Post by kiwithrottlejockey on Dec 12, 2009 13:30:11 GMT 12
Topdressers in dogfight
By ROELAND VAN DEN BERGH - The Dominion Post | 5:00AM - Saturday, 12 December 2009
TOPSY TURVY: The aerial topdressing industry is
in crisis, engaged in cut-throat competition and in
desperate need of new planes. — Fairfax Media.
Every day some of the country's best pilots take off from rough hillside strips in powerful but often overloaded topdressing planes.
The superphosphate and urea fertiliser they spread, skimming just metres above the ground, is the life blood of the inhospitable hill and high country.
But too many of their number are losing their lives in the delicate balance between physics and the pursuit of profits.
Industry leaders say a "grossly unacceptable" 13 pilots have been killed in the past nine years.
Taranaki pilot Kevin Brown, 48, was the latest fatality when his plane crashed shortly after takeoff on December 15 last year.
The toll is symptomatic of an industry suffering from chronic under-investment in aircraft, weak management, unsustainable competition and a collapse in demand, says Massey University college of business associate pro-vice chancellor James Lockhart, who was commissioned to review the state of the industry.
He also says big fertiliser co-operatives are undercutting independent operators by not passing on the true cost of aerial topdressing, to the detriment of flat land farmers.
Current prices of between $80 and $110 a tonne need to be raised by at least 20 per cent to allow the industry to re-equip with modern and safer aircraft, Dr Lockhart says.
But sheep and beef farmers are just emerging from five of the most difficult years in half a century, which led to a massive reduction in the amount of fertiliser they applied to their land.
On average between 500,000 and 600,000 tonnes of fertiliser is dropped on about 2.5 million hectares each year, but that fell by 30 per cent last year as prices hit record levels.
In order to stay in business, topdressers are aggressively competing for the work that is available, often at unsustainable prices and cutting safety corners to make ends meet, Agricultural Aviation Association executive officer John Maber says. In some cases pilots have charged as little as $40 a tonne.
"The fact is that they are going out of business doing that. The real concern is that the way things are looking, a lot of operators will not be able to stay in business unless they get a return that equates with the cost of doing business".
Consolidation into a handful of big firms and a sprinkling of sole operators servicing more remote areas is the only rational outcome, Mr Maber says.
The national fixed-wing fleet, consisting almost entirely of New Zealand-made Fletcher and Cresco planes, could shrink from 115 to about 70 over time.
But the remnants of an industry that traces its history back to the 1940s when surplus Tiger Moth air force trainers were converted to crop dusters, will have to charge considerably more for their services than they do now, Mr Maber says.
Farmers have little sympathy for the industry's plight, saying topdressers, like any other contractor, must reinvest in the business to win their custom.
Federated Farmers president Don Nicolson says farmers will generally support contractors with the best equipment and service.
"They may not be the cheapest, but farmers still go for that security of service and reliability."
Simply putting up prices without an improvement in service is not acceptable, he says.
The two big fertiliser co-operatives, Ballance Agri-Nutrients and Ravensdown, have responded to the risk of an industry collapse by each buying one of the two biggest aerial topdressing firms.
Ballance bought Hamilton-based Super Air in the 1980s and Ravensdown took over Wanganui Aero Work in 2004, which together account for two-thirds of the fertiliser applied by air.
Ravensdown chief executive Rodney Green says the company bought struggling Wanganui Aero Work to ensure continuity of service.
"We got involved with them really because if we didn't get involved we were nervous that our shareholders would not be able to get their fertiliser on their farms."
Wanganui Aero Work expanded its reach last year with the purchase of three upper South Island operators.
Sheep and beef farmers and their suppliers have been through a rough patch with low lamb prices and the East Coast drought, but as farmer confidence returns business will "start to look a lot brighter for the aerial spreading industry", Mr Green says.
Manawatu independent Hallett Griffin says the two co-operatives dominate pricing, but neither discloses the profitability of their aviation divisions.
"Surely their flatland shareholders have a right to know if any cross-subsidisation is taking place? And is it appropriate that it will almost certainly result in the demise of most of the owner-operator sector of the aerial topdressing industry?"
It is time for a Government inquiry into the industry and resulting safety issues, Mr Griffin says.
Mr Green rejects suggestions that Ravensdown is subsidising Wanganui Aero Work.
"In the end the costs are the costs. Our focus really is to make sure that where we have to we keep the spreading business alive, and of course in those areas we like them to be used because they are owned by those same shareholders."
In August the Commerce Commission rejected a complaint of predatory pricing against Ravensdown in its aerial topdressing business.
The commission says cross-subsidisation within a company is not illegal as long as it is not with the intent of driving a competitor out of business through predatory pricing.
Super Air manager Graeme Martin says the company does not receive cross-subsidy support from Ballance, although he has seen evidence of undercutting among competitors, including Mr Hallett, who "can be as aggressive as the next guy" when it comes to pricing.
New Zealand's economic reliance on agriculture and ongoing land development will ensure aerial topdressing has a future, with room for independent operators, Mr Martin says.
"Agriculture is a business where people do business with people they like. They value relationships."
He says prices need to increase so the industry can either invest in new aircraft or improve their airstrips and facilities, some of which were designed to handle Tiger Moths.
Dr Lockhart says about 35 new aircraft are needed almost immediately to replace the out-of-date Fletchers, which date back to a 1950s design.
Civil Aviation Authority head of agricultural aviation John Fogden says the industry is at a turning point and is waking up to the fact rather late in the day.
The older Fletcher aircraft will be grounded during the next five years either voluntarily or through rule changes, he says.
A KEY change will be the expected withdrawal of a rule allowing pilots to overload some aircraft refitted with more powerful engines, by up to 29 per cent beyond their original design limit, to improve profits.
CAA first raised plans to tighten the overloading rule five years ago after an investigation found overloading was a possible factor in 17 accidents in the previous six years due to the "considerable pressure to carry the maximum possible productive payload".
The increased weight and poor quality of many farm airstrips was also thought to be responsible for about 30 reported undercarriage defects and failures over that time.
Farmers will come under pressure from the CAA to upgrade their airstrips, fertiliser storage facilities and the tracks leading to them.
Mr Martin says the planned CAA rule changes will not ground the Fletchers, which are the mainstay of Super Air's 20-strong fleet, but they will raise the bar in operating standards, creating a safer environment.
In turn, that should result in less damage to existing aircraft, improve productivity and profits, and ultimately allow for more investment, Mr Martin says.
A well-maintained Fletcher is a safe and productive aircraft in the right hands, he says.
Andy Stevenson, owner of the country's biggest independent topdressing firm, Farmers Air, says the industry is swamped with aircraft capacity and there is no urgent need for a replacement.
The 22 Crescos flying today were capable of spreading the entire annual phosphate demand, he says.
Farmers Air operates a fleet of eight Crescos throughout the central and eastern North Island.
He believes small, independent operators with older, uneconomic Fletchers will be forced out of business, leaving the big operators.
Farmers Air is at a disadvantage to the big co-operative-backed operators, but does not believe the co-ops will take over the industry. The company will "get bigger and get aggressive because we have the plant that is going to do the work for the country for the next 30 years".
www.stuff.co.nz/dominion-post/business/3154204/Topdressers-in-dogfight
