This article was published in the Sunday Star times today.
HOPE FADES FOR AIR NZ RESCUE
23 September 2001
By MIRIYANA ALEXANDER
Last-ditch efforts to save Air New Zealand appear to have failed. Sources told the Sunday Star-Times the airline could be placed in statutory management as early as this week as negotiations to save the ailing airline get grittier.
Under statutory management, the government would appoint a manager to sell the airline, keeping it flying in the meantime.
It is understood that at a crisis board meeting last Friday, acting Air New Zealand chairman Jim Farmer told the airline's major shareholders - Brierley Investments and Singapore Airlines - unless they committed to a bail-out, the government would put the national carrier in statutory management this week.
The Star-Times understands Singapore Airlines wants due diligence finished before committing, which could take weeks.
Statutory management is invoked when it is in the country's interest. In this case, that means preventing Air New Zealand from being grounded because of the ramifications for the economy, including tourism - now our second largest source of foreign income.
The government appoints a statutory manager and guarantees liabilities to allow the airline to fly while a sale is negotiated. The government would reach an understanding with the airline's dozen or so financial backers to prevent them seizing the airline's assets.
One source said: "Politically they don't have a choice. We don't have the luxury of another national carrier like Australia did when Ansett fell over. Just imagine what would happen to the economy if we didn't have an airline. We'd be cut off from the rest of the world, our time-senstive exports would grind to a halt and our domestic and international tourism suffers. It would be a disaster."
Analysts said if Qantas bought Air New Zealand, the government would allow Virgin Blue to fly trans-Tasman and within New Zealand. United could also be interested but the global aviation crisis caused by the US terrorist attacks meant its attention was elsewhere. Air New Zealand has 10,000 staff worldwide and the impact on them would depend on who bought the airline.
The news could also be bad for mum and dad shareholders as no company in Kiwi corporate history had traded out of statutory management. If a buyer paid a minimal price for the airline, shareholders would lose their nest eggs.
There is doubt the proposed bail-out - $150m each from Singapore Airlines and Brierley and a $550m loan guarantee from the government - would be enough to rescue Air New Zealand and Singapore Airlines does not want to pump more money into the airline.
Analysts figures show at least another half billion dollars would be required in the next 18 months to save the airline.
Under the proposed bail-out, BIL's stake would rise to 37% from 30% and Singapore Airlines' would increase from 25% to 35%. However, if the Air New Zealand share price keeps trading at current lows, Singapore Airlines would pay just $80m to get to a 35% stake, which the government reportedly does not want it to exceed.
If the figures do not add up, sources suggest Singapore Airlines could walk away from Air New Zealand, believing it could do no more, effectively writing off its more than half a billion dollar investment.
Analysts believe Qantas Airways would be the most likely buyer of an Air New Zealand in statutory management.
"They could save $300m a year in synergies between the airlines so they could buy Air New Zealand for say $1, take on all its liabilities and make money within a short time," said one source. "But it wouldn't be Air New Zealand any more. It's more likely to be Air Tasmania or something."
Sources said the Singaporeans were angry the government and Air New Zealand were blaming it for contributing to the airline's failure.
Singapore Airlines was also unhappy Finance Minister Michael Cullen claimed it had blocked moves by the government to take a stake in Air New Zealand. And Singapore Airlines could not be blamed for sticking to the memorandum of understanding after it discovered the state of the finances and the share price had dropped so low, the source said.
Another source said the working relationship between them, the government and Air New Zealand was so poisoned it was beyond redemption.
Sources said the figures did not stack up for Singapore Airlines to pump more into Air New Zealand. The airline has already injected $520m: paying Brierley's $284m for a 16.7% stake, buying an 8.3% stake on market for $141m, and taking part in a three for one rights issue last November which cost it $95m. At Friday's close its stake was worth about $49m.
If Air New Zealand did need another $500m to survive, Singapore Airline's share of that would be $175m as a 35% stakeholder. "It's a bottomless pit. If you were a good businessman you'd have to sit back and wonder whether to put that money into its existing successful, well-run and profitable organisation or dump it in Air New Zealand," said a source.
The government's negotiating team, headed by Rob Cameron, met over the weekend but he declined to comment, as did Air New Zealand.
This month, Air New Zealand announced a record loss of $1.4b after writing down $1.3b in Ansett, which had been bleeding more than $1m a day before being grounded on September 14.
If this does happen it is truly a sad time for aviation in Australasia and for both the New Zealand and Australian industries.