has an open mind.

"But I would put a caveat on that, that we do have, and enjoy, one of the highest safety standards in the world and I certainly don't propose to weaken that," he says.

"If there are sensible improvements that can be made, we should be prepared to discus them and have a look at them.

"You can't say there's never room for improvement - there's always room for improvement, but the thing is it must always be in the context of maintaining maximum levels of safety."

Another area Vaile will watch with interest is the move to transfer regulation and overseeing of airspace reform to CASA.

He says the Government remains committed to introducing a US-based National Airspace System. "There are still things that need to be done, in my view. We will sensibly work through those to implement what we think should be the best operational standards for Australia."

On the hot topic of the environment, Vaile supports the government position that any carbon trading system will have to involve all international producers of greenhouse gases.