Investors' fears weigh heavily on Air NZ

By GARETH VAUGHAN


Stock in Air New Zealand came under pressure yesterday amid fears of a flood of new shares coming on to the market.

On Tuesday, the shares were placed on a trading halt allowing Singapore Airlines to sell its 6.3 per cent stake for $61.6 million.

They resumed trading yesterday and closed down 2 cents to $1.66.

Some investors believe Qantas, with 5 per cent of Air NZ, and Rupert Murdoch's News Corp with 2.6 per cent, could follow SIA to the door.

At the same time, they are warily eyeing Air NZ's planned cash call this year.

General fears over the cost of fuel - crude oil reached US$51 a barrel in New York yesterday - and potential terrorist threats are also hurting all airlines.

ASB Securities' Tim Preston said: "There are lots of compelling arguments that portfolios don't need to be heavily weighted in airline stocks."

He said Air NZ's shares were fairly priced.

Air NZ has talked openly of a rights issue. Peter Sigley, airline analyst at Goldman Sachs JB Were, said it would be logical for Air NZ to announce this at its October 27 annual meeting. The rights issue is expected to seek about $200 million.

Meanwhile, Accident Compensation Corp investment strategist Nicholas Bagnall confirmed ACC had increased its 1.14 per cent Air NZ stake through SIA's sale.

SIA spokeswoman Samantha Stewart said the decision to sell the stake was commercially driven as the airline strove to cut costs.

SIA, which was Air NZ's second-biggest shareholder behind the Government, first bought into Air NZ in April 2000, paying $3 a share and built its stake as high as 25 per cent.

When the Government poured $885 million into Air NZ in 2001, taking an 82 per cent share, SIA's stake was diluted to 6.3 per cent.

Arthur Lim, investment director at Macquarie Equities, said SIA had invested a total of about $500 million in Air NZ.

Rather than regretting selling out of Air NZ for much less than it bought for, Stewart said the sale was "just a plank" in a cost-cutting strategy to focus on core operations.

Asked what else SIA was doing to cut costs, Stewart pointed to an announcement last week about outsourcing information technology and accounting work.

This country remained an important and growing market for SIA.

"We will be continuing to operate the code-share arrangements we have with Air NZ."

News Corp spokesman Andrew Butcher declined to comment and Qantas spokesman Lloyd Quartermaine had not returned the Herald's calls by press time.