The Boeing 737 (B737) was in cloud overhead Hamilton Island at 3,000 ft and the crew were cleared to track outbound on the 325 radial for a VOR/DME approach to runway 14 by the aerodrome controller. The 325 radial was the outbound leg of a "teardrop pattern" approach. The crew were instructed to report when commencing the turn inbound. The co-pilot was the flying pilot and the pilot in command was monitoring the approach and making the radio calls.
The pilot of a Cessna 182M Skylane departed Shute Harbour (12 NM west-north-west of Hamilton Island) and requested an air traffic control clearance for a parachute dropping operation. The aerodrome controller told the pilot that he would "have one for you in a moment" but did not instruct the pilot to remain outside controlled airspace. The controller was required to obtain an airspace release from the Tabletop controller, who was located in the Brisbane Centre. An airspace release was subsequently obtained from the Tabletop controller for an area encompassing a 5 NM radius of Shute Harbour up to and including 10,000 ft.
The B737 crew reported turning inbound and that they were visual. The aerodrome controller told them to continue approach to runway 14. The profile of the runway 14 VOR/DME approach restricted the descent of aircraft to not below 2,300 ft until inside 8 NM from Hamilton Island.
Less than 1 minute later, the Skylane pilot was issued with a clearance by the aerodrome controller to operate within a 5 NM radius of Shute Harbour not above 10,000 ft and to report ready for the drop. Since first contact with the aerodrome controller, the pilot had been steadily climbing and was established inside controlled airspace at about 2,100 ft when the clearance was issued. Seconds later, the pilot and parachutists in the Skylane sighted the B737 in a left banking turn, in their relative 2 o'clock position and at the same level. The Skylane pilot estimated the B737 passed alongside them with less than 100 m of lateral separation.
The B737 crew were unaware of the near mid-air collision with the Skylane. Their traffic alerting and collision avoidance system (TCAS) did not alert them to the proximity of the Skylane because the Skylane's transponder, although fitted, was not switched on and operating. The pilot of the Skylane was required to have the transponder activated and selected to code 1200 in accordance with Aeronautical Information Publication (AIP) Australia ENR 1.6-8.
At the time of the occurrence, the Skylane was about 10 NM north-west of Hamilton Island, where the 9-12 DME control area step had a Class D airspace lower limit of 1,500 ft. Analysis of the radar data showed that the B737 was below 2,300 ft beyond 8 NM of Hamilton Island, which was below the altitude profile for the approach. The recorded radar altitude of the B737 was consistent with the altitude reported by the pilot of the Skylane.
The control tower did not have a Local Instruction or any lateral separation diagrams that plotted separation points between the final approach path of the runway 14 VOR/DME approach and the Shute Harbour parachuting area.