13 February 2022

NZ's Second DC-8 Operator - Southern World Airlines

In 1988 a group of Auckland investors and former Air New Zealand pilots worked together to form an international cargo airline. Southern World Airlines Ltd was subsequently incorporated on the 18th of November 1988. In late January 1989, after 12 months of planning, the Minister of Civil Aviation, Mr Bill Jeffries, granted a licence to the company that became New Zealand's second international air carrier. The company was granted a New Zealand licence to operate a weekly scheduled air freight service to the United States and operate a worldwide charter service using a leased McDonnell Douglas DC-8-63F.

A month before the airline had also applied to operate a Category A air transport service domestic air freight service between Auckland, Wellington and Christchurch, with one McDonnell Douglas DC8-62FH aircraft but nothing ever came of this plan.

While the international proposal had gained the support of New Zealand authorities as well as exporters and freight forwarders it still required American approvals. A NZ Herald article on the 6th of February 1989 gave a good insight into the airline's plans and its challenges. Auckland's new freight airline... Southern World Airlines, is not too concerned at missing this season's export peak. "One gets a licence as soon as one can and if that means the peak has passed, so be it," said a spokesman, Mr Michael Oomen. By operating pre-peak, however, the airline was less open to suggestions it was a fly-by-night operation. "The company is in for the long haul," Mr Oomen said. Operations were expected to start within "weeks rather than months" and negotiations were being held with potential customers including producer groups, freight forwarders and other airlines. A Los Angeles office has already been established to develop south-bound business, usually more lucrative than the low value freight out of New Zealand. While exporters have welcomed the prospect of a second New Zealand operator offering more capacity and greater competition, some have questioned whether there is sufficient demand on the American route for another weekly freighter. The DC-8 can carry up to 45,000 kilograms. Increased passenger services have seen more cargo space available on Air New Zealand, United Airlines and Continental flights to and from the United States. A more noticeable freight bottleneck - at peak periods at least - has affected exporters to Japan, some of whom were hit last year by Qantas giving preference to Australian exporters. Southern World would apply for a scheduled service to Japan as well as charter rights, Mr Oomen said.  But its decision to fly the United States route had followed considerable analysis and market research after Air New Zealand stopped running its own DC-8 freighter in 1987. "The opportunity was perceived to be there," he said. Mr Oomen emphasised that the scheduled American flights were only a portion of the planned business with charter flights expected to South-east Asia, the Pacific Basin and elsewhere. The airline would offer a specialised service for perishable exports and would also carry bloodstock and livestock. Hazardous goods not acceptable on passenger flights could be carried by the freighter. This is to be based in Auckland but offer flights from Wellington and Christchurch. Mr Harvey Misbin, a former American entrepreneur, involved in setting up Southern World, had been associated with the establishment of several air charter services in the United States, Mr Oomen said. A group of former Air New Zealand pilots are involved in the venture and have been trained to fly the DC-8.

By August 1990 Southern World was still not airborne. The airline's chairman of directors of the airline, Mr Louis McElwee, an Auckland lawyer, told the NZ Herald that they were aiming at the end of September for the first flight. At first Southern World Airlines will offer a weekly service from Los Angeles to Hawaii, Auckland, Sydney, Melbourne, Auckland, Guam, the East and back to Los Angeles. Since the airline was formed 18 months ago, it has been securing the necessary licences and landing rights in various countries, as well as overseas premises and agencies. "It is quite an immense exercise if you are going into it with the intention of being successful." By this stage the airline had leased one DC-8 and had options on another aircraft at short notice if required. The chief executive of Southern World Airlines was a former American entrepreneur, Mr Harvey Misbin, who had been associated with the establishment of several air charter services in the United States.

The Gulf War (2 August 1990 – 28 February 1991) that followed Iraq's invasion and annexation of Kuwait, delayed Southern World Airlines' take-off. The DC-8 aircraft which the airline had intended to lease had to be made available to the United States military. The company chairman, Mr Louis McElwee, said in January 1991 that another DC-8 had been leased and the company hoped to begin operations in March. The change of aircraft also impacted on crew training.

Operations between North America and New Zealand and Australia finally began in March 1991. The first service through Auckland operated on the 18th of March 1991 with Southern Word McDonnell Douglas DC-8-62 N7043U operating from Melbourne and Christchurch through to the United States. A typical Southern World flight in this period was their twice weekly SWN021/022, which operated from Los Angeles to Honolulu, Pago Pago, Auckland and Melbourne before returning byway of Auckland and Honolulu. Southern World also regularly operated flights through Christchurch, Sydney and Nadi.

