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Fyfe Defends Staff Cuts Layoffs Set Record

Posted on: Sunday, 23 October 2005, 15:00 CDT

By VAN DEN BERGH, Roeland

Just five days after his appointment Air New Zealand's new chief executive, Rob Fyfe, fronted up to shareholders and told them he was sacking 600 of the airline's engineers. ROELAND van den BERGH reports.

Air New Zealand's new chief executive, Rob Fyfe, does not shy away from responsibility for the decision to lay-off highly skilled staff, the largest mass redundancy in at least six years in New Zealand.

At the airline's annual meeting on Wednesday, the company announced that heavy maintenance of Air NZ's long-haul aircraft will be moved to one of the mega- service centres in Asia or Europe in a bid to cut $100 million in costs over the next five years, which will involve the loss of 600 highly skilled workers.

"I have been intimately involved with the detail of this proposal. I knew how deep the water was going to be when I jumped into it," Fyfe says.

"For me whether this came in the first week or in week 51, it is always going to be an incredibly tough decision.

"It is tougher for the people who are grappling now with the uncertainty associated with this."

Neither does he believe that the bombshell has placed him on the back foot with staff from the start, who are on notice to expect more change faster.

Nor is he concerned about the mood among the overall staff following the announcement who he expects will rally around those affected. "We will be continuing to develop and adapt and evolve our business and the decisions we have to make to do that will come with increasing regularity, to be honest."

The next big announcement, before the end of the year, will be about the merger of Air NZ and budget arm Freedom Air.

Any staff cuts will be handled through attrition rather than redundancies, Fyfe says.

Unions now have a chance to go over the engineering proposal and the numbers behind it, before a final decision is made by December 19.

The airline's Air New Zealand Engineering Services (Anzes), which has a big engineering workshop at Christchurch International Airport, has been under review for more than an year after a severe downturn in its earnings due to the higher dollar and increased competition.

In February, then managing director Ralph Norris said Anzes was not looking at job cuts "per se", but that non-performing maintenance business could be dropped.

Engineering, Printing and Manufacturing Union secretary Andrew Little said workers had been aware of impending changes to the engineering business but were "stunned to learn the extent of the proposed redundancies".

But Fyfe has already made it clear that he sees no alternative but to close the wide-body aircraft maintenance facility.

Despite its reputation for quality workmanship, Anzes can notcompete with the scale of joint-venture facilities which have 80 to 100 times the capacity.

Even if the dollar drops to US40c from today's about US70c the heavy maintenance base in Auckland would still be marginal, he says.

The problem is that Air New Zealand own wide-body fleet, the Boeing 767, 747-400 and soon to arrive 777s, only uses about half of Anzes's capacity. The rest must be sold to other airlines to offset the fixed costs associated with the business.

Without it, the cost of maintaining Air New Zealand's fleet effectively doubles, Fyfe says.

After the initial shock of the mass redundancies, Air New Zealand also has to convince a sceptical public that sending planes to a massive maintenance base in Asia or Europe will not impact on safety.

Fyfe is irritated by claims from Green Party co-leader Rod Donald that Air New Zealand's reputation could suffer if it sent its planes to be maintained by low-paid labour in China.

"It is a bit of an issue when you get people who would not have the first idea about quality in the aeronautical sphere commenting on the subject."

Air NZ has evaluated the capabilities of maintenance bases around the world, he says.

Most are joint ventures with industry giants such as aircraft manufacturer Boeing or highly regarded maintenance specialist Lufthansa Technik, owned by the German national carrier.

They employ skilled local labour and import processes, technology and intellectual property from the joint-venture partner, Fyfe says.

Aviation safety bodies, including the United States Federal Aviation Authority have "crawled over" them, as have the quality control managers from their airline customers.

In several cases standards are superior to those in the United States.

Reputable airlines like Lufthansa, Cathay Pacific and United Airlines are increasingly outsourcing their heavy maintenance to these facilities to save costs.

Long-haul makes up nearly half of Air NZ's passenger and cargo turnover, but is more capital intensive, causing the business to be not as profitable as it needs to be, "and certainly doesn't meet its cost of capital today", Fyfe says.

"When you are competing against airlines that do have a lower cost of maintenance, typically they can use that to their competitive advantage," Fyfe says.

Exit, layoffs `not linked' -- C7 Queenstown approach -- C7

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Source: Press, The; Christchurch, New Zealand

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