Air Pacific flies a

Trade

Winds

Air Pacific flies a turbulent course

RIM last month reported the findings of a consultant who questioned the viability of Pacific Island international airlines unless they co-operate more closely. Arising from this ROBERT KEITH-REID in Suva writes about the particular problems facing one of the airlines, Air Pacific.

Air Pacific is flying through some of the most turbulent times of its 30-year history. The government-controlled Fiji air line is being bombarded by setbacks and problems, not the least of them being a mighty loss of from $8 million to $ll million being forecast for its 1981/82 current financial year, following one of $4 million estimated for 1980/81.

Only two years ago the airline was talking optimistically about new aircraft and the extension of its routes beyond the confines of the South Pacific to North America. Now it is in the throes of sacking staff, cutting back existing services and making do with aircraft that are not now suited to its routes. The airline has been hit by a combination 3f soaring fuel costs, falling traffic, equipment problems, overstaffing, managerial strains md stresses and competition Vom other Pacific Island air ines, notably those of Nauru md Western Samoa which are wo of its minor shareholders.

But the Fiji Government is letermined to keep the flagging lirline airborne, although not to he extent of at any cost. It >elieves that the international outes it has negotiated give Air ’acific the potential to be the egion’s leading carrier. In any vent, the airline is caught up in situation which it cannot asily relinquish. At a time major airlines including )antas and Pan Am are overfly ig Fiji or reducing frequencies, ic government accepts a res onsibility for maintaining air nks, particularly in the inter ns of the important tourist idustry.

Earlier this year the govern lent invested another 2 167 000 in Air Pacific lares, lifting its total holding > 83.77%. It has since agreed to riderwrite a $122 282 000 loan • finance the purchase of the rline’s first Boeing 737 jet.

In June, amid furore over the sacking of eight expatriate pilots (many of them its most senior ones), prospects of at least 30 redundancies among its 550 local staff and the alarm ingly mounting losses, the Min ister for Tourism, Transport and Civil Aviation, Mr Ted Beddoes, told Parliament that international consultants would be hired to carry out a ‘pro fessional reappraisal of Air Pacific’s total operations’.

This step is supported by the airline’s board and manage ment and will be undertaken soon. Consultants have yet to be picked but the government hopes to get them through the Commonwealth Fund for Tech nical Cooperation.

Meanwhile Air Pacific is marking time for the most part, and trimming costs where it can, while waiting for the return of good times about 1983, its executives say hopefully.

The consultants will be work ing with a new chairman, a bigger board of directors and a new chief executive. Earlier this year, after being chairman for several years, one of Fiji’s most respected businessmen, ac countant Mr Don Aidney, quit suddenly after disagreeing with the then aviation minister, Mr Tomasi Vakatora, over the way the airline should be run.

Mr Vakatora quickly re placed Mr Aidney with another influential local businessman, Mr Mark Israel, and braced the board with two more business men additions with the aim of making the airline more aligned towards profit and efficiency.

One of the old board’s de cisions was a controversial one.

To replace the retiring British general manager, Captain Alan Bodger, it chose Mr Akuila Savu, 37, who had joined as deputy manager only in June 1980 after 10 years as a civil servant.

The appointment raised eye

brows since Mr Savu was com pletely without experience out side government and had no aviation background apart from a short period on the local air transport licensing board. His civil service career had confined him to government planning departments and the Fiji Prices and Income Board. He had been Fiji’s director of economic planning since 1973 at the time of his recruitment by Air Pacific, and his rapid promotion to Bodger’s seat was a jump over young local executives with a decade or more with the airline behind them. Mr Savu’s arrival caused resentment and sapped already low staff morale.

But if Air Pacific found itself equipped with a chief executive having virtually no experience outside government service, let alone any aviation background, it also got one who is able, tough-minded and determined, and who could be a- blessing in disguise. In taking over the chief executive’s seat Mr Savu inherited a dishearteningly long list of problems to grapple with.

Air Pacific’s ailments derive largely from the days when it was supposedly a co-operatively owned and supported regional airline with Fiji, Tonga, West ern Samoa, Nauru, Kiribati, Solomon Islands, Qantas, Air New Zealand and British Air ways as shareholders. It nobbled itself in trying to keep everyone happy and was nobbled by some of its supposed backers, notably Nauru, Tonga and Western Samoa, which went into direct competition by establishing their own airlines.