Southern World Airlines' McDonnell Douglas DC-8-62 N7043U

Flights were scheduled to fly where and when there was air cargo offering. Occasionally other DC-8’s were used. The AHSNZ Aerolog recorded that Kalitta Air’s DC-8-73PF N809CK had operated a Southern World Honolulu-Auckland-Sydney-Auckland service on the 21st of May 1991 and another Kalitta Air aircraft, McDonnell Douglas DC-8-55F N807CK had operated a Southern World flight through Pago Pago on the 8th of July 1991.

In early July 1991 the NZ Herald reported that Southern World was “preparing to take delivery of its second DC-8 cargo plane”. The director of airline operations, Grant Annals, told the Herald that Southern World's arrival has sparked a price war on the United States-Australia sector of its operations, with long-standing operators offering to cut rates "to next to nothing" on the days Southern World has services scheduled out of the United States. Mr Annals says the air-line is aiming for a realistic schedule of charges and has made a decision not to react to such price cutting. He says some clients being approached with give-away rates by competitors are saying "That is fine, but where were you before? Go away." "Some of our competitors have also commented that anyone can fill a plane if they are not charging. Well, we would not be in business if we were not charging," Mr Annals says. He says Southern World is running slightly ahead of initial financial projections. The company is flying two routes — to Los Angeles via Honolulu and return twice a week, and to Chicago via Hong Kong twice a week. It plans to begin a twice weekly direct Auckland to Japan service in about two months and expects to be operating a wide-bodied aircraft (such as a Lockheed Tristar) as well by the end of the year. Mr Annals says fulltime staff employed by the airline have grown from just eight at the time services began to a total of 85 three months on, with 28 pilots on the payroll and offices in Melbourne, Sydney, Hong Kong, Chicago and Los Angeles, and plans to open one in Japan.

Southern World Airlines' second aircraft, McDonnell Douglas DC-8-63(F) N863E entered service in July 1991. 

A couple of postcards of Southern World's McDonnell Douglas DC-8-63(F) N863E

In the March 2021 issue of Aviation News George Richardson wrote of his time with Southern World. SWA was based in Los Angeles but operated a Los Angeles - Honolulu - Pago Pago - Auckland-Melbourne - Sydney cargo service, primarily carrying General Motors parts for the Holden (GM) cars manufactured in Australia. This old DC-8 was fitted out as a short-haul cargo aircraft. It had no galley, no toilets, no way of washing and nowhere to rest if one was on long haul, such as Honolulu-Auckland. The starboard front door, when closed and the aircraft pressurised, leaked at a colossal rate, and one could stand by the door and see outside through the gaps in the seals. Consequently, the fuel burns were almost off the performance tables. 

But in the background clouds were looming. The first was a Television New Zealand 'Frontline' story screened on the 25th of August 1991 that accused Chief Executive and chief shareholder, Harvey Misbin, of running drug flights between South America and the USA, before setting up Southern World. A few days before the screening Misbin relinquished his 70% share of the company’s shareholding and his position as Southern World’s chief executive.

The second cloud was in the form of Air New Zealand. George Richardson continues. The end of SWA came very quickly because of the predatory way Air New Zealand attacked our operation. For example, one night in LAX all of our cargo was in carts about to be loaded when a chap in a suit came up to the aircraft and asked who the consignee of all this cargo was. I pointed to the party who was the consignee and this fellow then introduced himself, followed by: "If you take this cargo away from this carrier, we, Air New Zealand, will take it all to Australia for free." Our consignee said, "Yes you have the job then, but it has to be in Australia by midday tomorrow." The Air NZ chap said he couldn't do that, but he could get it there inside 36 hours.... A week or so later on arrival at Auckland, Customs came along and demanded that every piece of cargo get offloaded while they inspected it. This action took four hours, Every parcel was unwrapped, rewrapped and then reloaded back into the aircraft. This action made us so late that GM and Ford, who owned the cargo, cancelled our contract. This search was instigated by Air NZ who informed NZ Customs that we were carrying drugs as well as car parts. Customs didn't need any further encouragement because in Air NZ's snitching they also said that the SWA major shareholder came from Bogota in South America and he had lots of drug contacts. This was of course totally untrue, but we were cutting across the Air NZ cargo cartel and in their view affecting their ability to keep charging extremely high rates for cargo between the USA and Australia. SWA was out of business in about three days because GM and Ford reallocated their cargo to Singapore Airlines. 

