Submission No. 31 Norfolk Island Economy Date: 03/06/14

Submission No. 31 Norfolk Island Economy Date: 03/06/14 ACN 169 144 129 15 May 2014 Joint Standing Committee on the National Capital and External Territories Economic Development on Norfolk Island. Reply to questions on Notice from Ms Brodtmann Ms BRODTMANN: I have a number of questions. The first is to your background. I understand that you managed the airline contract or have been involved in the airline contract in the past. Except for the current contact between the Commonwealth and Air New Zealand, there has not been an airline contact in the past. However, if you are referring to the Norfolk Island Governments failed airline, Norfolk Air which cost the community and the Commonwealth $33 million dollars, I had no involvement. I believe the airline you are referring to was Norfolk Jet Express. Norfolk Jet Express was started by me at a time when no other air carrier was willing to fly to Norfolk Island. There was no contract, no subsidy, and no support from the Norfolk Island Government and no support from the Commonwealth. The background and history to Norfolk Jet Express is as follows. In 1996, Ansett Airlines announced that it was going to withdraw from services to Norfolk Island. This withdrawal would be effective by the end of June 1997, regardless of whether another carrier was found to replace it. By early 1997, the Norfolk Island Government had not found any carrier willing to fly to Norfolk Island, this included both Qantas and Air New Zealand. In early 1997 and with no other carriers interested in flying to Norfolk Island, I announced the creation of Norfolk Jet Express and that I would provide an air service to the Island. Norfolk Jet Express commenced flying in May 1997, with a BAE146-100 aircraft, based on the Island, employing locals as flight attended. Norfolk Jet Express created a fully qualified flight kitchen and produced all in-flight meals on the Island. The flight crew were based on the Island. Subsequently, Brisbane based Flightwest Airlines also announced it would commence services to Norfolk Island, commencing at the end of June 1997. What followed was a period of intense competition and massive over capacity of airline seats into Norfolk Island. 1 | P a g e During this time the Norfolk Island Government made it clear to Norfolk Jet Express that it did not offer support to airlines flying to Norfolk Island. The Norfolk Island Government did however spend nearly $800,000.00 installing a SLS landing system at the Norfolk Island Airport for use by the F28 aircraft operated by Flightwest. Flightwest Airlines later went into liquidation and ceased operations to Norfolk Island. Today the SLS landing system sits at the Norfolk Island Airport, never used, just an $800,000.00 waste of money. With the sudden closure of Flightwest Airlines, Norfolk Jet Express immediately increased its number of services to a level required to support Norfolk Island. The Norfolk Island government also asked Norfolk Jet Express to carry the Flightwest ticketed passengers on the basis that it had reached agreement with the liquidator Mr Ian Hall of Price Waterhouse Coopers to honour payment of the tickets. In the interest of supporting Norfolk Island and supporting tourism to Norfolk Island, Norfolk Jet Express agreed to carry the Flightwest passengers, even though many of these tickets were at a price that was below cost. The liquidator, Ian Hall of Price Waterhouse Coopers, then refused to pay Norfolk Jet Express and instead sought to treat Norfolk Jet Express as simply another creditor of Flight West. Because Norfolk Jet Express had not been paid by the liquidator, Norfolk Jet Express sought some commercial relief from the Norfolk Island Administration in regard to the payment terms relating to landing fee content of the Flightwest ticketed passengers. This relief was refused and the response from the Norfolk Island Administration was that it was a commercial matter and it not the Norfolk Island Administrations problem. Norfolk Jet Express had to then sue Price Waterhouse Coopers in the Supreme Court of Queensland to obtain payment. An action that was ultimately successful. Following the closure of Flightwest Airlines, Norfolk Jet Express operated 6 flights per week to Norfolk Island with which provide 840 airline seats from Australia. The current Air New Zealand services provide around 640 seats per week from Australia. These flights were not subsidised and received no support from the Norfolk Island Government or the Commonwealth. In 2002, Alliance Airlines announced that it would commence services to Norfolk Island. What then followed was another period of intense competition and oversupply of airline seats into Norfolk Island. In 2004, Alliance Airlines withdrew from Norfolk Island services and Norfolk Jet Express carried all of the Alliance Airlines passengers. 