Air Niugini needs K800 million to fund effective re-fleeting program

11/07/2012 18:59




Speech by Sir Mekere Morauta, KCMG MP

Good afternoon ladies and gentlemen.  Thank you Prime Minister for coming today (Wednesday 11 July 2012).  I take this opportunity to congratulate you for your sweeping victory in Ialibu-Pangia.

We are here to welcome this new aeroplane to our country – it will be a most valuable addition to Air Niugini’s fleet, serving on the Brisbane, Sydney, Cebu, Manila and Auckland routes.  So it’s going to be a bit of a workhorse. 

This is exactly what Air Niugini needs – maximum use of its capital assets, maximum profit from its investments.

I congratulate the Chairman Mr Garth McIlwain and the Board, and the management team led by Mr Wasantha Kumarasiri for this initiative.

The national airline, like all of our publicly owned enterprises, can be healthier than it currently is.  The status of this aircraft in fact is a symbol of the problems the company faces.  It is leased. Air Niugini does not own it.

Now many airlines do not own all the aircraft in their fleets – many choose not to for good financial reasons.  But in Air Niugini’s case, it does not have the luxury of choice.

The reason, simply, is that the national airline’s balance sheet is not strong enough to stand the cost of outright purchase of all its aircraft, especially bigger jets like this.

There is nothing new in this. Air Niugini has been unable to own all of its fleet for many years.

In today’s fleet of 22, less than half are owned by Air Niugini – four Fokker 100 aircraft, three Q400s, two Dash 8-100s and one Dash 8-200.  And these are the less expensive aircraft.

Air Niugini is leasing 12 aircraft - three Boeing 767s, two Fokker 100s, three Dash 8-200s, three Dash 8-300s and this Boeing 737.

The constrictions imposed by its balance sheet do not end with aircraft – they affect every aspect of the organisation and its operations.

We all know the results: flights cancelled, flights delayed, passengers offloaded, and so on.

And there are longer-term and more fundamental consequences: Air Niugini in its present configuration is unable to provide reliable and affordable services to all the people, the shareholders of Air Niugini.

It is flying on one engine, not two.

To be in a position to provide the services that travellers need, Air Niugini requires a large infusion of financial capital from its shareholder, the national Government.  I believe Air Niugini needs at least K800 million to re-fleet appropriately, in type, size and number of aircraft. 

But providing all public enterprises with the money needed to rehabilitate them and put them onto a sound financial footing is virtually impossible.  No government has ever been able to meet all their requirements, so Public Enterprises struggle on as best they can with what they generate or borrow.

Air Niugini is to be congratulated for the fleet restructuring that it is undertaking at present – it will be more efficient and it will be more profitable and it will provide better services.  It is to be congratulated as well for its recent decision to fly into Wau-Bulolo and Daru.

But it could do so much more if it was put on a sound financial footing.

We do have one chance to do this – possibly our last chance – and that is through the new Sovereign Wealth Fund.

I have suggested that the Sovereign Wealth Fund should earmark dividend flows from PNG LNG ‑ about K500 million per year – to be used to recapitalise our public enterprises, and to pay for the maintenance of national infrastructure (roads, ports, airports, universities, hospitals) and the provision of rural infrastructure.

I hope that the next Government sees the wisdom and practicality of that.

I also hope that it does not succumb to the temptation of winning political popularity contests – looking good but doing nothing and achieving nothing to solve our deep-seated problems.

Governments and politicians are there to make decisions in the national interest, not to please vested interests or to entrench themselves in the comfortable seats of Parliament House.

Most importantly I hope that it does not listen to the ignorant, self-interested mauswara that the opponents of reform inflict on us.

Most recently vested interests and would-be politicians opposed NEC’s proposed solution to the constant power blackouts that the national capital suffers.

The anonymous arguments they put in support of their case were non- arguments.  What they served up to the nation through the media – in particular with the connivance of the Post-Courier – was politically motivated and self-serving nonsense consisting of falsehoods, rumour, innuendo and smear.

Facts appear to be a non-essential item in public debate these days.

How long are we going to allow tens of thousands of families to suffer every day because there is no electricity for mothers to cook with or lights for children to do their homework by?

How long are we going to allow people – the old, the very young, the ill and the frail – to be put at risk because there is no power or water?

Why should we allow the job prospects of our children to be crippled because rather than hiring more workers, business needs to spend its money on generators and fuel?

These are the consequences of the opposition to the reforms that the nation so desperately needs.

It is my hope that the incoming Government will make decisions based on the fact that the people of Papua New Guinea own Public Enterprises.

Not unions and employees. Not directors and management. The people own Public Enterprises through their elected representatives.  And elected representatives have a duty to make decisions in the national interest.  Elected representatives are empowered directly by the people, and the people are the owners of these assets.

One of the biggest failures we have as a nation is that decision-making is often on the basis of political convenience or pandering to sectional interests.

It is my hope that the new Government has the determination and the wisdom to make decisions solely on the basis of the common good.

If the new Government does not prevent decision-making from being hijacked, we will continue our increasingly rapid slide down a slippery slope.

Public Enterprises are at the heart of service provision, yet they lack capital, they lack clear and consistent direction from government, they are not fully accountable and transparent, and they are unable to operate on fully commercial terms.

Until my reforms beginning in August last year, none of them had paid a dividend to their owners, the people of Papua New Guinea, since 2007. Today’s dividend from Air Niugini is most welcome.

In fact it is the first paid by Air Niugini in 16 years, the first since 1996.

That in itself shows the weak financial position of the airline.  The dividend of K6.4 million represents 5% of paid up capital, again demonstrating the shallow capital base the airline has to work with.  Air Niugini is totally dependent on borrowed money and internally generated revenue – this will never be enough for it to make the shift from flying on one engine to flying on two.

The lack of capital of all public enterprises is the principal cause of their service delivery falling far below acceptable levels.  They have not increased rural air services, reliable power, efficient ports, competitive telecommunications or fast and affordable internet services, to name just a few areas for which they are responsible.

Sure, we can apportion some of the blame for this dreadful state of affairs to the Somare family’s treatment of IPBC and its public enterprises as a personal empire, but the problems are more deeply rooted than that.

It is significant that since the creation of IPBC out of the former Privatisation Commission in 2002, not one Public Enterprise has been successfully rehabilitated and referred back to the government for a decision on its future.

That tells us that the Government, IPBC and the SOEs have failed to do their jobs properly.

My reforms of IPBC since August last year show that Papua New Guinea is perfectly capable of the institutional rehabilitation that is needed.

From an organisation paralysed by a lack of leadership and direction, and political interference and nepotism, it has become effective, efficient and vigorous in its leadership of public enterprises.

I hope that the new Government continues these reforms and extends them to all public enterprises, including Air Niugini, and that one day our national airline will be able to provide the extent and quality of services that all Papua New Guineans require.

Thank you.

  • This speech was given by the Minister for Public Enterprises Rt Hon Mekere Morauta, KCMG MP to welcome Air Niugini’s new Boeing 737 to Port Moresby, Papua New Guinea on Wednesday 11 July 2012.