'Corporate welfare' for Air NZ back on table

By VERNON SMALL deputy political editor

The Government is considering using taxpayers' cash to help Air New Zealand raise capital as an alternative to bids by Qantas and Singapore Airlines for a big slice of the airline.

The proposal first emerged in May but seemed to lose momentum as the Government weighed up the rival foreign bids.

Government sources yesterday refused to rule out some financial help, although they said it would stop short of a direct shareholding in the formerly state-owned flagship carrier.

Air New Zealand's board, seeking to raise the funds needed to modernise the fleet, has endorsed a Singapore Airlines proposal to lift its 25 per cent stake to 49 per cent.

That would require Government approval and faces a strong rival bid by Qantas.

A "status report" from investment bankers Cameron and Co, which has been negotiating on behalf of the Government, will go to the cabinet today.

But it will not include recommendations, said a spokeswoman for Finance Minister Michael Cullen.

She would not comment on reports that a loan of $500 million from the Government, first mooted in the Herald in May, was back on the table.

It was suggested then that a Government capital injection would be by way of capital notes or convertible shares.

A decision is expected from the cabinet on September 3, a day before Air New Zealand is due to release its financial statements.

They are widely expected to include big write-downs in its Ansett Australia subsidiary that could unsettle its bankers if there was no clear path ahead.

The Qantas proposal, which would involve Singapore Airlines selling its 25 per cent stake to Qantas and then buying Ansett from Air New Zealand, has Canberra's backing.

But the Singapore carrier has repeatedly said it would not sell its Air New Zealand shares.

It is understood that in light of Singapore Airline's stance, the Government is keen to consider other options, if only to make it clear that Singapore Airlines does not hold all the cards.

One possibility would be to increase the cap on Singapore's stake to only 35 per cent and help Air New Zealand raise the rest of the cash it needs.

Government sources said this "third way" would not be a bail-out or involve pumping large amounts of money into the airline. It was likely to involve the Government's lending funds, secured as capital notes, or underwriting a capital raising.

But giving strong financial backing to privately owned Air New Zealand to help bolster its Australian arm remains politically unpalatable.

Opposition leader Jenny Shipley yesterday urged the Government to lift the foreign-ownership cap instead.

"At a time when police, hospitals, schools and universities are crying out for more resources, it is incomprehensible that the Government is considering putting taxpayers' money in yet another risky business venture," she said.

"Corporate welfare hasn't worked before; it's not going to work now."

Labour's dithering over the past three months had put the airline at risk and eroded international investor confidence in New Zealand.

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