Pearls and Irritations

In a blog last Friday I recalled that Rupert Murdoch had said that he had never asked a Prime Minister for anything. That is quite brazen. From my own personal experience I know that is just not true. One early example which I describe below is an example of the way that Rupert Murdoch operates, in this case in association with Peter Abeles, to extract concessions from governments. At the time in 1988 Murdoch and Abeles had a business partnership in Ansett Airlines. I was then CEO of Qantas.

The following is an account  from my autobiography Things you Learn Along the Way, published in 1999: see pp267

In Qantas we were never impressed with Ansett Airline’s business performance after years of living comfortably in a highly regulated domestic airline regime, but we took our hats off to the political clout that Sir Peter Abeles and Rupert Murdoch, major shareholders, had with the Hawke Government. Hawke and Abeles also had a remarkably close personal relationship.

We saw major benefits in merging Qantas and Australian Airlines. Linking international and domestic services would provide an improved service to customers. It would enhance our marketing, spread our costs and lead to a substantial improvement in the utilisation of aircraft, particularly as most Australian Airline aircraft were idle at night. Profits could be lifted substantially. But the merger was always stymied by the Government’s support for Ansett, which saw a merged Qantas-Australian Airlines as a strong competitor. At Qantas we facetiously called Ansett the ‘government’s airline’. We were the public airline.

One episode particularly alarmed me about the influence which Ansett had on the Government’s aviation policy. I made extensive notes at the time, which I quote from below.

In March 1988, we put to Minister Gareth Evans a proposal for a merger of Qantas, Australian Airlines and Air New Zealand in what became known as the ‘tricycle’. We knew that the New Zealand Government was interested in privatisation of Air New Zealand. Both governments were also committed to closer economic relations and a single aviation market covering both Australia and New Zealand was inevitable and desirable. Further, a carrier with the combined capacity of Qantas, Australian and Air New Zealand would be a stronger competitor against the mega carriers on the Pacific, United and American Airlines. The tricycle was also, we believed, a way of getting the Australian Government off the privatisation hook. Our proposal envisaged that there could be a public float of the new merged entity, hopefully in the first quarter of 1989. Under our proposal,  Ansett would operate on the Tasman and so link its services in Australia and New Zealand.

Evans was very enthusiastic about the tricycle, but he found it hard going. In all important matters involving aviation, the views of Sir Peter Abeles and Rupert Murdoch were influential with the Government. We didn’t speak directly to Abeles or to Murdoch. The Government was the shareholder. Government policy was involved and that was not for us to negotiate. But Evans kept us briefed on discussions. I sensed his growing frustration about intervention by his ministerial seniors, Hawke and Keating.

The only legal and commercial leverage Ansett had was the domestic two-airline agreement which did not expire for another two years, in October 1990. In our view, that could be managed without real difficulty.

At the first round of discussions Evans had with Ansett, Abeles expressed major reservations about the tricycle proposal. He was particularly concerned about competition on the Tasman. Having worked comfortably in a regulated domestic system, he wanted similar arrangements on the Tasman, shared capacity. Qantas would have to withdraw capacity on the Tasman so that Ansett would have less competition. During the debriefing Evans gave us we pointed out that it would be bad public policy to extend the regulated domestic capacity controls to the Tasman. Regulated domestic aviation was coming to an end, so why extend it to the Tasman? But Evans was adamant that that was what he wanted: ‘It is as solid as the Rock of Gibraltar. ‘We were told to produce a formula to make regulation work on the Tasman. We told him that we could do that but reiterated that it seemed bad public policy….

Evans told us that Bill Kelty was briefed on the tricycle. He wasn’t opposed to it but had said that there ‘wasn’t sufficient in the proposal for Peter Abeles’. Paul Keating also got involved. At one meeting with Evans in Sydney, we had to leave the room so that he could take a phone call from Keating on the tricycle. On our return, Evans described the situation: ‘Paul Keating said that there had to be enough in the arrangement to get the support of Murdoch and Abeles’. It was very clear from Evans that it was Murdoch, not Abeles on the Ansett side, who was now the prime negotiator.

The next concession made to Ansett was that the tricycle would not be allowed to operate its B747s on domestic routes in Australia. That would be too competitive for Ansett. The final crunch was that the tricycle could not operate its B767s either, despite the fact that Ansett had B767s on domestic routes itself.

After the B767 rebuff we said to Evans that, as far as we were concerned, the tricycle was off; too many concessions had to be made to Ansett. The Qantas Chairman Jim Leslie queried with Evans after one round of concessions why he made the concessions ‘without talking to us about it’. Evans said, ‘RUPERT WAS ONLY IN TOWN FOR TWO DAYS SO I HAD TO MAKE A DEAL.’

There would have been problems getting the agreement of the New Zealand Government and Air New Zealand to the tricycle, but it was necessary to clarify the Australian position before approaching the New Zealanders. It was disturbing to see a very attractive proposition being derailed to protect Ansett. I made my views very clear to Evans. He warned me not to go public.

I had kept Dr Peter Wilenski, Head of the Department of Transport and Communications, informed of what was happening. At the end I recall him saying, ‘at least we have established one thing; a point beyond which the Government will not go to oblige Murdoch and Abeles’. It was, he said, ‘a dismal example of political power ahead of public interest’.

Together with Leslie I reported to the Qantas Board at a special meeting within a day or two of what had happened on the tricycle. I was conscious of what Gareth Evans had said to me about not saying anything publicly but I thought it was necessary to outline to the board my concerns. After the meeting and within an hour, Evans rang me. He had obviously been briefed by a board member about what I had said and reiterated to me not to go public and that I should be careful about what I said on the subject.

In my final note on the subject on 15 April 1988, I noted ‘the demands of Abeles/Murdoch and the Government’s willingness to concede was the reason for the collapse of the three-way merger. Senator Evans acknowledged that this was the case.’

On the same day I had a discussion with Ted Harris, chairman of Australian Airlines. My note for file summarized our discussion.

I outlined to Ted Harris the events that had led to the scrapping of the three-way merger. Although he did not know all the details he said that my outline was quite consistent with his knowledge of events. He said that cronyism and deals, regardless of the public interest, was the driving factor in public life in Australia. There was no point in being too idealistic.

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