Air NZ comes out fighting

By FRAN O'SULLIVAN

When Jim Farmer summoned Air New Zealand's directors to a 1 pm meeting yesterday, the battle lines had already been drawn.

Dr Farmer, a top QC, is one of Auckland's "million-dollar" men, well used to the legal bear-pit.

Other company chairmen might have presided diplomatically over the fray, rolling with the punches as Prime Minister Helen Clark, Finance Minister Michael Cullen, Australian Prime Minister John Howard, his deputy, John Anderson, unions, media critics and a hostile public slagged the airline's directors for the biggest corporate loss in New Zealand history - $1.4 billion.

But yesterday was front-up time.

Factional infighting within the boardroom combined with breath-taking Government intransigence had brought the national flag carrier to its knees.

Air New Zealand's two major shareholders, Singapore Airlines and Brierley Investments, had each pledged $150 million to a major bail-out on September 13.

But that was before the full impact of the terrorist onslaught in the United States ripped the guts out of world aviation and raised concern that Air New Zealand could still face collapse.

A week later, airline insiders were saying it was time for their two major shareholders to front up or get out.

Dr Farmer, Air New Zealand's independent directors, chief executive Gary Toomey's management team, the Government and its negotiator Rob Cameron were in no mood for further delay.

All this week, the rumour mill has been running fast in Auckland and Wellington:

Singapore Airlines was looking for a way to back out of its commitment to put a further $150 million into Air New Zealand;

Singapore Airlines was negotiating with the Ansett administrator to set up a low-cost carrier from the remains of the failed Air New Zealand offshoot;

Singapore Airlines would grab Air New Zealand's stake in Ansett International.

By Wednesday evening, nervous New Zealand-based directors were trying to get a handle on the truth.

Mr Cameron telephoned Singapore Airlines chief executive CK Cheong to get a reading.

Dr Cheong's reply: it was business as usual. Singapore Airlines would not be opening a new operation in Australia.

It was focused on performing a due diligence exercise to establish just what value was left in Air New Zealand after it cut adrift its loss-making Ansett subsidiary and on whether the $850 million the Government and the airline's two shareholders had earmarked would be sufficient.

But the New Zealand team had heard the spin before. They did not want a repeat fiasco, with Singapore Airlines doing due diligence up to the wire then pulling out of a planned recapitalisation.

"I expect there will be a certain amount of clearing of throats, phlegm and futures to occur during the day," said one insider, as directors gathered yet again at Air New Zealand's Auckland headquarters.

After five and a half hours of discussions, with the overseas directors plugged in by video-conferencing, the outcome was mutely relayed.

"We have had a useful day's discussion," said a statement, "and there are matters that require further consideration by the major shareholders and the New Zealand Government before we are able to complete the business on our agenda.

"We will reconvene to continue the discussion early next week."

Even before the board meeting began, the directors were down one.

Charles Goode, a Singapore Airlines director and a member of the Air New Zealand board, resigned on Thursday.

A Melbourne blue-blood and pillar of the establishment, Mr Goode's chairmanship of ANZ - one of Air New Zealand's bankers - had put him in the sights of powerful Australian unions.

The unions had successfully forced the resignation of PriceWaterhouseCoopers as the Ansett administrator.

By the time the Air New Zealand directors got down to the meeting yesterday the atmosphere was tense.

Big egos - particularly those piped in from Singapore - were savagely trashed.

This was the week when Dr Farmer had fought back - stopped taking the political punches and started throwing them, dished out the dirt-bag on Singapore Airlines and publicly exposed its shabby behaviour in reneging on a memorandum of understanding to recapitalise Air New Zealand.

By 1 pm yesterday, there had been no direct instruction from the Goverment to get firm pledges from Singapore Airlines and Brierley Investments to front up immediately with their $150 million cheques.

But Helen Clark, Dr Cullen and even Air New Zealand's beleaguered chief executive had all had a go.

"Vested interests dominated the board," Dr Farmer said.

Asked if he had been made aware of Dr Farmer's concerns, Dr Cullen was acidic: "I think it is fair to say there has been some fluctuation in the views held of Singapore [Airlines] by the independent directors over a significant period of time - from a position of some suspicion of what Singapore's motives were, through to full support for the Singapore re-capitalisation proposal, to now obviously some doubts about what Singapore's intentions are."

The Government is also under pressure to bring forward its own loan commitment of $550 million to give certainty to Air New Zealand.

"The Government wouldn't be panicked into bringing forward the loan, as that would simply ensure a massive transfer of taxpayer funds to SIA and BIL," said Dr Cullen.

He is also using the prospect of statutory management to get the shareholders into line.

Dr Farmer, Air New Zealand's independent directors and Mr Toomey are wary that Singapore Airlines might once again renege on bailout plans.

Still rankling is Dr Cheong's decision to tear up a memorandum of understanding which pledged Singapore Airlines to take a 49 per cent stake in Air New Zealand at $1.31 a share.

Said Dr Farmer gruffly: "When you sign a memorandum of understanding, you sign on for the downside as well as the upside".

Said Mr Toomey: "I am still asking myself. I guess I'm to blame but that's pretty tough when people who are going to put in the money say they're not going to put in the money."

Singapore Airlines, which is 56 per cent controlled by the Singapore Government through its investment vehicle Temesek Holding, has repeatedly stated that it would not sell its Air New Zealand shares and has defended its status as a commercial entity. But its own shares have also been in free fall since the US terror assault.

From Singapore last night there were suggestions that Dr Cheong had considered reneging on the bailout once again, because he is worried that possible legal action by Ansett's adminstrator might see any SIA money pumped into Air New Zealand go straight to pay Ansett's creditors.

That factor is being probed in the current due diligence on Air New Zealand.

These were the issues driving yesterday's lengthy board meeting.

At that meeting, Singapore Airlines was given a message to finalise shareholder issues with the Government as soon as possible.

Brierley Investments representatives have also been asked to urgently "provide clarity" on just what they are prepared to commit to the $850 million bailout.

But the main sticking point has been Singapore.

Dr Cheong was asked to indicate just what Singapore Airlines "is now prepared to contemplate" in the knowledge that the Government might emerge as a shareholder in Air New Zealand if it converts some of its $550 million loan into equity.

During previous bailout negotiations, Dr Cheong had objected to a proposal that the Government take up shares because it would dilute Singapore Airlines' own stake in Air New Zealand.

"Now they have changed their mind," said the insider. "The issue for Air New Zealand now is to find out what they are prepared to accept and under what conditions.

"This is equally a matter for contemplation by the Government."

By the meeting's end, Dr Farmer had tossed the matter back to Singapore Airlines, telling its directors to go and sort it out directly with the Government - and then come back to the Air New Zealand board early next week.

An airline insider* told the Herald: "We've been saying 'Go away and talk to the Government on this. Direct discussions - no more bloody standoffs with first you, then you, then you delaying'. The board did not want to take a pot shot at sorting it out first, then have the rug pulled out yet again."


Dr Farmer's courtroom prowess has stood him in good stead. By the end of this week Singapore Airlines was in the public dock and its reputation was skilfully filleted away.

* CORRECTION: In the original version of this report we incorrectly attributed these comments to Dr Jim Farmer.

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