Howard warned a month ago about crisis

By FRAN O'SULLIVAN

Air New Zealand acting chairman Jim Farmer last night released a letter he wrote to Australian Prime Minister John Howard a month ago warning that the Air New Zealand crisis could pull down Ansett.

Dr Farmer also revealed that Mr Howard was warned at a Canberra meeting in June that Ansett was losing $A18 million ($21.93 million) a week - $A2.6 million a day.

Ironically, by September 7 - when a run of accusations about Ansett's financial situation made by Virgin's Sir Richard Branson and Finance Minister Michael Cullen sent the Air New Zealand share price plummeting - the Ansett losses had been halved to $A1.3 million a day.

The $A1.3 million figure was released by Air New Zealand in response to questioning by the New Zealand Stock Exchange.

But time had run out to get a recapitalisation plan to cover both Air New Zealand and Ansett in place before the national flag carrier had to report its June 30 results on Thursday.

Dr Farmer issued details of the airline's warnings over Ansett's perilous state as political pressure continued to be applied yesterday to Air New Zealand directors and transtasman flights were grounded by union disruption.

His August 14 letter to Mr Howard said that the group had to get its recapitalisation in place by September 4 - the date it originally intended to release its June 30 results - or face immediate breaches of its bankers' loan covenants which would trigger the right for lenders to demand immediate repayment of their loans.

The letter said the situation over the Air New Zealand group - and more particularly, Ansett Australia - was "extremely serious".

The Farmer letter also noted that the Australian Government had been given "early access" to the Air New Zealand group's financial results to be announced in September, including serious losses in Ansett which were being sustained only with the support of the wider group.

The letter said the board of Air New Zealand had considered - and would consider again - before the results were announced "whether the group's liquidity position was sufficient to enable it to meet its obligations when they fall due".

Dr Farmer also released other information to back Air New Zealand's claims that it had provided politicians with timely warnings of its plight.

In June, an Air New Zealand management team headed by chief executive Gary Toomey had met Mr Howard and Deputy PM John Anderson in Canberra to provide preliminary advice on Ansett's state.

A presentation paper from Air New Zealand said that:

* Ansett was losing $A18 million a week mainly due to lower revenue - down 26 per cent from the previous year.

* Major reasons for the decline were lower passenger revenues - a yield decline of 16 per cent due to increased competition - higher fuel costs and adverse foreign exchange gearing.

Ansett's gearing had increased to 72 per cent and its market share was down to 42 per cent compared with Qantas at 56 per cent.

Mr Toomey later met senior Department of Transport officials in Canberra and discussed Ansett's financial exposure for the Air New Zealand group.

They had asked the Australian Government to end its support for a Qantas proposal which had been delaying the recapitalisation proposal.

The recapitalisation plan had been put to the New Zealand Government by Air NZ in the same month.

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