Chief Financial Officer / Australia
Four decisions that cost something to get right
- Revenue, year to June 2026
- A$742m
- 56 per cent resources charter, 36 per cent scheduled regional services
- Aircraft in the fleet
- 44
- 21 owned and 23 leased, against 11 owned when I joined in 2021
- Net debt to underlying EBITDA, June 2026
- 1.2x
- Excluding lease liabilities; down from 3.1x in June 2021
Decisions & consequences
01Hedging the fuel we carried, not the fuel we burned
When I joined Saltbush in March 2021, our treasury policy required us to hedge 60 to 80 per cent of forecast jet fuel consumption over the following twelve months. Yet about 58 per cent of our fuel was burned on contract charter flights for resources companies, and those contracts reset the fuel component of the charter rate each month against a published index. Our customers already carried that price risk. By hedging it as well, we held a position that gained when fuel rose and lost when it fell, on top of a business that was already protected. The hedge book had a notional value of about A$240 million, and when prices collapsed in 2020 it had tied up A$18 million of cash as collateral.
In September 2021 I recommended hedging only scheduled-services fuel, where fares are set in advance, and no longer hedging pass-through charter fuel. Our chief executive disagreed. He valued the smooth fuel line the old policy produced and expected analysts to read a smaller hedge book as weaker protection. The Audit and Risk Committee chair asked for a stress test under a sharp price rise before deciding. The board approved the change in November 2021, with a review after twelve months.
The rise arrived within months. After February 2022 jet fuel climbed steeply, and the old policy would have produced about A$31 million more in hedge gains in the 2022 financial year. One analyst wrote that we had left the money on the table, and two directors asked whether I had cost shareholders a year's dividend. In the 2023 financial year prices fell back, and the old policy would have lost about A$24 million.
I also made a mistake. Our pass-through clauses used the previous month's average price, and during the spike that one-month lag cost us about A$6 million in a single quarter. The old policy had masked it. We now hedge the lag separately with short-dated swaps, alongside the twelve-month ladder for scheduled fuel and a separate currency programme. The notional book settled at about A$95 million, and collateral calls have not recurred.
What I would do differently is find the lag before changing the policy rather than after it had cost us, and brief our largest shareholders myself before the first result under the new approach.
Buying six mid-life jets instead of leasing new ones for twelve years
In mid-2022 we won two charter contracts, a five-year agreement with an iron-ore producer in the Pilbara and a seven-year agreement with a lithium miner, worth together about A$76 million a year. Between them they needed six more jets of about 100 seats. Our fleet of 39 aircraft was 72 per cent leased, and the obvious course was to lease six new-generation jets for twelve years.
Our chief operating officer and chief commercial officer both preferred that course. The new aircraft would burn about 18 per cent less fuel, and resources customers were beginning to report the emissions from flights that carried their workforces. A modern fleet, they argued, would help us in every future tender. I argued for buying six mid-life aircraft of the type we already flew, averaging fourteen years old. The contracts ran five and seven years; the leases would run twelve. The mid-life jets shared spares, simulators and pilot qualifications with our existing fleet, so we avoided the cost of introducing a new type. And having priced leases in Dublin, I knew the return conditions on a new lease would cost us more than its rent implied.
The board approved the purchase in October 2022, on condition that our 2027 fleet plan would evaluate new-generation aircraft properly. We bought the six jets for about A$138 million, including engine overhauls before delivery, funded by a secured term loan amortising over seven years. Net debt excluding leases rose to A$330 million by June 2023, 2.4 times underlying EBITDA, and our lenders asked for monthly reporting until it fell.
The aircraft have earned a pre-tax return of about 14 per cent, against the 9 per cent we had modelled for the lease. The cost appeared in 2025, when a gold producer's tender for a contract worth A$38 million a year weighted emissions heavily. Our price was competitive and we lost, partly on that ground. In the board paper I had treated emissions as a qualitative risk. It was a commercial one.
