Tasman 'bloodbath', dividend and tiff for Air NZ

Air New Zealand is paying its first dividend in four years, despite flat profits and a "bloodbath" on Tasman routes.

The 2.5c-a-share dividend is the first since the purchase of Australian airline Ansett drove Air New Zealand to the brink of bankruptcy in 2001 before a billion-dollar Government bailout.

Profits are flat at $102 million for the six months to December, but passenger numbers have risen, debt is down and there is a healthy $1.1 billion bank balance.

The airline says it expects full-year, pre-tax profits of about $240 million, down $3 million from last year.

Air NZ's shares rose 1c to close at $1.66 yesterday.

One area of weakness was the performance of its engineering division, which was hit hard by the high value of the dollar.

The division competes with foreign rivals for business refitting and maintaining aircraft, so a high dollar makes it less competitive.

Revenue for the division fell 4.5 per cent to $252 million but earnings were down 57.7 per cent to $11 million.

Goldman Sachs JB Were's head of research, Peter Sigley, said: "The underlying airline business is performing better than we'd expected whereas the engineering business has obviously had a bit of collapse of margins, reflecting competition and currency."

The high dollar helped keep a lid on soaring jet fuel prices, though the airline's total fuel bill was up $57 million for the half-year.

Chief executive Ralph Norris said that apart from cutting costs, the airline could do little about the "bloodbath" on the Tasman, where competitors were dumping capacity.

He was referring to new entrants flying long-haul aircraft on the route which would otherwise be sitting empty on the tarmac in Australia.

Yields on the Tasman route had fallen dramatically, but it was still cash positive, he said. "We're not bleeding cash from it."

Despite this failure to make money from such an important route, the airline side of the business had increased its earnings performance by 16 per cent, Norris said.

"If we had the Tasman operating half way decently, it would have been an outstanding performance."

Norris was far from happy with Auckland Airport too, which said all airlines would be called upon to help pay for airport upgrades needed to accommodate the new superjumbo - 550 seat Airbus A380.

As Air NZ would not be buying the new plane, Norris said it should not have subsidise it rivals.