Airline's shares in a nosedive

By DANIEL RIORDAN

Air New Zealand may be forced to seek another massive capital injection or to test the Government's controls on its ownership after yesterday warning that it will report a substantial loss in the year to June 30.

Yesterday the market hammered the stock on the news, and the company's A and B shares are now trading close to their 10-year lows.

The airline, which owns Ansett Australia, cautioned when it released its lacklustre December-half result in February there was potential for further earnings deterioration in the short term.

That comment followed an unexpected downgrade in its profit forecast made in October, when the company was in the middle of a $284 million rights issue. The Stock Exchange is still investigating that matter.

Chairman Sir Selwyn Cushing yesterday said trading in January and February had deteriorated due to competition in the Australian market and a slowdown in the Australian economy. The fall in the Australian dollar was putting further pressure on costs.

"We do not see any relief in these conditions for the balance of the year and therefore expect to report a substantial operating loss for the full year," he said.

Citing analysts and former Ansett executives, Australian media reported this month that the company's problem child, Ansett, had lost $A119 million ($143 million) in the December half year and that a massive injection of capital from Air New Zealand shareholder Singapore Airlines (SIA) was needed to solve the problem.

Implementing this would most likely require changes to the New Zealand Government's ownership restrictions that prevent a foreign airline owning more than 25 per cent of Air New Zealand, the level SIA currently holds. SIA has expressed interest in moving to 40 per cent but the Government has steadfastly refused to consider relaxing the restriction.

Simon Botherway, head of equities at Arcus Investment Management, said the airline desperately needed to recapitalise but would find itself beholden to any party that provided it with capital.

Analysts said Air New Zealand's growing problems were almost entirely with Ansett Australia.

They said far from being the golden goose that would make the airline a major regional player, Ansett had proven to be a turkey.

They said not all the reasons advanced by the company's management for the poor performance had been beyond their control.

Air New Zealand astounded fund managers at its half-year briefing in February when it admitted it didn't really know how Ansett was performing and that it would take more than a year to sort out the company's woeful reporting systems.

Ansett's market share has been slipping steadily, losing ground not only to long-time rival Qantas but also new entrants Virgin and Impulse.

Credit Suisse First Boston's Jonty Edgar said there was no bottom in sight yet.

Another dealer said the A shares (available only to New Zealand residents) could test $1.00.

Mr Edgar said several analysts had reworked their numbers on the airline's 2002 year and it looked like the airline wouldn't be making any money then either.

The B shares, which are the more liquid of the two classes, last hit levels similar to yesterday's in 1998. Before that their previous low was $1.29 in 1992. Air NZ was privatised and listed in 1989.

The airline completed its full takeover of Ansett Australia in June last year, paying $744 million for News Ltd's half stake, a price Sir Selwyn admitted last month was too high.