I would make the same choice on the same facts. I would also price the emissions risk into the comparison, and negotiate a fuel-efficiency review clause with each customer at the outset rather than meet the question in someone else's tender.
Paying pilots to stay rather than paying every pilot more
By late 2022 our pilots were leaving faster than we could train replacements. The major airlines were rebuilding after the pandemic and recruiting experienced regional captains, and our annualised pilot attrition had reached 19 per cent. Each departing captain cost us about A$60,000 in type-rating training for a replacement and several months of reduced flying. In the first half of 2023 crew shortages forced us to cancel 410 scheduled flights, costing about A$9 million in lost revenue, passenger compensation and chartered-in capacity.
Our pilots' enterprise agreement was due for renegotiation, and the pilots' union sought increases of 22 per cent over three years. Our head of flight operations, Megan Lindqvist, argued that we should offer about 18 per cent, close to the larger airlines' rates, because nothing else would stop the departures. I shared her diagnosis and disagreed with her remedy. An across-the-board increase would cost about A$23 million a year by its third year, and it would pay pilots who were about to leave on the same terms as those who intended to stay.
I proposed 12 per cent over three years, a retention payment that rose with each year of service after the third, and a funded cadet pathway costing A$4 million a year to train our own first officers. Megan doubted that pilots would value the retention payment, and the union rejected the first version. Negotiations lasted seven months, during which 31 captains left. That was the price of holding out for a structure we believed in, and Megan was entitled to remind me of it.
Employees voted for the agreement and the Fair Work Commission approved it in October 2023. Its cost reached about A$14 million a year by the third year, against A$23 million for the alternative. Annualised attrition fell to 8 per cent by mid-2025, and cancellations caused by crew shortages fell to fewer than 30 in the 2025 financial year. The first cadets from the pathway joined the line in early 2026.
What I would do differently is begin a year sooner. We had the attrition data in 2022 and treated it as an operational problem. Had I costed the departures then, we might have opened the negotiation with a retention offer instead of reaching one after seven months and 31 captains.
Losing our largest bus contract rather than bidding below cost
In 2019 a state transport authority retendered the largest contract region held by Harlowe Transit Group: 31 routes, 290 buses and about A$71 million a year of revenue, nearly a fifth of the business. Harlowe was owned by Pentland Infrastructure Partners, an infrastructure fund preparing to sell it, and the fund's investment director wanted us to keep the region at almost any margin, because a smaller business would fetch a lower price.
The contract was gross-cost: the government kept the fares and paid us a rate per service kilometre and hour, indexed each year. I built our bid from full cost, including the drivers' enterprise agreement, which would raise wages faster than the indexation basket was likely to, the depot lease and the electric-bus trial the tender required. That produced a margin of about 7.5 per cent. The investment director wanted 3 per cent and argued that scale efficiencies would close the gap. Our chief executive supported my number after we tested it line by line, and the fund accepted it unhappily.
We lost. A competitor bid about 9 per cent below us. Under the contract's transition arrangements, about 380 of our drivers and workshop staff were offered employment by the incoming operator, and we handed the government-owned depot back in mid-2020. Harlowe's revenue fell from A$410 million in 2018–19 to A$338 million in 2020–21. People moved through no choice of their own, and two of our longest-serving depot managers told me they believed finance had given the region away.
The business that remained was healthier. EBIT margin rose from 5.8 per cent to 7.1 per cent, because the lost region had been our least profitable and its indexation had lagged our wage costs for years. When the fund sold Harlowe in December 2020, bidders valued it on margin and contract quality, and the price exceeded the fund's own forecast. The investment director, to his credit, said so at the final board meeting.
What I would change is my conversation with the authority. I understood the weaknesses of the indexation basket during the bid and kept them inside our pricing papers. Raising them in the consultation before the tender might have produced a contract that any operator could run at an honest margin.