Air NZ gets $550m - and loses $1.4bn

By FRAN O'SULLIVAN and JOHN ROUGHAN

The Government has put up $550 million towards an emergency bailout of Air New Zealand after it posted the biggest loss in New Zealand's corporate history - $1.4 billion.

Major shareholders Brierley Investments and Singapore Airlines have also pledged $150 million each to keep the national flag carrier operating after it was engulfed by huge losses of $1.3 billion on its controversial investment in the failed Ansett Australia.

Air New Zealand has been pushed into a loss by its attempt to break into the tough Australian aviation market.

The Air New Zealand rescue deal is subject to a due diligence exercise by the Government and its two major shareholders, and the agreement of the airline's bankers. But while there may be some changes in the detail - particularly if the United States terrorist attack affects aviation earnings - the agreement is not likely to be derailed.

Ansett was put into voluntary administration late on Wednesday after a dramatic race against time failed to secure any realistic new ownership proposals.

Air New Zealand directors on the Ansett board - some of the biggest names in New Zealand business - might yet face strong scrutiny from Australia's securities watchdog after allegations that Ansett may have traded while insolvent.

The allegations were strongly denied by acting chairman Jim Farmer, QC.

Finance Minister Michael Cullen, who outlined the nature of the Government's support at the Beehive, declined to criticise the performance of Air New Zealand's present board.

But the board will be reduced from 13 to nine members and the Government will have a controlling say on the appointment of a new chairman.

Dr Farmer was grim-faced when he unveiled the airline's $1.4 billion loss at a transtasman video conference at 1.15 pm yesterday.

The conference was to have started at 12 noon, but was delayed while airline chiefs haggled with the New Zealand Stock Exchange over their decision to post an unaudited result.

Air New Zealand chief executive Gary Toomey - who was headhunted from Qantas Airways less than a year ago - said he was "shattered" by having to disclose such an awful outcome.

Protracted negotiations with Governments on both sides of the Tasman to try to recapitalise Air New Zealand and its Australian offshoot had failed.

The Government will lift the ownership cap on Air New Zealand so Singapore Airlines can raise its stake from 25 per cent to 35 per cent. The distinction between shares that can be bought by foreigners and those available only to New Zealanders will be abolished.

Dr Cullen said the huge Ansett writedown meant it would not have been possible to reconstruct the airline without Government support.

Maintaining New Zealand's only international carrier and its main domestic carrier was "not an issue we could stand back from."

He believed Air New Zealand would be restored as a strong domestic and international airline, "as it was before the acquisition of Ansett".

The $550 million would be lent at commercial rates, Dr Cullen said, although it could be renegotiated if if the terms made it too hard for Air New Zealand to maintain "a viable capital structure".

"But we would still be looking for an adequate rate of return to taxpayers. This is not a soft loan facility at all."

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