Following the screening, Southern World Airlines voluntarily grounded itself and suspended operations on the 20th of September 1991. Attempts were made to restructure the airline. Creditors were reportedly owed about $4.5 million, however, the company insisted receivables totalled "about $7 million." The company were reported as saying creditors became nervous after the television item was screened and this culminated in a section 218 notice being served. About a week before this an Auckland investment bank, Case Weston Morgan, had been appointed to try and restructure the company. It believed it could beat the threatened winding up action.

A New Zealand Herald article on the 25th of September reported that Southern World's financial problems have been complicated by a dispute between it and the man who has been acting as its general sales agent, a Singaporean, Mr Richard Choo. Mr Choo is refusing to release money Southern World Airlines says it is owed, claiming he is owed about $1.5 million by the company. Case Weston Morgan's managing director, Mr Colin McKenna, says "Unaudited" figures suggest Mr Choo owes Southern World Airlines about $3 million. Mr McKenna says Southern World Airlines is trying to resolve the issue without taking court action. Mr Misbin's shareholding in Southern World Airlines is being held by Case Weston Morgan, which has been assigned the rights to sell it. Mr Misbin will receive whatever Case Weston Morgan is able to get for it. Mr McKenna says four parties have expressed interest in buying or injecting capital in the business as a way of securing control… Mr McKenna says Government controls mean overseas ownership would be restricted to 24.9 per cent. He emphasises that a substantial backer, or backers, are required — "the operation will need $US3 million in working capital." He puts the odds on resurrecting the company "in excess of 80 per cent."

A month later the airline was facing a winding-up application lodged against it by Auckland International Airport Ltd. Nonetheless the airline was confident that it would be back in the air "in the reasonably near future."

On the 31st of October the High Court ordered that Southern World Airlines Ltd be liquidated. Case Weston Morgan’s managing director, Mr Colin McKenna, was reported as saying Southern World Airlines, which has debts of nearly $9 million, is appealing against the winding-up order on the grounds that nearly 80 per cent of creditors (by value of what is owed) indicated they wanted to study the alternative plan which would have meant the company could be sold rather than broken up. Mr McKenna says two parties had been negotiating to buy the company. He says a scheme of arrangement which resulted in the company's being sold is likely to mean the assets would realise $2.7 million. The break-up and sale of the assets could result in only about $750,000 being realised. Mr McKenna says the negotiations to sell the company cannot legally be pursued if the company is in liquidation, "even by the liquidator."

Just before Christmas the winding-up order was set aside. A judgment delivered by Mr Justice Hardie Boys said that rather than ordering South World’s liquidation the High Court should have acceded to the wishes of the majority of creditors. A Case Weston Morgan director said yesterday that the proposal would be filed as soon as possible, and it was intended to call a creditors' meeting in the second or third week of February. Two creditors, Air New Zealand and Auckland International Airport Ltd, with claims totalling about $786,000, sought immediate winding up in the High Court. But 21 creditors, with claims totalling $4.68 million, opposed. These included a United States company, Aspac International Airfreight Pte Ltd, which acted as the company's general sales agent and claims $4.14 million. The Court of Appeal was told that by early this month, the numerical majority of opponents of winding up had been swelled with 62 creditors, with claims of about $6.2 million, in that camp. Five creditors, with claims of some $2 million, then supported the winding up. Accordingly, the airline was granted leave to present the scheme to creditors.

Case Weston Morgan’s attempts to stave off winding up proceedings went to the vote on the 2nd of March 1992. By then another US operator was seeking to have its US landing rights revoked. Case Weston Morgan had told creditors Southern World's licence to fly will be worth $500,000 to an unnamed investor, provided creditors come to the party and allow Southern Cross to remain in business under new ownership. The licence would be worthless if Southern World were wound up and its assets sold. 91 of the 97 creditors who voted, supported Case Weston Morgan’s scheme. The votes in favour represented 83.4 per cent of the $8.8 million owed to them. They further agreed to that Southern World's licence would be sold for $500,000.

In July 1992 the High Court approved the scheme allowing Southern Word’s licence to be sold to an unidentified New Zealand company, which still did not wish to be identified, but which was apparently intent on establishing new air cargo services. In response to Air New Zealand's case against the scheme, Mr Justice Williams noted its counsel's use of "emotive phrases such as a 'shroud of secrecy' which it said surrounded the scheme. I am unmoved by such rhetoric," he said. He said there were "strong grounds for believing that the Air New Zealand application is driven by a desire to prevent competition as far as possible." The mystery buyer never materialised and in March 1993 the company's assets realised far less than book value. 

So ended the story of New Zealand’s second international flag carrier.

1 comment:

  1. Thanks Steve - an interesting chapter of NZ aviation history!