Ansett wins reprieve from shutdown

Ansett has won a reprieve from total shutdown and its 767s are flying again

In this story: Singapore stake under discussion Aggressive price competition RELATED SITES

By CNN's Geoff Hiscock and Grant Holloway

MELBOURNE, Australia (CNN) -- Australia's second largest airline, Ansett, won a reprieve Friday afternoon from a threatened shutdown by the air safety authority.

AUDIO Air New Zealand CEO Gary Toomey tells CNN safety is the number one priority. 1.41 MB /2:14mins AIFF or WAV sound

The reprieve followed a week of intense activity by Ansett to show that its aircraft maintenance and safety procedures were acceptable to the Civil Aviation Safety Authority (CASA).

On Thursday of last week, CASA grounded 10 of Ansett's Boeing 767 aircraft and said it would issue the airline with a notice by midnight Friday, April 20 to "show cause" as to why it should be allowed to keep flying.

But at 4pm Friday -- eight hours before the deadline -- CASA said it would not issue the notice to Ansett.

It said the decision followed its acceptance of Ansett's "detailed plans" to improve its aircraft maintenance and operation.

Earlier, CASA cleared the first of Ansett's 10 grounded 767s, which had been ordered out of service last week over safety and maintenance concerns. Hairline cracks had been found in some 767 engine mountings earlier in the week.

CASA began physical inspection of the grounded 767s on Wednesday. The first cleared Ansett 767 took off for a flight from Melbourne to Sydney at 2.30pm Friday.

Singapore stake under discussion

The key to Ansett avoiding the notice was its reform proposals which included an overhaul of safety and maintenance procedures and an extensive fleet upgrade program.

Ansett is fully owned by Air New Zealand, which is itself 25 percent owned by Singapore Airlines. Singapore Airlines is restricted by New Zealand government regulation from lifting its stake in Air New Zealand from 25 percent.

Air New Zealand wants the New Zealand Government to lift this restriction to enable Singapore Airlines to inject fresh capital into the airline to help fund the fleet improvements.

Some of the grounded 767s are up to 16 years old, and the fleet upgrade could cost up to $2.5 billion ($NZ 6 billion).

If the New Zealand government is unbending, Air New Zealand and Ansett chief executive Gary Toomey told CNN the fleet upgrade could be achieved by leasing additional aircraft and by arranging long-term and mezzanine finance.

However he said Air New Zealand's priority would be improving Ansett's operating cash flow.

Given the public relations nightmare of the groundings and continuing cut-throat competition in Australia's domestic airline market between Ansett, frontrunner Qantas and newcomers Impulse and Virgin Blue, Ansett has the job ahead of it to bolster its balance sheet.

Aggressive price competition

Toomey said Ansett would continue to aggressively compete on the price side and that, by and large, Ansett's corporate customers and the public had stuck by the airline.

"Our booking intake is actually up 1 percent for the next month," he said.

He said the cash flow improvements would come from leveraging efficiencies and cost cutting which had yet to be pursued from the merging of the two airlines, but he stressed there would not be cuts to the maintenance and engineering side.

Ansett Airlines
Civil Aviation Safety Authority

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