Editorial: Charmed life of essential carrier

New Zealand's confidence in corporate leadership has taken a jolt from the misfortunes of the national airline. The advocates of public ownership are lining up to say they told you so, and who can blame them? The flag carrier became something of a flagship also for privatisation. The upgraded terminals, air bridges and silver service were the most readily apparent and oft-quoted exhibits for the benefits of competitive private enterprise.

Now Air New Zealand is back in Government ownership and mightily relieved to be so. In the end, nothing else could have prevented its collapse. Arguments will continue about whether the blame lies primarily with corporate miscalculations or the Government's caution. But there is one lesson nobody can dispute: when it came to the crunch, we could not allow the airline to crash.

And that raises a wider question about the merits of privatising any company that cannot be allowed to fail. Outside the banking system, there are few activities in that category. Networks carrying electricity, telecommunications, water and, possibly, railways spring to mind. The national airline would not have seemed in that category a year ago. There were two carriers on the main trunk and smaller aircraft flitting about the other centres. Budget airlines were coming into Australian domestic services and this year they knocked on our door. It was an industry with vitality; the public interest did not seem to require state protection of any participant.

Yet when it came to the point, it was immediately clear the airline had to be rescued. The stated reasons were all to do with its international role as a promoter and feeder of tourism to the country. But there were probably reasons to do with its domestic services, too. Airways are essential to national life now - certainly more essential than railways, and rivalling roads in importance. A dependable indigenous airline seems a necessity, no matter how many foreign carriers are offering internal services.

If we did not realise that before, we know it now. When Air NZ was facing collapse there were no parties in Parliament saying, "Let it pay the price of its mistakes." There will be those, though, who now want the airline to return to the private sector as soon as possible. Indeed, the Finance Minister has made it clear that the Government does not want to retain ownership indefinitely. All parties should think a little more on this.

The merits of privatisation lie mainly in the ultimate risk of company failure. That is the discipline that makes the difference. When it is argued that commercial decisions are better made in the private sector, it is not because business executives are supposedly smarter than top public servants - we did not need Air NZ to give the lie to that. The reason is that decision-makers in the private sector are more likely to face personal loss if their decisions are wrong.

Former directors of Air NZ made decisions that, in hindsight at least, were spectacularly wrong. The shareholders they represent have lost most of the equity they put into the airline. It is unthinkable that the directors could now depart with golden handshakes, though it seems to happen in many a corporate reversal. It would be particularly galling in this case because it must be wondered whether the directors would have made the fateful decisions had the airline not enjoyed national flag carrier status.

They were disturbingly quick this year to look to the New Zealand taxpayer to make good their purchase of Ansett Australia. Before even there was an offer from Singapore Airlines, there was talk of going to the Government for more capital. If there was any doubt previously that Air NZ was effectively underwritten by the taxpayer, there can be no doubt in future. If it is sold again to private shareholders, they and their competitors will for ever recall the events of this year. They will know the airline will not be allowed to fail. That might not be a healthy state of affairs for the taxpayer or for other investors in the airline, nor fair to those airlines providing services in competition with the flag carrier.

If taxpayers are to have some protection from expensive bailouts, directors of "essential" services may need to accept a greater personal liability. That may create the appreciation of risk that tempers the private sector.

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