Air NZ's directors ponder ownership options

By FRAN O'SULLIVAN assistant editor

Air New Zealand's board begins a series of marathon meetings today to "get an early resolution" to the airline's future ownership.

A report by investment bankers Salomon Smith Barney, canvassing the options, will be presented when directors gather at the company's Auckland headquarters this morning for the start of a two-day board meeting.

The options will include Singapore Airlines increasing its stake in Air New Zealand to 35 per cent and taking an 80 per cent slice of Ansett Australia.

The Singapore move will require the Government to change foreign ownership restrictions for the national carrier.

Air New Zealand's financial situation has been exaggerated, but it still requires a major balance sheet restructuring to fund a $3 billion-$5 billion fleet renewal programme for Ansett Australia.

Other options are recapitalising Air New Zealand based on its present structure, or the proposed Qantas Airways bid. No proposal involving United Airlines has landed.

Air New Zealand deputy chairman Jim Farmer, who leads the independent directors charged with resolving the airline's recapitalisation, said: "Just how the week pans out, goodness only knows. But I hope before the end of it, we will have some clear direction."

So far there is little common ground between the rival players.

Qantas chief executive Geoff Dixon refined his airline's proposal at a meeting with Air New Zealand's independent directors in Sydney last week. That proposal relies on Qantas acquiring Singapore Airlines' 25 per cent stake along with Brierley Investments' 30 per cent holding. In return, Singapore Airlines would gain control of Ansett Australia from Air New Zealand.

The negotiations are complicated as Brierley Investments has said it will not sell its Air New Zealand stake at present share prices, nor will it invest further.

Singapore Airlines head Cheong Choong Kong has also said he would rather increase Singapore's stake in Air New Zealand than sell to the Australian carrier. Dr Cheong has sought a meeting with the New Zealand Government on Wednesday.

As an existing Air New Zealand shareholder operating alongside Air New Zealand in the Star Alliance, Singapore Airlines has demonstrated commitment to New Zealand.

Dr Farmer acknowledged the tough challenge in front of the independent directors.

"It's going to depend on positioning by the various parties and at the end of the day how we assess the best interests of the airline and the national interest."

Once the independent directors have settled on their preferred option, Air New Zealand will put a firm proposal to the Government.

Qantas has moved to meet the Government's concerns by fleshing out how it would deal with outstanding issues such as the structure of the A and B shares which govern Air New Zealand's ownership, and overall limitations on foreign ownership and competition matters.

Under Qantas' plan, Ansett International would operate on the transtasman route and domestic competition within New Zealand would be preserved.

The Treasury has commissioned a report from Wellington merchant bank Cameron & Co on various recapitalisation scenarios in preparation for this week's negotiations.

One of the scenarios includes the Government investing in an Air New Zealand capital notes issue, but that option is seen as a fallback measure.

The Cameron report will also examine the implications of raising the cap which restricts foreign ownership of the national flag carrier to 49 per cent and total foreign airline ownership to 35 per cent.

A report by UBS Warburg estimates Air New Zealand will report a $119 million loss for the June 2001 year.

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