Qantas Statement on Engineering and Maintenance Operations

Sydney, 09 March 2006

Qantas Airways said today it would close its B747 heavy maintenance operations in Sydney by May as part of a major review of all its aircraft engineering operations.

The Chief Executive Officer of Qantas, Mr Geoff Dixon, said the review would initially see Qantas invest in, and retain, its wide body heavy maintenance facilities in Australia.

"A longer term commitment to retaining the operations in Australia will depend on Qantas achieving competitive benchmarks with the larger global Maintenance Repair and Overhaul providers (MROs) now dominating world aviation.

"Retaining three wide body maintenance facilities in Australia is no longer viable under this scenario. We have one chance to make this work and we are determined to succeed."

Mr Dixon said Qantas had to be competitive in every area in which it invested as the company moved towards a cost base that could ensure profitable operations with an oil price above US$60 a barrel.

Mr Dixon said the closure of the Sydney base would result in the loss of around 480 jobs.

"However, through re-deployment the number of people who leave the company as a result of this decision could reduce to around 340."

Mr Dixon said the review at Qantas Engineering would see:

* Heavy maintenance for Qantas' Boeing 747 fleet transferred from Sydney to the airline's base in Avalon, Victoria, with an increase in employment opportunities at Avalon;

* Heavy maintenance for the B767 fleet continue at the airline's new purpose-built facility in Brisbane, also with increased employment opportunities;

* A review over the next six months of the airline's narrow body aircraft heavy maintenance operations, currently carried out at Tullamarine in Melbourne;

* An investment of around $50 million in infrastructure and technology to facilitate the restructuring;

* Qantas Engineering seeking third-party work within the region when the restructuring was complete; and

* A commitment to retain a comprehensive apprentice program for the training of future aviation engineers in Australia.

Mr Dixon said the decision to close the airline's Sydney heavy maintenance base, after more than 55 years of operation, was regretted, but necessary.

"We have severe space limitations at Sydney and the limitations will increase in future years.

"Following this decision, we will still have more than 2,900 people employed in engineering in Sydney as well as almost 18,000 Sydney-based staff in other departments.

"We would need to vacate by 2009, or 2010 at the latest, even if the Sydney base had provided the most efficient outcome for Qantas.

"However, workplace efficiencies recently negotiated with the workforce at Avalon will enable us to start immediately to achieve the productive scale necessary to compete with offshore options," he said.

Mr Dixon said much had been achieved over the past five years by the Qantas engineering management and employees to affect change.

"However, the unprecedented upheavals in global aviation in more recent years have seen much more accelerated outsourcing of engineering and maintenance by major airlines.

"This has resulted in facilities being established in countries with significant scale and immediate cost advantage against 'in-house' operations like Qantas of 15 to 20 per cent.

"This is not a position we can sustain without major change," he said.

Mr Dixon said Qantas' review of its engineering and maintenance had involved in-depth considerations of overseas options.

"While moving considerable parts of our business overseas would have provided overall greater savings, the successful restructuring in Australia also had the benefit of significant savings that would make the airline competitive, while preserving a much-desired skill base within the country."

Mr Dixon said Qantas planned to achieve savings of around A$100 million per annum from restructuring all of its engineering operations, principally through consolidation, process improvements and more flexible work rules.

"The changes are aimed at delivering a competitive MRO by mid 2008.

"There will be in-depth reviews in June 2007 and June 2008. If we do not achieve the required targets and cost structure we will look at other alternatives."

Mr Dixon said Qantas could not commit at this stage to carrying out at its own facilities the heavy maintenance on its A330 and its new B787 aircraft due into service in 2008.

"However, these aircraft will be maintained in Australia if we can meet our restructuring targets."

Mr Dixon said Qantas would work closely with its people throughout the restructuring process and take all steps to minimise the impact.

"There will be some redeployment opportunities for Sydney heavy maintenance staff in other locations and full outplacement services for those people leaving the company.

"All apprentices can be retained in their current positions or by redeployment."

Mr Dixon said Qantas rejected claims that the restructuring of the company's engineering and maintenance operations was a safety issue.

"Qantas' enviable safety record has nothing to do with any particular group. It has to do with how the company has, over many decades, invested many hundreds of millions of dollars on the selection of its people and on the training of those people, and on facilities and infrastructure.

"These same standards would continue to be maintained whatever form our operations take in the future."

Mr Dixon said Qantas had shown, more than any other global Australian company, that it was, where possible, committed to employing Australians in Australia.

"However, it is wrong to suggest, as some union officials do in times of disagreement, that only Australians can maintain aircraft or only Australians can fly aircraft.

"This is a nonsense and is proven to be by the operational performance of airlines around the world every day.

"What these officials should be doing is helping to ensure that Australian airlines and, in this case Qantas in particular, have the maximum flexibility and productivity to meet international competition instead of mouthing emotional slogans about safety and threatening industrial action every time we seek to meet new challenges.

"Qantas has created 7,000 new jobs in the past six years, all as a result of continuing change throughout all sections of the company and major investment, particularly in aircraft and training. We can only continue to do this by embracing best practice in all our businesses."

Mr Dixon said even with today's changes, Qantas would continue to employ more than 6,000 people across its engineering and maintenance operations Australia-wide.

He said Qantas had invested more than $300 million in its engineering and maintenance operations over the past five years to accommodate growth, upgrade facilities, expand training and facilitate business improvements.

"This has included the $85 million Brisbane maintenance facility, a $55 million Materials and Logistics Centre in Sydney and our $20 million Rolls Royce Engine Centre of Excellence in Sydney."

Issued by Qantas Corporate Communication (Q3400)