Bonuses for Air NZ execs amid the wreckage

By DANIEL RIORDAN aviation writer

Air New Zealand has reported the biggest loss in New Zealand corporate history, but still found a way to pay its senior executives bonuses for trying hard.

A $1.3 billion writedown of its investment in subsidiary Ansett Australia, placed into voluntary administration on Wednesday night, dropped the national carrier to a $1.42 billion loss for the June year.

Acting chairman Dr Jim Farmer, QC acknowledged senior executives had received bonus payments last month for their performances in the December half-year.

These were "in recognition not of financial performance of the company - which of course has not been good - but in recognition of the quite extraordinary effort made by senior management to try and deal with the company's problems and to get accepted ... the recapitalisation programme that was needed."

The Business Herald understands the bonuses amount to as much as a third of the executives' salaries. Mr Toomey is believed to earn more than $1 million.

Excluding unusual items such as the Ansett writedown, Air New Zealand posted a net loss after tax of $173 million for the year, beating analysts' expectations of a $200 million loss.

The company's top brass painted a picture of a damaged asset (Ansett) bought in a hurry for the right strategic reasons.

After a vacuum of almost six months following the departure of former managing director Jim McCrea, the new management team that chief executive Gary Toomey brought with him from Qantas in the new year found the task of turning Ansett around beyond it.

The results are unaudited. Directors said this had yet to be done because of the last-minute deals that had secured Air New Zealand's future and allowed what they were confident would be the cauterisation of Ansett. The accounts should be signed off over the next few weeks.

Chief financial officer Adam Moroney said $100 million of the writedown represented money owed to Air New Zealand by Ansett which it did not expect to recover.

The company would not comment on its ongoing liabilities for Ansett, saying that was a matter for the voluntary administrator - PricewaterhouseCoopers - to determine. The first report from the administrator is due within five days.

"These things aren't clearcut ... Obviously the Air New Zealand board has a view on that but it's a matter of legal process now," said Mr Toomey.

Dr Farmer said the company had no obligation to meet Ansett employee entitlements reported to be around $A400 million.

Mr Toomey said Air New Zealand had a strategy that involved an Australian presence post-Ansett. This was being scrutinised by the Government and the major shareholders. He declined to discuss it further.

Ansett reported an earnings before interest and tax loss of $165.4 million. Ansett International, 49 per cent owned by Air New Zealand, lost $22.8 million on the same basis.

Ansett's cash loss was "well in excess of" $A300 million ($363 million), but in recent months was "broadly break-even", although a lot of that was due to price discounting. Dr Farmer rejected suggestions the company had been trading while insolvent.

Ansett's trading losses had accelerated in the June quarter to $A20 million a week, but had improved from July through September to between $A8 million and $A10 million a week.

Mr Toomey attributed the improvement to the strategies of the new management team.

He said Ansett was in deep trouble when his team took the reins last year. The airline faced a huge backlog in deep aircraft maintenance and some aircraft had been run out to the maximum hours.

Ansett also had significant problems with its financial systems and had lost most of its indirect market distribution other than the two travel agencies it owned. Some accounts had not been reconciled for several years.

The problems were ultimately insurmountable without a level of capital injection the parent company was unable to obtain.

The Government said yesterday that at least $1.6 billion would have been needed to keep Ansett afloat and within the Air New Zealand group.

Air NZ's international operations lost ground over the period, while its domestic operations were profitable.

International operations recorded an earnings before interest and tax loss of $50.9 million - largely across the Tasman.

Domestically, the airline reported positive earnings on a comparable basis of $149.3 million - an increase of 25 per cent on a year earlier.

Qantas New Zealand's demise had lifted Air NZ's load factors to 67.9 per cent on capacity growth of 5.3 per cent. Yields were up 11 per cent. Dr Farmer said trading conditions remained "very difficult" for its continuing businesses, particularly with the global uncertainty in financial markets after the terrorist attacks on the United States.

The airline did not declare a dividend. Shareholders were left with their interim payment of 4c a share. Last year's total dividend was 15c a share.

Air NZ's unrestricted B shares rose 14c yesterday to 71c and the resident-only B shares rose 3c to 74c. The shares are to be merged into one class as part of Air NZ's $850 million recapitalisation programme agreed to by the Government and the company's major shareholders, Singapore Airlines and Brierley Investments.

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