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On 19 October 2006, at about 0635 Eastern Standard Time the crew of a de Havilland Canada DHC 8-200 aircraft, registered VH-TQX, departed from Melbourne Airport, Vic on a scheduled flight to Wollongong NSW. At about 0645,  as the aircraft was climbing through flight level 140, the pilot in command (PIC) detected smoke in the aircraft. Soon afterwards a smoke detector warning sounded in the aircraft toilet and the flight and cabin crew observed smoke haze. The flight crew reported the situation to air traffic control (ATC) then diverted the aircraft to Melbourne and carried out the appropriate recall and checklist actions. The aircraft landed in Melbourne on runway 16 at 0658. There were no reported passenger or crew injuries.

The manufacturer's examination of the engine showed that oil had leaked from several compressor bearings into the low pressure compressor of the engine. The high temperature of the compressed air and the engine components caused the oil to vaporize, contaminating the air extracted from that engine section to the aircraft cabin. The manufacturer had previously issued three service bulletins recommending engine modifications pertinent to this occurrence. Compliance with the bulletins was optional. However, the operator had already modified about 90% of the affected engines in its fleet at the time of the incident. The operator has planned to modify the remaining engines at the next period of scheduled or unscheduled maintenance.

The crew's timely assessment and response to the in-flight emergency reduced the likelihood of an extended exposure to the fumes by the passengers and crew. Also, the initiation of an emergency phase by air traffic control ensured that appropriate services were available to assist the crew after the aircraft had landed.

The engine manufacturer has undertaken to update the Workscope Planning Guide for the PW 123D engine to improve its resistance to internal oil leakage.

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