AirServices Australia is claimed to be facing serious currency losses on equipment lease finance deals, but the bigger question is how adversely have other government backed enterprises and business at large also been affected by similar deals gone wrong.

A $300 million hit for the air traffic control provider was mentioned on Pprune.org, the professional pilots rumour board yesterday.

AirServices has not yet commented on the rumor. However a note to its accounts to June 30 last year, in which it made an operating profit of $106.8 million after tax says:

CROSS BORDER FINANCING ARRANGEMENT.

During the 2003 and 2004 years, Airservices Australia completed a cross-border financing arrangement in relation to equipment associated with The Australian Advanced Air Traffic System (TAAATS) and radar systems. The arrangement is for 22.5 years and expires in January 2026.

Airservices Australia has provided certain guarantees and indemnities to various participants in the transaction. If certain events occur, Airservices Australia could be liable to make additional substantial payments. The future underlying exposure against which these guarantees and indemnities have been provided are up to a maximum of US$743m (2005: US$ 758m). At the time of the transaction, expert external advisors considered that unless exceptional, extreme and highly unlikely circumstances arise, Airservices Australia would not be required to make a significant payment under these guarantees and indemnities.

Management regularly monitors the factors affecting this transaction on an ongoing basis.

The catch in terms of any losses for AirServices and the government is that it is in no position to recover them through increased air navigation charges to the airlines.

Airservices is currently so short staffed it is refunding fees to the carriers for flights where it couldn’t provide aircraft separation, leaving them to either fly around the unsafe zones, or gamble on using self-separating procedures in which any number of flights are expected to talk to each other to work out whom is going to use which part of the sky at which moment.

The losses are expected to overshadow the embarrassment of a botched attempt to devise a low level navigation system for flights in regional airspace reported in the blog Plane Talking.

Peter Fray

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