KEY POINTS:
Air New Zealand chief executive Rob Fyfe is relatively coy when asked point-blank whether he thinks Michael Cullen should sell-down some of the Government's 76.75 per cent stake.
Fyfe says he urged Cullen that he should flick some Air NZ shares to help fund the proposal to build a stadium on Auckland's waterfront.
There was an element of jesting to the suggestion.
Cullen wasn't that on-song for Rugby World Cup Minister Trevor Mallard's pipedream. Fyfe was.
He thought it would have been a great addition to the waterfront, brought the tourists in and helped spark a move towards building some first-class hotels in Auckland.
But like so many Auckland projects, it bombed.
With Air NZ on track to post a first-half operating profit of close to $100 million on Tuesday, there is a now serious point to consider. The tax-paid profit - forecast to be $68 million by Forsyth Barr Rob Mercer - will be up 47 per cent on the previous year's figure. Mercer bumped his share-price forecast to $2.50 and made a buy recommendation.
The shares have doubled since last September as fuel prices have dropped and the business case improved. It's hard to think of a better time for Cullen to do a bit of profit-taking. But Fyfe - who believes a sell-down would help liquidity in the airline's shares - is not holding his breath.
Air NZ shares closed at $2.14 on Friday after a rocky few days caused by Qantas' decision to swap some convertible notes into shares, diluting the Government's holding from its previous level of 80.7 per cent.
The market took a while to adjust to the move. But shares firmed when it emerged that Air NZ does not expect Qantas to be a long-term holder. The conversion is basically just the first step into a sellout by the Australian carrier. Fyfe's view is that many airline investors currently see the sector as an "oil play" and are keen to exploit the cyclicality of aviation stocks.
When he joined Air NZ in 2003 - jet fuel was US$30 a barrel before peaking at US$90 a barrel three years later. It was an "uncomfortable" place to be. But a reversal of the "peak oil" scenario, which many doomsday-sayers believed would collapse the sector - has brought new confidence across the sector.
But the rising Kiwi dollar is causing issues. If it stays at current US70c levels, New Zealand begins to look a rather unattractive tourist destination.
But, if it falls, Air NZ's external costs will be pushed up as jet fuel, aircraft and parts are sold in US dollars. A US65 cent level is Air NZ's pain threshold, Fyfe suggests.
Cullen, who is very concerned that the NZ dollar level is hurting exporters, may want to consider the long-term effects on the airline. The principle factor driving the value in airline stocks is the private equity grab.
Australian Treasurer Peter Costello says the private equity takeover Macquarie has lined up for Qantas will be subject to a "national interest" test.
Irrespective of any conditions that Costello and the Australian Foreign Investment Review Board might decide to impose on the Macquarie consortium, Qantas is unlikely to pose a serious threat in the short-term to Air NZ. Fyfe believes the Australian airline will be focused on its major external routes, once the private equity boys get control.
That could provide some short-term cover for Fyfe to make good on his ambition to chalk up at least one new external route a year and ensure the airline's flexibility pricing policies continue to bear fruit.
But there's a long-term danger that both Cullen - as major shareholder - and other Air NZ investors need to take on board. Qantas - and other airlines whose ownership is subject to the private equity wave - will have to factor in the effect of the extra short-term debt the airlines will carry.
Much of that will be in US dollars, adding variable into the sector's profitability. With jet fuel and currency levels a moveable feast, it is not hard to imagine a scenario where over-geared airlines could find themselves under huge pressure if oil prices escalated and the Australian dollar rose. That would inevitably take a lot of the ballast out of Air NZ's prices.
What is not likely to bomb at Air NZ is the new ethos Fyfe's management style is inspiring.
The engineer-turned-CEO is focused on turning the national carrier into a nimble airline - tight on costs and swift (and small) enough to cherry-pick some opportunities that are just not big enough on the revenue lines to attract too much attention from the super-carriers.
The airline has abandoned hopes of a strategic alliance with Qantas and is now focused on code-share deals it wants to make with Air Tahiti Nui and Air Nadi for onward flights beyond Tahiti and Fiji to Los Angeles.
Mahogany row has gone - and many of the airline's bureaucrats. Unprofitable routes have been slashed and Air NZ is in a good position to boost EBIT when a five-year capex holiday kicks in.
Fyfe says Air NZ has dropped any ambition of being a world-class major carrier and is focused on succeeding in a tighter niche. What should not be abandoned is the desire to get more shareholders into the airline - a sell-down is now in order please.
