Air NZ seeks more leg-room

By GEOFF SENESCALL

Air New Zealand is seeking to expand its board to 13 in a possible move to accommodate Singapore Airlines if it becomes a 25 per cent shareholder.

However, the company simply said in a letter to shareholders that the increase from the present limit of nine directors reflected the enlarged size of the airline following its purchase of the remaining shareholding in Ansett Australia.

While talks between Singapore Airlines and Air New Zealand's major shareholder, Brierley Investments, stalled last week, much of the detail of an agreement between the two parties has been sorted out.

This is understood to include the number of board seats that Singapore would have if it bought a 25 per cent shareholding from Brierley.

It is believed that Singapore negotiated board representation proportionate to its shareholding.

Analysts expect the deal between Brierley and Singapore Airlines to be resurrected, although there may be a pause before negotiations resume.

Air New Zealand also wants to amend its constitution from the existing requirement that at least two-thirds of the board be New Zealand citizens to include Australian nationals.

Approval for this has been given by the Government, which is the Kiwi shareholder in Air New Zealand.

The proposed amendments to the board structure are outlined in a letter asking shareholders to a special meeting on April 4 to approve the purchase of Ansett, which was announced last month.

Air New Zealand has agreed to pay $A580 million ($734 million) for News Corp's 50 per cent shareholding in Ansett.

As a further payment, News gets issued a 10.5 per cent shareholding in Air New Zealand on a deferred basis. At today's prices, this extra payment is estimated in a report by Deloitte Touche Tohmatsu to be worth $A100 million ($127 million).

Deloitte said that Air New Zealand's financial leverage as a result of the Ansett purchase would rise from 35 per cent to 56 per cent.

However, assuming a rights issue is subsequently undertaken, raising $285 million, the company's financial leverage would then be around 50 per cent.

"While the general terms of the financial leverage are moderately high, it is still relatively conservative for the airline industry," Deloitte said.

The Ansett purchase is expected to boost earnings per share by 33c based on Air New Zealand's present share structure.

This is according to statements by the local carrier that it expects to have synergistic benefits over the next one to three years of more than $A220 million ($278 million) a year.

Those benefits include anticipated revenue synergies of at least $A100 million a year and savings of at least $A120 million.

However, earnings per share will drop to around 24.2c, assuming a rights issue takes place.

Air New Zealand said the funds would be raised for general corporate purposes, including the repayment of short-term debt.

It said that it had cash reserves and undrawn facilities of about $975 million as well as a further $449 million in special credit facilities. It would use a mix of these funding lines for the Ansett purchase.

Combined, the airlines produced an after-tax profit for the six months to December of $115 million. Earnings before interest and tax was $263 million.

The total liabilities of both airlines at December 1999 was $5.34 billion while total assets were $7.99 billion.