Minister keeps reins on Kiwi air shares

By DANIEL RIORDAN

Read Mark Gosche's lips: the policy on foreign investment in Air New Zealand has not changed as a result of yesterday's open skies agreement with Australia, or last week's multilateral open skies pact with Singapore, Chile, Brunei and the United States.

That policy, requiring Air New Zealand - or any designated international NZ airline - to be substantially owned and effectively controlled by New Zealand nationals, "is not up for negotiation," says the Transport Minister.

Singapore Airlines owns 25 per cent of Air New Zealand and wants to increase it to 40 per cent, but has been stymied by Government restrictions.

That Air New Zealand is keen for the extra involvement was made abundantly clear on Friday by airline chairman Sir Selwyn Cushing.

Australian media reported that Mr Gosche was reviewing the ownership restrictions and quoted Sir Selwyn saying he was delighted at the possibility that the review would enable Singapore to increase its stake.

But officials at the Ministry of Transport and a spokeswoman for Mr Gosche said no review was taking place, or about to take place.

Sir Selwyn could not be reached for comment yesterday.

Mr Gosche said New Zealand had 18 bilateral agreements in which there were no requirements for the country's airlines to be substantially owned by New Zealand nationals.

Last week's multilateral agreement added the United States to that club.

But the Government's policy on Air New Zealand's ownership sat outside those agreements, and was not altered by them.

Mr Gosche's stand came as the airline's credit rating fell below investment grade for the first time, on concerns about its higher debt levels after the purchase in June of Ansett Australia.

Standard & Poor's yesterday downgraded the airline's rating to a notch below investment grade.

That is expected to force the company to raise the interest rate on its pending $150 million capital notes issue, and may make some institutions shy about investing, although retail investors were always the more likely market.

The downgrade came after 20 months of negative creditwatch.

Air New Zealand's long-term debt rating slipped to BB+ from BBB-. The short-term rating was lowered to B from A-3.

The ratings agency said the downgrade reflected the airline's high debt burden, higher costs, greater competition, slowing economic activity in its markets and the "risk of significant delays in the successful and timely integration of Ansett in the next few years."

S&P said that despite the airline's $284 million rights issue, concluded this month, the company's level of cashflow protection was expected to remain weak, with funds from operations-to-debt at less than 15 per cent in fiscal 2001.

Many in the market were expecting the downgrade.

Air New Zealand itself had indicated that it was anticipating a change by holding off its notes issue until next year.

The company said it hoped for an upgrade once it had achieved savings from integration with Ansett and strengthened its balance sheet.

However, the company may be waiting some time for an upgrade. S&P spokeswoman Jeanette Ward said the agency did not intend reviewing its latest rating for two to three years.

Analysts said it was not the first time a large New Zealand corporate had slipped below investment grade rating. Lion Nathan and Carter Holt Harvey were just two examples of companies that had endured BB+ ratings.

Air NZ A shares (still available only to New Zealanders) closed yesterday 2c higher at $1.48 while the B shares (still available to all) closed 2c lower at $1.95