Editorial: Airline's cash plea an embarrassment

It has taken all of 13 years for the bluster to turn to blushes. Air New Zealand, privatised in 1988, faces the prospect of having to go cap in hand to the Government for a cash injection of up to $700 million. The money is needed as part of a $5 billion programme to upgrade and replace its Australian fleet.

Air New Zealand is keen to portray any approach to the Government as a consequence of the restrictions on foreigners owning its shares. The Government, it implies, must come to the party because those conditions make it hard to raise sufficient money overseas. In fact, the airline's woes are the product of its own mismanagement.

Air NZ's troubles relate directly to last year's purchase of Ansett Australia. Seemingly, it learned little during the previous four years when it was a half-owner of the Australian carrier. The ongoing poor performance and more recent safety problems, culminating in the grounding of some of Ansett's fleet, have proved disastrous.

It raises the question of why Air NZ bought the balance of Ansett - and for an inflated price. Obviously, it wished to spread its wings and to build the critical mass it believed necessary to prosper in a fiercely competitive industry. Yet Ansett seemed almost a fixation, to the extent of negating other options. Air NZ even courted the antipathy of Singapore Airlines by exercising a pre-emptive right when the Singaporeans, eager to gain a direct entree to the Australian market, wanted to buy into Ansett.

Brierley Investments, Air NZ's biggest shareholder, was, however, able to offload a 25 per cent stake in Air NZ to the Singaporeans. Effectively, Singapore Airlines settled for second-best, an indirect link to Australia. It is reasonable to ask whether Air NZ's Ansett purchase was more about Brierley's exit strategy than what was best for the national flag carrier.

The Ansett debacle is the root cause of Air NZ's troubles but the airline, for reasons of its own, is keen to emphasise the impact of shareholding conditions which restrict a single foreign airline to 25 per cent and total foreign airline interests to 35 per cent. Such restrictions are, however, hardly uncommon and have applied since the airline was privatised. The owners of Air NZ have always known they would have to work with them, just as Telecom has had to accommodate the Kiwi share.

More to the point, the conditions are essential for protecting New Zealand's interests. If they were changed to allow, say, Singapore Airlines to lift its shareholding and inject money, Air NZ might be deemed to be foreign-owned. Other countries might then withdraw the airline's vital landing rights. Air NZ's chairman appears confident that the bilateral inter-Government agreements that control such rights will soon be supplanted by open skies agreements. Government money would, therefore, be a stop-gap until the ownership restrictions could be dropped.

But if Sir Selwyn Cushing believes that will happen in short order, he might well ponder the fate of the Multilateral Agreement on Investment. The agendas of individual countries have a nasty habit of undermining international pacts.

An Air NZ approach would put the Government in a difficult position. A previous Labour Government agreed that private enterprise could run businesses far more efficiently than the state. Clearly the efficiency of the management - not the owner - is the key issue, as the Singapore Government's operation of a hugely successful airline emphasises.

The Government cannot, as much as some in its ranks might like, blithely turn Air NZ down. It must consider the airline's importance as the national flag-carrier, especially in tourism - the very reason, in fact, that conditions were placed on the airline when it was privatised.

Air NZ's options are also limited. Ansett Australia could be sold, fully or in part, only at a considerable loss, both financially and in terms of Air NZ's aspirations. Other Air NZ shareholders might be difficult to entice, given the airline's sickly disposition. But it should be up to Air NZ to manage its way out of this crisis. Taxpayer money is absolutely a last resort. If it does become necessary, however, that will be a bailout, no matter what spin Air NZ will try to put upon it.