Qantas forgoes savings to keep Australian maintenance

SYDNEY - Qantas Airways Ltd. said it would forgo between A$20 million ($23 million) and A$30 million in annual profits by its decision to keep wide-body jet maintenance operations in Australia rather than take it offshore.

Qantas' chief executive told ABC Television's Inside Business that last week's decision to consolidate all heavy maintenance of its Boeing 747 fleet to Avalon, in Australia's Victoria state, would achieve annual profit before tax savings of A$90 million to A$100 million, against a possible A$120 million achievable overseas.

"Its a compromise, but then you have a brand issue here and a responsibility to the community," said Geoff Dixon. "We also have a huge workforce with major skills, and our view would be to keep those skills here." Last week Qantas said it would close its Sydney maintenance base by May, resulting in about 480 job losses, and move operations to Victoria where the airline has recently negotiated productivity reforms with its workforce to help compete with offshore options and lower costs amid high fuel prices.

Qantas, the world's ninth-largest airline by market value said last month it had identified two-thirds of its A$1.5 billion savings plan over two years to June 2008, including setting up stand-alone engineering businesses to compete against providers in North America, Asia and Europe.

Trade unions had warned Qantas, which has 38,000 staff, of industrial action if a large number of engineering jobs were moved offshore. Engineering accounts for a fifth of total jobs.

Dixon said the focus of the cost review would now shift to narrow-body jet maintenance operations and ultimately to the company's large flight crew workforce.

The biggest component of Qantas' costs is staff, accounting for about 26 per cent. The fuel bill, the fastest growing expense due to soaring oil prices, accounted for 21 per cent of costs in the first half of fiscal 2006.

- REUTERS