Lingering doubts weigh on Air NZ share price

By CHRIS DANIELS


A looming rights issue and few clues on future profits are not likely to help the sharemarket regain confidence in Air New Zealand following the demise of its attempted alliance with Qantas.

The airline's shares dropped 4c to $1.86 yesterday, the first full day's trading since the High Court at Auckland rejected its appeal against the Commerce Commission's rejection of the deal.

Both airlines say that although they cannot join forces as they had hoped, they will work on new ways of cooperating.

The prospect of a "doomsday scenario", where Qantas would destroy Air NZ, has now diminished and Air NZ's financial health has improved in the two years it has been arguing for the deal.

Stephen Walker, of Walker Capital Management, which has previously invested in Air NZ but now owns none of its shares, said he thought the airline was over-valued - worth around $1.30 rather than $1.80.

"We can see absolutely no value in Air NZ at the moment," he said. "The present share price assumes it's going to earn good returns on capital and continue to do so for some time - which are at odds with what we expect and at odds with what Air NZ has been telling the Commerce Commission for some time."

Peter Sigley, airline analyst at Goldman Sachs JB Were, said the single biggest outcome for Air NZ was that this "disaster scenario" of Qantas destroying it was now gone.

Genuine opportunities for co-operation would exist, and would save costs without attracting the ire of competition regulators.

Now the alliance is buried, Air NZ is likely to activate its longstanding plans for a rights issue, expected to raise up to $200 million, with up to $150 million underwritten by the Government.

Details of this issue could be announced at next month's annual shareholders meeting.

Sigley said the Air NZ share price was cheap, but assurance was needed for future earnings.