Cuts start at top after Air New Zealand bailout

By FRAN O'SULLIVAN, JOHN ARMSTRONG and SCOTT MacLEOD

Air New Zealand directors' $90,000 annual fees are expected to be cut by half and from 1000 to 1500 jobsaxed as the airline starts a restructuring exercise to try to ride out the global aviation downturn.

The airline is examining its national and international services - including flight frequencies and routes - and is expected to quickly cut excess capacity.

Acting chairman Jim Farmer, QC, says the "first thing" the Air New Zealand board will do when it meets in Auckland early next week will be to make decisions on a business plan that the management has prepared for the post-Ansett era.

"I will be having a meeting of that board at the beginning of next week and we will take decisions at that time," he said yesterday.

"We will be looking at every possible way of reducing costs and that will be starting with the board."

He expected directors' fees would be substantially cut, possibly by half.

"The size of the board has been substantially reduced. That is where we start and we will go right through the whole organisation in that way."

Dr Farmer was speaking after the announcement of the Government's $885 million bailout for the airline.

He would not comment on the numbers who stand to lose their jobs.

"I don't want to mention any numbers. The first thing is to decide on the route restructuring and then the employee situation flows out of that."

But airline sources said a figure of between 1000 and 1500 "would be in line" with the cuts applied by other internationally rated airlines.

The Council of Trade Unions has supported airline workers, saying any restructuring should not be at the expense of jobs. Secretary Paul Goulter said it was workers who built the airline.

"This has been an incredibly difficult time for staff and they have continued to do their jobs with pride and professionalism," he said.

Air NZ chief executive Gary Toomey - who was absent from yesterday's press conference to announce the Government recapitalisation of the airline - has already approved the "first cut" of the business plan.

A media advisory notice sent out late on Wednesday said Mr Toomey would "host the event" with Dr Farmer. But Mr Toomey's empty seat quickly prompted speculation that his might be the first management head to go.

Dr Farmer said Mr Toomey was busy on the restructuring plan.

"It's Gary's plan; he signed the documents," he said.

The restructured board of eight directors - with one appointment pending - is expected to give Mr Toomey approval next week to implement the plan.

The new board will also consider whether seven departing directors will be paid retirement benefits.

Former Brierley Investments executives Paul Collins and Patsy Reddy were each paid $120,000 when they retired from the Air NZ board.

A raft of Australian senior managers were brought on board when Air NZ began merging operations with Ansett after it gained 100 per cent ownership last year.

But a demerger operation went into full swing once Air New Zealand cut Ansett adrift on September 13 as the national carrier revealed New Zealand's largest corporate loss of $1.4 billion for the financial year to June.

Yesterday, Air New Zealand acknowledged further losses of about $350 million arising from Ansett's closure, part of the price of a settlement of legal claims with Ansett's administrator.

Documents filed at the Stock Exchange show the Government has struck a tough deal for bailing out the airline.

Both the initial $300 million loan and a subsequent $585 million in new equity will theoretically enable the Government to emerge with a 83 per cent stake in Air New Zealand at 24c a share.

The rescue package will severely dilute the stakes of major shareholders Brierley Investments and Singapore Airlines from 30 per cent and 25 per cent respectively to about 5.2 per cent and 4.3 per cent.

The Government has accepted that it could be in for the long haul as majority shareholder of Air NZ before it is able to sell its stake.

Finance Minister Michael Cullen said the Government expected to keep its $885 million holding in the airline for the "foreseeable future".

But he indicated that at least part of that shareholding could eventually be sold to a foreign airline to give Air New Zealand another cornerstone shareholder when the world aviation market improved.

Dr Cullen praised Dr Farmer, who, he said, had received a "hospital pass" when he took over the job and had shown real leadership and moral character in handling Air NZ's difficulties.

But the Finance Minister, finally able to speak his mind after weeks of necessary restraint as the rescue package was negotiated, was scathing of the board as a whole, including the Singapore Airlines and Brierley directors.

"I think I'm now in a position to say what I've wanted to say for a very long time, which is that Air New Zealand has suffered from factional and factionalised and dysfunctional leadership at the board level for a very considerable period, and certainly it has not been entirely helped by some of the shareholders through that period."

Dr Cullen was equally scathing about Opposition claims that the Government dithered over the rescue package.

"It's crap, to put it bluntly."

Act leader Richard Prebble said he opposed putting taxpayers' money into the airline to save existing shareholders.

But Dr Cullen denied that the Government was saving Singapore Airlines and Brierley Investments.

"They have lost something over 80 per cent of their share value and are losing something over 80 per cent of the proportion of their shares in Air New Zealand," he said.

Initially the Government will have two directors on the new board, although that number may change when the full capital injection is completed.

But Dr Cullen said the Government would not be taking a "sticky hands-on" approach.

"Even when we take majority ownership of the airline, the board will run the airline, not the shareholding minister," he said.

Dr Cullen and Deputy Prime Minister Jim Anderton laughed off suggestions that the bailout of Air NZ set a precedent for further buy-backs of what were once state-owned companies.

"I don't think you should take it as a precedent for Telecom," said Dr Cullen.

The bailout will be financed from extra cash generated by a better than expected Budget surplus in the past financial year.

"We don't need to borrow any additional money."

nzherald.co.nz/aviation

nzherald.co.nz/travel