Flying by the seat of their pants

FRAN O'SULLIVAN chronicles the roller-coaster ride as the corporate world and Government this week struggled to save our national airline.

Dateline Monday

Prime Minister Helen Clark opened the week that will forever be writ large in Air New Zealand's history - and hers.

On Sunday night Clark had flagged bringing in a Government-appointed statutory manager as a viable option for the airline. Investors were quick to react when the Stock Exchange opened at 9 am on Monday. Air New Zealand shares dived 40 per cent to 15.5 cents in an all-time low during early trading. Nervous investors sold rather than risk having their shares frozen if the Government brought in its own insolvency practitioners.

By lunchtime, Government negotiator Rob Cameron was spluttering.

A journalist had broken the "off-the record" rule and quoted him as saying talk of statutory management was premature. Cameron - a long-time habitue of Wellington's financial elite - had implicitly contradicted the Prime Minister.

Cameron's job was already difficult enough, working with the Government, Air New Zealand and its major shareholders - Singapore Airlines and Brierley Investments - to try to fashion a financial rescue for the embattled national flag carrier.

Singapore Airlines and Brierley had been shirty after Air New Zealand's public relations operatives had questioned their failure to quickly introduce new capital into the airline.

Air New Zealand's wings had been savagely clipped since Australian offshoot Ansett failed, wiping $1.3 billion off the parent company's balance sheet. On September 13, the airline reported a $1.4 billion loss - the largest financial loss in New Zealand's corporate history.

An $850 million bailout plan collapsed after the terrorist attacks on the United States ripped the profitability from global aviation, making many airlines candidates for Government ownership.

But such financial niceties did not seem to bother Conde Nast Traveller's high-net-worth readers, who had just voted Air New Zealand the fifth-best long-haul leisure airline in their annual poll. Air New Zealand was in good company - behind Singapore Airlines and Sir Richard Branson's Virgin Atlantic - but one notch ahead of Australian rival Qantas.

By now, Finance Minister Michael Cullen was getting hourly updates on the Air New Zealand negotiations as Cameron tried to stay one step ahead of the airline's bankers. Former director Charles Goode - who chairs the ANZ group - had stepped down as his bank and airline got down to negotiations over various loan facilities. The pressure was on.

By 6.30 pm another banker was in the limelight. At Auckland's Eden Park, 350 people had gathered to pay tribute to Ralph Norris at a farewell dinner ASB Bank had put on for its managing director. Norris - also an Air New Zealand director - had been tipped as the airline's next chairman.

Held in the ASB stand, the mood over pre-dinner cocktails was deliberately jovial as the business elite calmed nerves made jumpy by the West's "War against terror" before they got down to a night of serious networking.

Norris' early prowess as a raw 19-year-old bank teller was embarrassingly laid out by his chairman, Gary Judd - as was his record of double-digit profit growth. But Judd told his audience that the airline's problems may be intractable.

When his turn came, Norris was more guarded. "The past month has probably been the most challenging time in the careers of Air New Zealand directors," he said.

By 10.30 pm Air New Zealand acting chairman Jim Farmer - who had slipped in late to the dinner - and fellow director Sir Ron Carter quietly slipped away, and Norris was left to fob off the inevitable questions.

Dateline Tuesday

The day of share hell for Air New Zealand was about to go into reverse. Shares started to rebound - and were soon to get a further boost.

At the Beehive - Parliament's executive wing - the Government got yet another detailed update from its negotiators, who were trying to get a new recapitalisation plan in place before the week's end.

By the time the briefing was over, the Prime Minister was already running late for the Post Primary Teachers Association's annual conference at Wellington's Quality Inn. She excused her lateness as being caused by the terrorism crisis and "domestic turbulence in airlines".

At 12.30 pm she had ducked out to the carpark for a pre-arranged interview with the Herald and TV One. In just seven minutes, the PM irrefutably proved her faith in Air New Zealand's future - and her lack of commercial nous.

Asked if investors should hold on to their shares, Clark replied: "I'd recommend they hang on to them, because I am absolutely convinced that Air New Zealand has a viable future. I'm certainly getting tickets bought for me on Air New Zealand and I have every confidence it's going to be flying."

By 6.30 pm the Prime Minister's comments were about to be broadcast. Markets were closed, but the bid orders were quickly in at 45 cents.

Cullen's economic adviser, Peter Harris, was the first port of call for Government negotiators and news media - but the Government had little to report. Farmer said good progress was being made.

By 7.30 pm another night of serious networking had begun. Auckland's Hilton Hotel was the venue for an Asia Forum dinner presided over by Asia 2000's chairman, Philip Burdon, a director of both Air New Zealand and Brierley. Qantas was a co-sponsor and its government relations official flew over from Australia for the evening, sticking close to the Prime Minister's side all night.

Clark sat through a long-winded speech by Supachai Panitchpakdi - the next head of the World Trade Organisation - before making a perfunctory vote of thanks and leaving. She had to catch the early plane to Wellington the next morning.

Dateline Wednesday

By 8 am, Cameron was steaming, literally, as he raced from the shower at his Auckland hotel to field the first of numerous media calls on the Prime Minister's statement. Cameron and his partner, Murdo Beattie, have regularly met the cabinet's Air NZ team - but at this stage of negotiations teleconferencing was taking the place of face-to-face discussions.