Air Pacific began as Fiji Airways in 1951 as a small local airline owned by the American aviator Harold Gatty, and was bought by Qantas after Gatty’s death six years later. Qantas took on Air New Zealand and British Airways as partners, and the Fiji Government joined the club in 1965. In 1966 the airline invited other Pacific Island gov ernments to take shares and five had done so by 1969. In 1971 its name was changed to Air Pacific and in 1978 Fiji bought out British Airways, lifting its stake to 75.29%. This move gave Fiji power to change Air Pacific’s constitution in ad dition to giving Fiji full com mercial control.

Through the 1960 s the airline extended its services from Fiji

to Tonga, Western Samoa, Solomon Islands, the New Hebrides, Kiribati and Tuvalu.

Herons and later 40-seat HS74B turboprops were its workhorses.

In 1972 the first of two BAC 1-1 1-475 jets went into service and were used to open services to Auckland and Brisbane.

These were models built specifically for use in and out of small, rough and hot airstrips such as those that sprinkle the airline’s island routes.

A third BAC 1-11 was bought later second-hand from a German airline, but since it was equipped for European conditions its use was limited to the Brisbane and Auckland services. Unfortunately for Air Pacific the BAC 1-1 Is come from a line which has been overtaken by aviation tech nology and which can’t be adapted to fit changing con ditions. Compared with the latest Boeing 737 models they are far more costly to fly, and have become a root cause of the airline’s present troubles. The airline would like to get rid of them but there is no market.

The former German unit was a particularly expensive mistake.

It developed such severe cor rosion in its tail that it cannot be used without extremely expens ive repairs. Air Pacific is re signed to soldiering on with the other two models for an

indefinite period. The airline has shrugged its shoulders and accepted that it will have to sell the grounded jet, as is where is, for a song.

Air Pacific is counting heavily on the Boeing 737, due for delivery in October, to turn the profits tap back on. Carry ing 112 passengers, having a long range and using less fuel, the US-built jet should be a much bigger revenue earner than the other jets.

Another equipment problem arose from the purchase of four Brazilian-built Bandeirantes, 20-seat turboprops, in 1979/80 at a cost of $5 million. They replaced Trislanders and HS 748 s on local and some short regional routes but have caused nothing but controversy.

While Air Pacific claims that they are successful and making money, its pilots say that the Bandeirantes are completely unsuitable for routes of the type they are most used on, and its passengers don’t like them.

Passenger and luggage carry ing capacity fell far below expectations and the airline was

hammered with so many pass enger complaints that it began a hunt for a 30-seat replacement and wondered why it had got rid of the tried and trusted HS 7485. But by the middle of this year the financial crisis forced the airline to set aside all thought of other light planes.

In trying to cut costs and prepare for its own Boeing 737 the airline leased an Air New Zealand Boeing 737 but there are indications that this was another costly error because eventual cuts in services meant that the two BACs could have coped easily with all the work going.

The airline has abandoned the unprofitable Kiribati service because of competition from Air Nauru and now restricts flights to Tuvalu to a weekly Bandeirante service for passen gers plus a cargo flight.

Competition from the Boeing 737 s of Air New Zealand and Polynesian Airlines bit badly into the formerly lucrative Fiji- Tonga-Auckland services and these have been cut to one a week, while direct Fiji-

Auckland flights are being held at three. July was to have seen the inception of direct flights to Sydney with a leased Boeing 727. But after a re-think Air Pacific revived an old proposal under which it now sells under its own name one-third of the 400 seats in the Qantas Nadi- Sydney Boeing 747 flights. The deal will be extended to the Qantas Nadi-Melbourne ser vice in November. It is meant to help prepare ground for the day when Air Pacific’s own jets will set down at Sydney and Mel bourne.

Amid all these setbacks there has been one bright spot. In May a weekly jet service was opened to Papeete via Pago Pago, and tourist traffic on this is building up at a rate which is expected to sustain a second flight to be run from November.

Air Pacific’s problems in disposing of the BAG fleet makes the purchase of a second Boeing unlikely. But re equipment is still a pressing question. A round of air-rights bargaining by Fiji allows the airline to open services to

Christchurch, Sydney, Mel bourne, Honolulu, Singapore, Hong Kong, Tokyo, the US West Coast and Canada when it is ready to do so. However jets carrying around 200 passengers are needed for these routes and won’t be available until the mid 1980s. Boeing’s new 757 and 767 models appear to be upper most in Air Pacific’s mind, with the opening of services to Syd ney and Melbourne and to Christchurch having priority.

In gearing up for the joint service with Qantas the airline opened a sales office in Sydney this year. To strengthen his management team Mr Savu recently appointed marketing and promotion managers, an economist and a systems ana lyst. But Air Pacific admits that with more than 600 employees it is greatly overstaffed and that at least 30 people and perhaps many more must be cut from strength.

