Air NZ to ask Government for $500 million

By FRAN O'SULLIVAN

Air New Zealand is preparing a case for a Government cash injection of $500 million to $700 million.

The money would be used to upgrade and replace its fleet.

If the case succeeds, it would turn full circle the Government privatisation programme launched 15 years ago.

Air New Zealand has been forced to bring forward its $5 billion fleet replacement programme after last month's unexpected grounding of offshoot Ansett Australia's 767s. Tough Government-imposed controls make it hard for the airline to raise sufficient capital overseas without breaking limits which restrict foreign ownership to less than 50 per cent.

If Air New Zealand is deemed to be foreign-owned, other countries may end the bilateral agreements which guarantee landing rights.

Airline chairman Sir Selwyn Cushing said any Government funding would simply be a stop-gap until a range of international bilateral agreements restricting majority ownership and control of the company to New Zealanders was relaxed.

"The fact is New Zealand has not got enough local grunt to provide the additional capital," said Sir Selwyn.

"We would have enormous support worldwide if we could open up the ownership. But it is not easy."

Another option for the airline is to let Singapore Airlines lift its 25 per cent holding and inject further money.

The Government has said it will entertain a proposal, but nothing has yet landed in Wellington.

Under Air New Zealand's proposals, any Government capital injection would be through issuing the crown capital notes or convertible shares in the airline.

It is estimated that a Government contribution of $250 million to $350 million for each of the next two years would be enough to help right the company's balance sheet.

But the final amount which may be sought will not be known until United States investment bank Salomon Smith Barney completes a report to Air New Zealand's board on a range of restructuring options.

Prime Minister Helen Clark has confirmed the airline has made a formal request for a meeting with the Government.

Helen Clark said Air New Zealand's position was very sensitive. She would not be drawn on what her reaction would be if a request for crown capital eventuated.

Air New Zealand's board finance committee, headed by ASB Bank chief executive Ralph Norris, has undertaken a preliminary scrutiny of capital-raising options. These are being worked up by Sir Selwyn and the management team.

The $5 billion fleet replacement programme would be financed through a mixture of equity and debt raising measures.

While a Government contribution would form part of that, other measures are also being explored.

These include aircraft leasing, and further contributions from the airline's cornerstone shareholders, Brierley Investments, which has a 30 per cent stake, and Singapore Airlines.

Other Star Alliance carriers, such as United Airlines, have indicated an interest in buying Air New Zealand shares, but are also stymied by the foreign ownership restrictions. The Government's permission must be given before the restrictions can be relaxed.

Cabinet ministers are also considering ploughing money into a partial buyback of Tranz Rail to ensure the maintenance of nationally important lines.

The rail company's controlling shareholders are expected to chop lines as a cost-saving measure.

Air New Zealand was privatised by a Labour Government, which sold all the company's shares to a Brierley Investments-led consortium in December 1988.

The consortium, which included Qantas, American Airlines and Japan Airlines, paid $660 million, or $2.35 a share.

Brierley later sold 35 per cent of its 65 per cent stake to the New Zealand public when the airline was floated in 1989.