2 | P a g e It was later disclosed to me by the senior management of Alliance Airlines that the only reason they commenced services to Norfolk Island, was because of a very significant promise of marketing support by the Norfolk Island Government. This period of intense competition had caused a significant loss for Norfolk Jet Express. However the airline quickly returned to profitability. In May 2005, Norfolk Jet Expressed ceased flying following legal action by the Norfolk Island Government to close it down. Ms BRODTMANN: I understand that in the end it went under and it had to be bailed out by the Norfolk Island government to the tune of about $1½ million, which then was transferred onto the Commonwealth and was captured in the agreement that we made a few years ago. Could you clarify that background? My description would be that Norfolk Jet Express never “went under”, it was shut down by the Norfolk Island Government. Before explaining the above statement, first let me put the commercial relationship between Norfolk Jet Express, the Norfolk Island Government and the Norfolk Island economy into context. 1. Norfolk Jet Express was a commercial customer of the Norfolk Island Administration to the order of approximately 2 million dollars per year. 2. Norfolk Jet Express spent over half a million dollars per year on wages on Norfolk Island. 3. Norfolk Jet Express was the sole carrier from Australia to Norfolk Island 4. Norfolk Jet Express spent many hundreds of thousands of dollars in marketing and advertising Norfolk Island. 5. Norfolk Jet Express also provided hundreds of free seats a year to travel agents, journalists, tour group operators and other possible sources of business. So please remember these things when I explain what led to the Norfolk Island Government closing down Norfolk Jet Express. During its existence, Norfolk Jet Express endured periods of intense competition. As a result of this competition, Norfolk Jet Express had periods of slow payment on its trading accounts to the Norfolk Island Government. Importantly, these delayed accounts, had in the past, always been paid In late 2004 after heavy competition during the Alliance Airline period, Norfolk Jet Express was again behind in its trading account payments to the Norfolk Island Government. Norfolk Jet Express trading account with the Norfolk Island Administration was approximately $570.000.00 of which about half was in arrears. 3 | P a g e An agreement was reached with the government, which included interest, and this agreement was honoured by Norfolk Jet Express, and by May 2005 the arrears had been repaid. However in May 2005, the account fell into arrears of about $89,000.00. I cannot recall how late the account was but with purchases in the order of $150,000.00 or more per month, it was clearly not significant. Without attempting negotiation, the Norfolk Island Government issued a statutory demand for the payment. Records indicate that an amount of $20,000.00 was paid and I recall there was some issue with the balance. At the time I was off the Island in Australia when I heard that a statutory demand had been issued, and considering the size of this amount and considering the potential impact on the community, I had expected some common sense to prevail regarding the balance. However this did not happen and the Norfolk Island Administration proceeded to commence an action against Norfolk Jet Express in the Supreme Court of Norfolk Island seeking to have a provisional liquidator appointed. At this time the balance of 65,000.00 represented about 2 weeks trading between Norfolk Jet Express and Norfolk Island administration. Norfolk Jet Express commenced to defend the claim. The cost of defending this matter caused a serious drain on Norfolk Jet Express’s limited reserves at the time. In an effort to reconcile the dispute between Norfolk Jet Express and the Norfolk Island Government, I personally placed $65,000.00 into my solicitors trust account. My solicitor, Mr John Saunders, partner of Shand Taylor Lawyers, then rang Mr Geoff Gardner, Chief Minister of the Norfolk Island Government and advised Mr Gardner that his firm held instructions from me, to release the money to the Norfolk Island Government if they agreed to discontinue legal proceedings against Norfolk Jet Express. The Chief Minister of the Norfolk Island Government, Mr Geoff Gardner, declined. On this news, I took the view that there was no longer any point in continuing to expend limited reserves on a legal fight against a Government that clearly just wanted to close down Norfolk jet Express. I issued instructions to my solicitors to discontinue our defences of the wind up application by the Norfolk Island Government. As Norfolk Jet Express (Norfolk Island) was the only customer of Norfolk Jet Express (Australia), I then immediately placed Norfolk Jet Express (Australia) into voluntary administration. I then rang the Chief Minister and advised him that Norfolk Jet Express would cease flying, effective immediately.

Load more