In Fiji, the airline is hanging on to its profitable Suva-Nadi and Suva-Labasa routes but has surrendered all other local ser vices to the internal airline, Fiji

Air. In its regional service network, it is bound to meet new competition generated by the aviation aspirations of Vanuatu, Solomon Islands and Kiribati on top of what it is having to handle from Air Nauru and Polynesian.

But while it sees itself now as becoming primarily a trunk route operator, it also believes that its role in carrying people around the Pacific Islands will be a continuing one, and that many of the passengers on these routes could be tourists brought in by its trunk services from Australia and other major sources.

Having bought out British Airways Fiji is now negotiating for the Qantas and Air New Zealand shareholdings in Air Pacific and has been told it can have them for a price still to be ixed. Whether the minority sland government shareholders vill wish to stay on in Air Pacific when the airline be comes practically 100 per cent fiji-owned is not yet clear. >ince Nauru, Western Samoa nd Tonga are deeply involved n rival airlines it would not be urprising if they eventually billed out.

UZ Island aid

ncreases 8%

'lew Zealand’s bilateral over eas aid to the Pacific Islands fill increase by $2.5 million this nancial year to $33,938 lillion, an increase of about %. The additional funds would lake it possible to raise the wel of most of the individual [locations from New Zealand ) the Pacific Island states, the ireign affairs minister, Mr rian Talboys, said.

He said that particular needs some of the Island countries id commitments to on-going ■ejects were being taken into icount.

The modest increase hich in real terms hardly atches the pace of inflation fleets New Zealand’s continu g restricted economic situ ion.

After more than five years as reign affairs minister, Mr Iboys will resign from politics November before the next neral election. In a preface to i department’s annual report parliament he said that one of

New Zealand’s most crucial challenges today was adjust ment to international change.

The isolation of the South Pacific in its entirety was reflected in his comments on New Zealand’s traditional foreign policies. He said that like other countries in the re gion New Zealand had been through a period when ‘many of the problems of the world passed us by’.

Mr Talboys continued: ‘We felt comfortable in our past relationships. We had no need to come to grips with the unfamiliar.’ He said that in meeting the new challenges of modern diplomacy it was a helpful start that New Zealand foreign policy emphasised bilat eral and regional links in the South Pacific. He said that the Pacific Basin was now being described as the new centre of world trade and investment dynamism. New Zealand now had to define its place in a fast

changing world.

William

Gasson in Wellington.

Airline may sell

hotel shares

Air New Zealand is considering withdrawing its investment in the Cook Islands Rarotongan Hotel, according to the New Zealand acting Minister of Civil Aviation Mr Aussie Malcolm.

He had been questioned in parliament about the invest ment by opposition Labour member Mr John Kirk who said the airline held a one-third share in the hotel. Mr Malcolm said that the airline had felt a need to participate in the hotel’s formative years. ‘lt now feels there are more essential alterna tive uses to which it can put the investment’ he said.

The exchange came against a background of financial prob lems for Air New Zealand which is trying to restore its

profitability.

William

Gasson in Wellington.

Reverse to PNG

central bank

The government’s central bank in Papua New Guinea, the Bank of Papua New Guinea, has reported a loss of K 15.5 million (about SA2O million) for its

1980 operations. Its result for the previous year was a profit of K3l million. The bank also reported a drop in reserves of KBl million.

In its annual report the bank blamed the situation on an adverse movement in inter national exchange and interest rates, and the draining of its investments by balance of pay ment deficits. Much of the loss was to be expected when coupled with a fall in com modity prices, the bank re ported, but an additional worry ing factor was the continued high growth of imports.

The bank was critical of some of the government’s spending policies at a time when financial conditions were known to be unfavourable. It particularly criticised the level of govern ment spending on office furni ture and fittings, on replace ment of the ministerial car fleet, on the purchase of an executive jet and on the degree of over seas travel.

But the Bank of Papua New Guinea itself came in for criti cism in the annual report of the

country’s largest commercial bank, the PNG Banking Cor poration. The PNG Banking Corporation is also government owned, and is the successor to the Australian Commonwealth Bank which existed in PNG in pre-independence days.

The PNG Banking Corpor ation’s criticism was based on a direction from the central bank that interest rates should be raised by 2% from August 1980.

The direction was given in an attempt to contain inflation and encourage savings, but this was ‘specious’ according to the banking corporation. The cor poration said that the move had failed to dampen the demand for credit, and there had been a huge increase in the value of loans outstanding.

There have been further in terest rate increases since then, and the central bank has con tinued to defend its policy despite criticism from the bank ing corporation. By last month the situation was reflecting a deep-seated contradiction in in terpreting the PNG financial situation.