Flying by seat of pants on air deal

By Geoff Senescall

Betweent the lines


Air New Zealand needs to deal carefully with employees of Ansett Australia over the staff proposal to buy a 50 per cent stake in their employer.

While Air New Zealand also wants to buy the stake from News Corp to add to its own 50 per cent holding, it can't afford to get offside with Ansett staff.

By going public this week on their buy-in ambition, the employees were expressing their frustration. They had put the proposal to Air New Zealand's board last October and have made little progress since.

While relations still appear to be okay, Air New Zealand will need to be more cautious than it was last year when it fell out with Singapore Airlines over the News stake.

Tensions flared between the airlines when Air New Zealand refused to waive its pre-emptive rights over the News holding. As a result Singapore Airlines never formally made its Ansett offer.

Then Air New Zealand and News negotiated fruitlessly because News wanted Air New Zealand to pay more than Singapore offered. Subsequently, Ansett's value fell sharply after Richard Branson, the British entrepreneur, unveiled plans for a new Australian airline. Even so, News and Air New Zealand still can't agree a price.

The push by Ansett employees comes after nearly a year of toing and froing over the airline's ownership. Like its owners, Ansett's employees know the damage such an impasse can cause to the financial health of the airline. Clearly, they see themselves as the perfect vehicle for breaking the stalemate.

But Air New Zealand is right to be wary of such a coalition with employees. As was seen with Chicago-based United Airlines, staff buy-ins are tricky.

In 1994, United staff offered to work more for less money to help improve the airline's financial performance. In addition to that sweat equity, they also put in money to get their shares.

But only pilots and ground staff became owners while cabin staff remained employees. Tensions grew between the owners, who suffered the short-term pain in the hope of long term capital gain, and the employees who had only the pain. This led to a serious deterioration in morale and service over a number of years. Heavy investment in equipment and staff has turned that around, contributing to the quadupling of United's share price.

Ansett employees' role, however, would be even more complicated. If they put a firm offer which was accepted by News, then Air New Zealand could exercise its pre-emptive right.

Yet presumably the employees would still want a piece of the action. That would be awkward. Logically, Air New Zealand would integrate Ansett more closely into its operations. But Air New Zealand's staff are not employee-owners, raising the prospects of United-style conflicts.