Islands Business - Aviation: AIR NIUGINI'S FLYING HIGH

Well placed for a profitable growth in 2006 and beyond.

Papua New Guinea's national airline, Air Niugini, is emerging to rank as being one of the region's two strongest carriers after struggling for 30 years to attain profitability.

Air Niugini’s Fokker 100...efficient and suitable for domestic and international routes.

Since the beginning of a dramatic financial turn-around in 2003, it has climbed away from accumulated losses of Kina 179.3 million.

In 2003, it made a record pre-tax profit of Kina 51.2 million after a Kina 38.9 million loss the previous year, This was followed by more good results in the two following years.

The 2004 after-tax profit of Kina 31.3 million was made as fuel prices began to soar.

The airline has fully repaid a government guaranteed Kina 42 million loan from Bank South Pacific and is now well into a programme of internal reorganisation and fleet re-equipment.

It operates against private competition as PNG's largest domestic carrier, operating Fokker and Dash 8 propjets and is obtaining consistently improving results from its international services operated to Australia, Japan, Manila and Singapore with a Boeing 767.

Founded as a 100% government-owned national asset in 1973, Air Niugini has a history marked by the difficulties of operating in an environment and terrain that makes Papua New Guinea the source of great civil aviation achievements.

The turn-around improvement as a business began in late 2002 with the rationalisation of services including a code-share agreement with Australia's Qantas for joint services on the PNG-Australia route using a Boeing 767 and operated by an Air Niugini crew.

In 2003, Air Niugini had severe cash flow problems due to many years of poor financial performance and mounting losses.

The change in fortune to a position of nil net debt in such a short time has been dramatic and attributable to the dedication of its management and staff in changing attitudes and work practices,” said outgoing Air Niugini's chief executive officer, Rod Nelson.

At the end of 2002, total shareholders' equity in the company had been whittled to Kina 1.9 million by accumulated losses of Kina 179.3 million. Liquidity was stretched and current liabilities exceeded current assets by over 80%.

Cutting debt

2003 was a year of cutting debt, including paying a backlog of taxes, bringing trade creditors up to date and reducing short-term and long-term borrowings.

The balance sheet was further strengthened during 2004 and 2005. Shareholders' equity has grown to about Kina 100 million from retained earnings and writing off old legacy items.

Nelson said that with three years of financial prosperity, Air Niugini has now reached sustainability as a business and is well placed for profitable growth in 2006 and beyond.

The airline has replaced its fleet of veteran F28-1000 series and one F28-4000 aircraft, all more than 20 years old, with a mix of now four Dash 8s, two F100s and four F28-4000 series.

“Our decision to adopt the F100 aircraft in 2004 was made because the capital cost was right and it is the most efficient aircraft for many of our domestic and international routes,” Nelson said.

With 96 seats, the F100 is the largest commercial aircraft operating on PNG's domestic services flown from Port Moresby to Lae, Mt Hagen, Rabaul and Hoskins in the current schedules. The F100 aircraft also flies between Port Moresby and Cairns.

What makes Air Niugini's ascending fortunes all the more remarkable is that they have been achieved despite massive increases in fuel costs and such other heavy costs as obligatory and rigorous new international security arrangements. The evolution of competitive domestic services is actually more complex than our international flights, given the poor state of PNG's civil aviation infrastructure, including airports and the operational difficulties that the country's topography and climate may present,” Nelson says.

The airline has a key role in promoting PNG's still small but growing tourism industry, pushing such niche attractions as diving, sports fishing and trekking, as well as an emerging interest in PNG as a surfing destination.

Its network of strategically appointed general sales agents in Sweden, Britain and Italy and online sales offices in Japan, Manila, Singapore and Australia are bearing fruit.

The second and third Dash 8s arrived in 2003 and the last of the F28-1000 series retired in 2004. In November 2005, the first of the F28-4000 series was retired as part of an ongoing re-fleeting programme. Fleet modernisation plans continue with the aim of eventually replacing the F28-4000 series with additional F100s.

“The way ahead for long-haul services is clear. It is to bring more tourist and business traffic from the European and Asian markets as well as growing business traffic and tourism from the crucial Australian and South Pacific markets, “ says Nelson.

The Boeing 767 not only provides a critical import and export cargo service for PNG, it carries freight from Singapore and Japan to Australia (such as IT equipment and pharmaceuticals).

Papua New Guinea's economic reforms are winning local and foreign investment confidence and augurs well as a platform for the future growth of the airline.

Prospects for heavy private sector investment in a gas pipeline to Australia and in mining and petroleum projects should lift the airline to new heights.