Engineering a new Qantas

Qantas' announcement of 500 job cuts today is only part of an ongoing story as it rebases its costs. Its new aircraft won't need as much maintenance and the resources sector may offer opportunities for the axed engineers.

Qantas’ confirmation that it will shed 500 engineering jobs is only a part of a continuing story as the group attempts to rebase its costs to bring them into line with its ever-evolving circumstances.

The job losses within its heavy maintenance facilities were flagged when Qantas announced its first-half results in February, and it also announced another 500 job cuts to its engineering, planning, catering and cabin crew functions.

Qantas has been in near-continuous cost-cutting mode over the past decade in response to the steady erosion of its international market share as competitors have crowded onto the routes into and out of Australia, as well as to the soaring cost of jet fuel.

With the international business losing more than $200 million last year and Virgin Australia under former Qantas senior executive John Borghetti threatening an assault on its core domestic business travel franchise, Qantas has had no realistic option but to maintain a focus on its cost base that started under Alan Joyce’s predecessor, Geoff Dixon.

The closure of the group’s heavy maintenance facility at Tullamarine, with the loss of 422 jobs, and a further 113 job losses at its Avalon facility, however, has a different rationale to that more general attack on costs.

While it has been extended and amended, Qantas does have a major fleet renewal program underway. Its capital expenditure program this year will approach $5 billion, much of it related to new aircraft.

As the composition of the fleet changes, so will the nature of the heavy maintenance schedules.

The newer planes are not only more efficient, particularly in their fuel usage, but they need less maintenance and therefore much of the heavy maintenance capacity at Qantas has become redundant and, as it foreshadowed today when it said further ‘’changes’’ were expected at Avalon, more will become so.

Avalon will for the moment continue to maintain Qantas’ 747s, but they are steadily being retired. Maintenance of Qantas’ 737s will be relocated to its newer Brisbane facility, which appears destined to end being Qantas' main maintenance centres.

With a claimed cost disadvantage in heavy maintenance of 30 per cent relative to its competitors – and overall costs that are similarly higher than its rivals – Qantas can’t afford to retain inefficient facilities in a labour and capital-intensive segment of its business.

The unions might see Qantas’ action as destructive but without structural change Qantas eventually won’t have an international business and its domestic business will be a lot smaller than it is today.

The restructuring will cost Qantas about $50 million and lift the total of second-half restructuring costs to more than $250 million, but will, it says, generate annual savings of between $70 million and $100 million.

For the affected Qantas employees, the only consolation is that the massive amounts of investment occurring within the resources sector has resulted in a severe shortage of engineers and skilled workers, so at least there is a market for their skills if they want to take advantage of it.