Is the Rudd Government about to impose a very costly version of the ‘Ansett levy’ on domestic flights to pay for a disastrous foray into foreign currency funding by AirServices Australia?

While the answer may be an emphatic ‘No’ there is growing concern in the airline sector that it could be “Yes.”

Here is the how and why of the current anxiety and speculation.

The deadline for AirServices Australia to lodge its financial accounts for the year to June 30 with the Minister for Infrastructure, Anthony Albanese, was 15 October.

Convention is for the minister to table that report in Parliament promptly.

As reported in Crikey, rumors had been building about a serious mishap with what each annual report since 2004 describes as a Cross Border Financing Arrangement.

This is how the last annual report refers to the instrument, in terms that have been almost identical for the last four years:

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$743m (2006: US$ 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.

According to insiders, the deal actually involved the sale and repurchase through a lease finance arrangement of AirServices Australia’s “intellectual property”, to a Delaware corporation, or in effect, the sale to foreign investors of the country’s air traffic control system, which if true makes “equipment associated with…” the system seem like a quaint camouflage.

And because the sub prime crisis adversely affected the structure of the deal, and the indemnities given by AirServices Australia, the sums involved may exceed the figures quoted in its previous annual reports, and may be severely affected by the sudden recent weakness of the Australian dollar.

One source said it could cost AirServices around $2 billion a year, which would be enough to turn the deal into the worst cross border funding adventure by a government corporation in history.

But is this true? The Minister and AirServices have been asked and have not yet responded. At current exchange rates the immediate liability going on the 2007 report could be around $1.4 billion.

The domestic traffic stats to the full year to end of August this year show there were almost 50 million individually flown domestic sectors. Traffic is also falling. The maths of even 40 million domestic flights being levied to recover $2 billion is $50. Or an extra $100 on a return flight to anywhere however short or long.

This funding arrangement was put in place during the watch of the Howard government, and the current AirServices CEO, Gregg Russell, wasn’t in the job at that stage. Russell has an entirely different crisis on his hands, having failed to provide enough controllers to keep the system open at all times, and thus unable to charge the fees that until at least recently, produced a tidy return on investment for the government.

There is a need for the truth of the current situation to be revealed.

Is it a “little disaster”or some humungous c*ck up which has sold a vital section of our infrastructure to owners that are going to gouge us for many multiples of what it originally cost?

Peter Fray

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Peter Fray
Editor-in-chief of Crikey