KEY POINTS:
Air New Zealand chairman John Palmer and his directors will need all the wisdom of Solomon if they are to follow a Government dictate for the airline in future to uphold the "national interest".
Air NZ - in which the Government holds a 76 per cent stake - is not a state-owned enterprise.
But Cabinet ministers - embarrassed by the political fallout over two Air NZ "ferry" charter operations carrying Australian troops to the Middle East - now seem to believe they can order the publicly listed company to uphold non-specified "national interest" considerations.
This is extraordinarily rich from a majority shareholder which has already intervened to force Air New Zealand to give up highly profitable business leading to a loss of future revenue for the company.
Under the Companies Act it is clear that majority shareholders do not and cannot direct the company. Air NZ directors have fiduciary duties to run the company in the best interests of all shareholders - not to suck to the majority shareholder who appoints them.
But this request to follow a "national interest" - rather than "commercial" dictate - flies in the face of good governance.
The trouble is, Cabinet ministers have not specified to Palmer or Air NZ the exact nature of the strictures they wish to place on the airline's future operations, nor have they made sure the directions are delivered in a legally sustainable fashion.
Air NZ shareholders deserve to know a lot more about the Government's definition of "national interest" and how any strictures will affect shareholder value.
Nor is there any detail available to other shareholders over the nature of a supposed shareholders' agreement between the Air NZ board and the Government, which was mentioned publicly last week. Air NZ sources suggest there is no formal agreement.
But the NZX should be issuing "please explains" all round, given the huge number of uncertainties now on the table.
The Air NZ imbroglio raises serious issues over just how the Government relates with a company whose other shareholders might view the clampdown on the airline's right to contract freely as an abuse of process by the majority shareholder.
No shareholder - even a fabled "plaintiff of convenience" - has yet emerged to tackle the Government's blatant interference in Air NZ's business for what are really political ends. But if the Government continues down this capricious path, other Air NZ shareholders will get stroppy.
Certainly the majority of public response - as indicated by feedback on the Herald's website - has run strongly in favour of Air NZ's right to drum up extra commercial business by contracting for Australian Defence Force business.
The message for the Government is that the public has seen its reaction to the flight as purely political: a Government desperately trying to make capital out of Iraq and piqued because news of the flights undercut its own move to embarrass National leader John Key over his contrary positions to the 2003 invasion.
The political stuff will play out elsewhere.
But what the controversy has done is put the spotlight on the "understandings" between Finance Minister Michael Cullen (who is shareholding minister) and Palmer.
Palmer came in for mild personal criticism from Cullen for failing to brief him about the two charter flights to Kuwait and the United Arab Emirates.
Cullen - like Prime Minister Helen Clark and Defence Minister Phil Goff - was politically embarrassed by the news, claiming the airline's charter operations were in breach of the Government's principled opposition to the Iraq war.
Cullen excused Palmer for his claimed oversight because Air NZ chief executive Rob Fyfe had sought effective approval from Ministry of Foreign Affairs and Trade boss Simon Murdoch before tendering for the contract.
But he nevertheless considered the failure to tell him personally about the contract at one of the pair's approximately monthly meetings breached a "no surprises" understanding.
But why should Palmer have a "no surprises" policy given that Air NZ does not fall under the state-owned enterprises umbrella? The Government took an 82 per cent stake in Air NZ after it bailed it out to the tune of $885 million in 2001. The stake has since been diluted to 76 per cent.
These are important issues to consider given the debate over whether the Government should float down minority portions in some state-owned enterprises.
Neither the company's constitution - nor the Kiwi share provisions - have "national interest" stipulations that cover the ADF charter flight issues.
So why is the Government now trying to jerk the airline's strings in a capricious way?
The reality is that Air NZ contracts for a lot of business which under this Government's politically defined "national interest" test would not pass muster.
Murdoch has been strongly criticised for failing to tell Foreign Minister Winston Peters about the flights. But he has arguably saved the Government from creating adverse commercial exposure by ruling the flights did not breach either United Nations sanctions or local policy.
At issue is, if the minister had known of the charter would he have advised Air NZ not to proceed? If so, what ramifications would this have for the company's revenue? Would this have been a breach of Air NZ's requirement to make continuous disclosure to all shareholders? And what ramifications would it have for the interests of other shareholders?
Air NZ is not willing to say directly how much the two charters were worth as a portion of the $18 million revenue it has scored from a variety of charter operations.
But it appears that - apart from a contract to fly ADF troops back to Australia from Honiara last week - no others are in the pipeline.
Air NZ will be hoping the political row between New Zealand and Australia will blow over and at some point it can once again start contracting for ADF business.
What's not known is whether there will be an increase in the reluctance of other potential investors to acquire or retain an interest in a company prone to political interference.
