Air NZ's woes set alarms ringing

By DANIEL RIORDAN aviation writer

The Government is growing increasingly alarmed about the financial position of Air New Zealand and its troubled subsidiary, Ansett Australia.

As Air NZ directors met for a second day yesterday, Finance Minister Michael Cullen said: "I think it's fair to say Air New Zealand's position is worse than anybody had anticipated when we first started looking at it."

It emerged yesterday that the Government and its Australian counterpart had talked about a joint rescue deal for the airline.

A spokesman for the Australian Deputy Prime Minister and Transport Minister, John Anderson, said he and Dr Cullen had discussed the possibility of the two governments jointly underwriting a rights issue for the embattled airline, whose Ansett Australia subsidiary is understood to be losing more than $1 million a day.

Shares in Air New Zealand continued to slide yesterday as investors sold out after the board's failure to produce a clear recovery strategy.

The A shares tumbled 11c to close at 78c and the B shares 9c to 90c.

Asked on TV3 whether the Government would step in, Dr Cullen replied: "If you mean the Government [should] step in and pour money into a failing business - New Zealand governments haven't done that sort of thing for a very long time.

"It is up to the Air New Zealand management and board to come up with a viable business plan.

"It is not up to the Government to come up with a viable business plan for a private company."

The Australian Government clearly cannot afford for Ansett to go under - particularly in an election year - with its 15,000 jobs and role as the country's No 2 domestic airline.

But the airline's relationship with its banks and trade creditors could be severely tested after Sir Richard Branson's statement on Tuesday that Ansett was losing more than $1 million a day .

Air NZ's directors yesterday met to assess their options.

The meetings followed the Government's rejection of a rescue package under which 25 per cent owner Singapore Airlines would have taken a bigger stake in the national carrier and the Government would have helped raise the rest of the money Ansett desperately needs to buy new planes and shore up its balance sheet.

Sir Richard's discount airline Virgin Blue earlier turned down a $300 million offer from Air NZ to buy it, a move seen as Ansett's only viable long-term business strategy.

Air New Zealand acting chairman Dr Jim Farmer, QC, said yesterday that the board had reached no agreement with Singapore other than that Singapore would seek up to 49 per cent of the airline and pay $1.31 a share.

But Singapore's memorandum of understanding with Air New Zealand's board to pay that price is non-binding.

And it is now is understood to be driving a harder bargain - possibly looking at paying no more than $1 a share.

Singapore had no comment yesterday; neither did 30 per cent owner Brierley Investments.

Dr Farmer said the Air NZ board was highly conscious of the need to establish certainty for the market "and a clear path must be reached."

If, as expected, the government approves Singapore increasing its stake, the level of foreign ownership allowed will determine the amount of capital deep-pocketed Singapore will contribute and how much extra money Air New Zealand needs to raise.

This is likely to be more than $800 million.

Air New Zealand is expected to announce a $200 million operating loss for the June year on Thursday, and Ansett's losses are estimated at around $300 million.

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