Cullen is the nominated spokesman for this group, which comprises Commerce Minister Paul Swain, Deputy Prime Minister Jim Anderton, Transport Minister Mark Gosche, Clark and cabinet "fix-it" man Trevor Mallard - who is also associate finance minister. But it was not Cullen who had been doing the talking.

The negotiations were about to lose pace: the Prime Minister's "don't sell" message caused the New Zealand Stock Exchange to issue an informal "please explain" as it called a halt to trading in Air New Zealand shares.

Five hours later trading resumed. The company said it was comfortable with the Prime Minister's comments, while Cullen went into overdrive, suggesting the furore was a media beat-up.

Opposition politicians piled in: Act's Stephen Franks - a former member of the exchange's Market Surveillance Panel - didn't pass up the opportunity, and asked the panel and the Securities Commission to investigate. The Government had been doing due diligence on Air New Zealand and Franks wanted to know whether confidentiality had been breached. He also wanted to know whether the securities law was being upheld.

The market believed Clark did not set out to move the share price. But the Prime Minister must have been wishing she had extended her policy of not letting airline lobbyists through her door to cover press gallery journalists as well.

By now, newcomer investors wanted a slice of the action at low prices. Word swept around the market that one opportunistic player had already swooped, buying $2 million worth of Air New Zealand shares at 15.5 cents. Inside knowledge or gut instinct?

The airline's CEO, Gary Toomey - already derailed by Australian death threats over the decision to close Ansett - was "hoping like hell" that his major shareholders would deliver.

There had been informal reports that Singapore Airlines and Brierley Investments might increase their $150 million capital commitments to the bailout - but a lot of head-banging would have to occur before a deal could be sealed.

Farmer and Air New Zealand's independent directors were now gaining confidence that the airline could be put on the path back to prosperity. The Government had indicated it was prepared to inject new capital rather than simply extend a $550 million loan, but the two major shareholders had either to come on board or make way for the Government.

The Beehive paranoia over the Prime Minister's statements was now extending to Air New Zealand, and PR staff were emitting strangled noises when called for information. But Farmer's nightly statement came out on time - and varied little from the previous two nights.

Ansett planes stayed grounded as Administrator Mark Mentha negotiated with the Australian Government for funding to keep a base service going until a new owner was found.

Dateline Thursday

At Air New Zealand it was like a ghost town.

Farmer and Cameron had gone offsite, trying to keep negotiations confidential, and lawyers and Treasury officials had headed to Auckland for intense discussions. The most quoted name in Air New Zealand's visitors' record book was still Bell Gully - the Auckland law firm working on the salvage deal.

Beehive spin doctors said that despite his allegations of a media beat-up, Cullen was actually more annoyed at Clark. He has maintained a line of talking up the viability and future of "an" Air NZ - without commenting on the fortunes of the current company. This important distinction - retaining Air New Zealand as a service rather than protecting the interests of shareholders - would surface again.

As one Beehive insider put it, "Of course he attacked the media. What was the alternative? Attack his own leader?"

By 4.30 pm it was a waiting game. But Brierley chief executive Greg Terry was about to throw a new spanner in the works. At the company's press briefing in Singapore, Terry departed from his pre-prepared statement, indicating that the $300 million that Singapore Airlines and Brierley originally planned to inject was not enough to salvage the business.

"Air New Zealand is no longer an airline seeking Government support," he said. "It is now one of every airline in the world seeking Government support."

Brierley had taken a big profit hit by writing down the value of its stake in Air New Zealand. Terry- who is also a director of Air New Zealand - talked frankly about the effects of the global aviation collapse on the airline's profitability. He said the airline's share price could go "fairly quickly from 30 [cents] to 60 cents if there was an announcement that it will continue and that it will continue with full support".

By 8 pm, Market Surveillance Panel chairman Bill Falconer knew he was in for another day's fire fighting - he did not wait for markets to reopen, instead pushing the alert button for his staff to be ready for action.

Farmer issued his nightly progress report.

Dateline Friday

Market Surveillance Panel secretary Philippe Leloir left his Masterton home at 5.30 am to drive to Wellington, while Falconer's wife, Olive, said the phone was running hot before her husband left his Remuera home for an early flight to New Plymouth

By the time Air New Zealand's top brass got to the office the exchange had called a halt to trading in Air New Zealand shares for the second time in a week- the official reason was to seek clarification on Terry's comments. But speculation that Air New Zealand had defaulted on loans, that the $850 million rescue package had collapsed and that the Government was poised to take control that day was causing a furore.

At the Beehive, Cullen's schadenfreude at Brierley's expense was blatant. He was confident that a solution would be found to ensure the viability of "an" Air New Zealand. Cullen's spokeswoman was allowed to say - if asked - that she understood he was disappointed in Brierley making an announcement to the media.

Regulators were pontificating on the superiority of New Zealand's free markets compared with Australia's, where Air New Zealand shares had been suspended since it unveiled its recent loss.

But by lunchtime trading in Air New Zealand shares was still halted and the denials were running thick and fast.

By 4 pm, Air New Zealand shares had been formally suspended from trading until a comprehensive rescue package was formed, and the Securities Commission had jumped in and announced a market inquiry.

Cameron's timetable was in disruption, with negotiations to continue through the weekend. Crunch week becomes crunch fortnight.

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