We can keep Air NZ flying, say investors

By DANIEL RIORDAN

As airline heavy hitters from Singapore and Australia descend on Wellington, Act MP Stephen Franks and the Shareholders Association say Air New Zealand need look no further than local investors to fund its growth.

Singapore Airlines' deputy chairman and chief executive, Dr Cheong Choong Kong, flew to Wellington yesterday to meet Government officials.

Dr Cheong leaves the country today and a Singapore spokesman said no meetings with politicians had been scheduled.

Australian Transport Minister and Deputy Prime Minister John Anderson will meet Finance Minister Michael Cullen early next week. Mr Anderson's major concerns will be with continued competition in the Australian market, which relies on the good health of troubled Air NZ subsidiary Ansett.

The Air NZ board wants the Government to change foreign ownership laws and allow its 25 per cent owner Singapore to increase its stake to as much as 49 per cent.

In a counter-proposal, Qantas would take 25 per cent and offload Ansett to Singapore.

Air NZ's independent directors say they have about half a dozen other options before them, which they have not detailed.

One of those could be the sale of a large part of Ansett to Singapore.

Air NZ acting chairman Jim Farmer, QC, said he was confident the Government was moving as quickly as it could on the issue.

A spokeswoman for Finance Minister Michael Cullen said the Government expected to approve or reject the bid to raise Singapore Airlines' stake in time for Air NZ's board meeting on August 30.

Mr Franks was adamant Air NZ should not have to look overseas to fund its growth.

If it priced its capital requests low enough, it should be able to raise the money here, he said.

Mr Franks has written to the fledgling Shareholders Association, backing its recent action of buying into the national carrier to agitate for a local solution to its funding woes.

Mr Franks, a former leading commercial lawyer, said senior sharebrokers had told him it was "nonsense" that the extra capital could not be found in New Zealand.

"Whether or not Air NZ can raise the extra capital it requires is a question of the price at which it makes the offering."

He cited Fletcher Forests' capital-raising last year, overcoming "serious reverses simply by ensuring the issue was cheap enough".

Fletcher Forests late last year raised $253 million with a two-for-one rights issue, priced at 25c, about half its market price at the time the issue was announced.

But that was still $161 million less than the company had targeted.

The association has bought a minimum parcel of shares in order to make its voice heard at the company's annual meeting and is advocating a renounceable rights issue which it says will keep the airline in domestic hands.

The proposal is for 50c a share on the A shares and 65c a share on the B shares on a one-for-two basis.

Association chairman Bruce Sheppard said the proposal would raise more money for Air NZ than if Singapore upped its stake to 35 per cent.

In the Singapore proposal, shares would be issued to the airline at $1.31. Moving to 35 per cent would raise $151 million, and to 49 per cent - the level Air NZ would prefer - would raise $466 million.

Air NZ has talked of launching a rights issue to provide some of its capital needs, but such a move would presumably be finalised once its ownership issues are sorted out.

But brokers the Business Herald spoke to did not think a rights issue would solve the airline's woes.

A renounceable $284 million issue last year at $1.51 for both classes of shares was heavily undersubscribed when the airline's financial outlook was much better than it is today.

A group of local investors is reportedly standing by ready to take up any spare shares, but the Business Herald has been unable to identify such investors.

But even if all shareholders took up the offer, it would raise only $217 million.

Dr Don Turkington, executive director with brokerage Forsyth Barr Frater Williams, said the impact on Air NZ's share price would be dramatic and negative.

"It would be much better for existing shareholders if Singapore upped its stake at $1.31."

Craig Brown, senior equity portfolio manager at the country's largest fund manager, AMP Henderson Global Investors - which holds shares in Air NZ - said everything had its price, but there remained considerable uncertainty about the industry, and Air New Zealand in particular.

"It does appear the Government is getting lots of advice on this whole issue, which one hopes would allow them to make an informed decision," he said.

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