Air NZ shares dip on double trouble

By DANIEL RIORDAN

Air New Zealand shares dipped to a 10-year low yesterday after the latest grounding pratfall from problem child Ansett Australia.

And in a double whammy, investors have been warned not to expect any dividends from the company for the foreseeable future.

Ansett on Monday grounded seven of its 767-200 planes, which carry 211 passengers and fly the main routes between state capitals, after discovering cracks in engine mounts.

Three of the same aircraft were grounded at Christmas after missing routine safety checks in a move estimated to have cost the airline about $4 million.

Although four of the seven planes were back in the air yesterday, with the company maintaining it was business as usual, news of the problem before the lucrative Easter break nudged Air NZ's share price below $1 for the first time in 10 years.

The A shares, available to New Zealand nationals, closed at 99c, and the B shares, available to allcomers, closed at $1.42.

The A shares reached a high of $3.09 in June 1999, a time when the B shares also soared to $3.67 after 25 per cent owner Singapore Airlines first showed interest in the company.

Particularly galling to Air NZ top brass would have been the pain of having to transfer passengers to arch-rival Qantas and the continuing damage to the Ansett brand at a time when new entrants to the Australian market Impulse and Virgin Blue have made the airline industry more competitive than ever.

Planes flown by Air NZ in New Zealand are not affected by the Ansett groundings, says Air NZ spokesman Cameron Hill.

He said the 767-200s flown by Ansett were among the first 100 built by Boeing, and a structural change introduced on the later models, including the four 767-200ERs flown domestically by Air NZ, meant the New Zealand aircraft were not subject to the same inspection regime as the Ansett planes.

An extensive upgrade of Ansett's 110-plane fleet has started, although how the airline will pay for it is unclear.

Rising fuel costs, a global industry downturn and tougher competition - from discount operators in Australia and probably a deeper-pocketed local competitor in Qantas Airways - are expected to continue to pressure Air NZ's share price.

Shareholders also face the likelihood of no dividend payouts.

Air New Zealand paid an unimputed interim dividend of 4c a share on March 30, but analysts contacted by the Business Herald expect that to be the last payout for some time.

For the past two years, the company paid a generous total dividend of 15cps, unimputed.

"There's no way they can afford a dividend," said Simon Botherway, head of equities at Arcus Investment Management.

BT Funds Management equity manager Andrew South said that while institutional investors would welcome the move, realising the retained earnings could be put to better use, it was another blow for small investors.

"The company has just hit them up for a rights issue and now this."

The paying of an unimputed dividend was seen as inefficient means of paying shareholders, because of the company's simultaneous need to raise capital, which led to an undersubscribed $284 million rights issue last year.

A proposed $150 million capital notes issue appears to have been quietly abandoned.

The company itself has given no indication of its final dividend payout, which will be announced with its June year results, probably in August.

Last month, the airline downgraded its profit forecast, indicating it was facing substantial losses for the June 2001 year, due largely to Ansett.

It may be scant consolation for shareholders that Qantas is expected to slash its dividend payment from last year's A22c a share.