Wednesday, October 08, 2008

More interesting times - Railcorp, Qantas and interest rates

We continue in interesting times.

In NSW, Premier Rees has decided to unwind partly the corporatist model championed by former treasurer Costa, returning the troubled Railcorp to a statutory authority under direct ministerial control. At the same time, the final Independent Commission Against Corruption report into the operations of Wollongong Council will be handed over to Parliament today.

I find the Railcorp one interesting in a professional sense because it does represent such a reversal. To this point, the responses have been, I think, dictated by previous positions. The thing that interests me are the reasons for the original transformation to a state owned corporation, the nature of the problems that then arose, the reasons given for the subsequent reversal. What does all this tell us not just about NSW but, more broadly, the nature of the conflicts that can arise with different models?

I have not yet formed a view. At the moment I just find it all very interesting.

The sharp drop in height of a Qantas A330 and the consequent injuries have obviously attracted considerable media attention. The incident comes on top of a series of problems for the airline.

I made passing reference to Qantas and its problems in my post on The resilient organisation. Essentially, I was wondering whether the airline's constant focus on cost cutting, while adding to immediate profits, had now reached the point where it was damaging airline operations. For obvious reasons, I hope that the investigation into the latest incident does not reveal further internal problems.

Like other commentators, I was taken a little by surprise by the size (100 basis points) of the cut in Australian official interest rates by the Reserve Bank of Australia. I was also a bit surprised at the way it created a bounce in the value of the Australian dollar. But then, our currency's current instability is a bit hard to understand full stop given the relative strength of the Australian economy.

Harry Clarke made an interesting point on his blog. Writing on 7 October, he noted that the Australian Stock Market had declined by around 25 per cent since May. However, our currency had also declined by a bit over 25 per cent. This meant that one US dollar's worth of Australian equity four months ago in May was worth about 52 cents today.

I must say that I was quite struck by this because I had not thought of looking at the combination in this way. Has the real value of Australian equity declined by this much? No, it hasn't. But it does show you how the combination of volatile stock prices with exchange movements can create real problems for global investors.

It also led me to wonder to what extent revised global accounting standards intended to enforce transparency were now going to bite us by forcing firms to crystallise losses based on immediate fluctuations. But that's another story.

Postscript on Qantas

Some years ago I was involved at official level with the Australian aerospace industry. At the time we were talking about Australian possible involvement in a new Airbus airliner. This involved use of fly-by-wire technology, the substitution of computer control using electronics technology for mechanical systems plus pilot control.

This was still relatively early days. However, the issue of what to do when things went wrong came up.

I was reminded of this by breaking reports that the problems on the Qantas flight may have been due to a computer malfunction. In general, computer systems do allow for greater safety, but system breakdowns can lead to disaster.

As a general rule, the more complex the computer system, the more complex the overall system, the greater the potential for unexpected problems.

Postscript on Qantas 2

There is a short but rather useful post by ben Sandilands that explains far more clearly than I could ever do the possible nature of the technical problem that hit the plane.


Joel said...

I have vague recollections of Ansett in the 12 months before it went belly up, and a string of mechanical errors and forced landings as the company started to unwind. (Including a flight to Melbourne in a chair that was not properly bolted to the floor, a rather uncomfortable flight).

I'm not suggesting that QANTAS is in the same position, it just jogs the memory somewhat.

Jim Belshaw said...

I, too, can remember Ansett running down, Joel. By the end some of the planes were downright shabby!