Air NZ loses $26m in two months

By DANIEL RIORDAN aviation writer

Air New Zealand, under investigation from securities regulators over its financial disclosure record, yesterday admitted losing $26.3 million in July and August.

The figure, unaudited and before unusual items and tax, compared with a loss of $23.1 million for the same two months last year.

The figures exclude any contribution from the airline's failed subsidiary, Ansett.

The company said in a statement to the Stock Exchange that the first quarter of the financial year was normally a "low" period due to seasonal patterns.

A week ago, the airline (including Ansett) reported a record corporate loss of $1.4 billion after writing down its investment in Ansett, now in voluntary administration.

Air NZ's core domestic operations posted a trading profit of $149 million in the June year and its international operations lost $50.9 million.

On Tuesday, acting chairman Jim Farmer, QC, told a press conference that Air New Zealand remained "very profitable, certainly as a domestic airline".

But yesterday morning Air NZ chief executive Gary Toomey told National Radio that the airline was not profitable.

The announcement to the exchange early yesterday afternoon came as the Australian Securities and Investments Commission (ASIC) continued its investigation of the collapse of Ansett.

Its inquiry focuses on what it says are possible breaches of Ansett directors' duties under Australia's Corporations Act.

All 13 Air NZ directors sit on Ansett's board.

The investigation is also looking at whether the airline traded while insolvent, which Dr Farmer has denied.

The Australian commission has asked the New Zealand Securities Commission to look into the adequacy of Air NZ's financial disclosures - a matter which falls outside ASIC's jurisdiction and is covered here by the Companies Act and Stock Exchange listing rules.

The Securities Commission is working with the market surveillance panel on its inquiry.

Legal experts say it is unusual for the commission to become involved in this kind of issue, but it has far wider scope of inquiry than the panel, which must confine itself to possible breaches of listing rules with censure of directors its only punishment.

The commission can impose tougher penalties, including fines of up to $25,000 and prison sentences of up to five years.

Directors can also be sued and barred from directorships.

The three regulators declined comment yesterday. But Herald inquiries have confirmed the panel is in daily contact with Air NZ.

It is checking that information in the marketplace on the airline is accurate and that statements made by directors (and possibly management) over a period yet to be determined accurately reflected the true situation.

The panel hopes to have finished its investigation within two weeks.

Meanwhile, aviation analysts are struggling to come to grips with the full extent of the airline's predicament.

Macquarie Equities analyst Arthur Lim said his firm was picking Air NZ to lose $132 million for the year to next June and $118 million the year after.

That assumed the current $850 million recapitalisation package involving the airline's major shareholders and the Government went ahead.

It was also based on a "pessimistic" view of the global aviation market.

Another New Zealand-based analyst, who asked not to be named, expected the airline to lose more money in the June 2002 year than the $280 million trading loss (including Ansett) it had reported in the year just finished.

"But that's a pretty hairy number - it's just too hard at the moment."

Mr Lim said that regardless of Air NZ's financial woes, it was important to remember that the airline, on an operational basis, remained top-class.

It had engineering and management systems lacking at Ansett.

Air NZ said the outlook for the balance of the year would "clearly be negatively affected" by:

* The impact of the terrorist attacks in New York and Washington on global air travel.

* Global economic conditions.

* Loss of feeder traffic on to Air NZ services from Ansett Australia.

* Groundings of aircraft in Australia by industrial action.

* Any legal obligations to Ansett which might arise.

"As a result of the above events, significant uncertainty exists around the trading performance of Air NZ's operations in the short term," the company said.

Air NZ's A shares yesterday closed 3c higher at 38c. The B shares rose 2c to 36c.

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