Late night bid to avoid Air NZ crash

By FRAN O'SULLIVAN AND DANIEL RIORDAN

Air New Zealand directors emerged early today from a marathon meeting to develop a rescue plan to stop the national flag carrier's financial collapse.

After the meeting, Air New Zealand acting chairman Jim Farmer said the company and its two major shareholders, Singapore Airlines and Brierley Investments, were working with the Government on a proposal to ensure on-going financial support for the airline's international and domestic operations.

Mr Farmer said the board expected to make a further announcement by Thursday - the day it presents Air New Zealand's annual results.

Directors from Singapore Airlines and Brierley Investments took part in last night's meeting by video-conferencing, and Government negotiator Rob Cameron and teams of lawyers were on standby.

Late last night Prime Minister Helen Clark said she thought Air New Zealand would survive.

Asked about its Australian subsidiary, Ansett, which is losing $1.5 million a day, she said: "I am not going down that road - no further comment."

She expected to brief the cabinet today on the developing measures to salvage Air New Zealand, but no firm proposal will go before ministers.

Helen Clark said her cabinet ministers' team had been briefed on yesterday's board discussions and had authorised Mr Cameron to take discussions with the company and its major shareholders to a more detailed level.

"A number of uncertainties remain but we are committed to finding a constructive solution."

The Prime Minister also talked to Australia's Acting Prime Minister, John Anderson, during the evening.

One of the issues complicating the boardroom talks was a "letter of comfort" Air New Zealand gave to loss-making Ansett which makes it difficult to put the Australian airline into receivership without also threatening its parent.

Air New Zealand executives could not say yesterday whether the letter guaranteed all Ansett's loans, or was simply a stop-gap measure to keep Ansett afloat while Air New Zealand put together a recapitalisation plan.

If Air New Zealand writes off its investment in Ansett and reports, as expected, an operating loss of up to $300 million on Thursday, it would have shareholders' cash of $350 million against consolidated debt of $3.1 billion.

If Ansett's debts are also guaranteed by Air New Zealand in the letter of comfort, its plight will be far worse.

Yesterday's meeting started at 4 pm, and directors were still meeting after midnight.

But one executive who left early said: "People are tearing their hair out - it's all gone pear-shaped."

Before the meeting, Helen Clark said it was "unthinkable" that Air New Zealand would be allowed to collapse. No matter what happened, the national airline had to be kept flying.

Air New Zealand was asked to produce a commercial refinancing proposal in time for today's cabinet meeting.

But one option, the Government's keenly promoted Anzac rescue, was questioned by Australian Treasurer Peter Costello on Saturday after talks with Finance Minister Michael Cullen.

"Air New Zealand is responsible for sorting out its troubled subsidiary," was Mr Costello's curt response to journalists at an Asia-Pacific Economic Cooperation ministers' meeting in Shanghai.

Mr Farmer said Air New Zealand had informed the Australian Government of Ansett's financial position and would continue talks with the Australian Government today.

The depth of Air New Zealand's plight was shown when it pulled Ansett's advertising in Australia at the weekend.

So desperate is Air New Zealand that its board last week asked Qantas to buy Ansett. But Qantas chief executive Geoff Dixon says he rejected the proposal.

"It is not something we felt we could seriously consider. Despite what many people think, we do not dominate this industry and have no desire to do so," he told the Australian Financial Review.

Qantas has a proposal in the wings to buy into Air New Zealand.

As the uncertainty continues, Ansett customers appear to be getting cold feet.

Demand for tickets on Qantas and Virgin Blue flights rose dramatically over the weekend.

Unions demanded answers on the future for the airline's 15,000 staff.

An airline industry source said pulling advertising was a standard move when an airline was in financial crisis.

"An airline is like a bank.

"It can disintegrate really quickly because it depends on public confidence to exist."

The Australian Government has said it would welcome the introduction of new investors into Ansett.

"Ansett is a foreign-owned company, and any application ... would get a very, very favourable hearing from the Australian Government," Mr Costello said.

Singapore's Deputy Prime Minister, Lee Hsien Loong Lee, has also ruled out his Government's involvement.

"This is SIA's (Singapore Airlines) matter - it is a commercial issue which SIA has to work out."

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