Editorial: Government must act now to rescue Air NZ

The Government has run out of options: it must approve the raising of foreign airline ownership in Air New Zealand to 49 per cent. And it must do so today.

Since June 12 the Labour-Alliance coalition has been beset by indecision and prevarication. It had been asked to raise the limit to allow Singapore Airlines to provide the vital capital injection to pull Air New Zealand and its ailing subsidiary Ansett through a crisis.

Instead of making a rapid decision, the cabinet has wrung its hands over national carrier status, played ducks and drakes over who should be the overseas shareholder, given Air New Zealand more than one public caning, downgraded the business by injudicious talk and finally hinted at some sort of Government support. There is only one word for it - a mess.

The best support the Government could have given Air New Zealand at the outset would have been to give it the room to move. There might have been some issues to be ironed out over landing rights given a change in shareholding but they were not insurmountable and could have been dealt with frankly after the market had been told that the shareholding cap was to be raised. That announcement, above all else, was vital if the airline was to avoid the destabilisation and indecision that have subsequently beset it.

The one form of assistance the Government must not give, even now, is a financial bail-out. State shareholding in Air New Zealand and the likelihood of Government-appointed directors are not what the airline needs. Yes, it needs money but there are other ways of getting it that will have greater long-term benefits.

Governments do not make good airline operators. If our Administration's handling of matters to date are anything to go by, its taking a stake in Air New Zealand would serve no useful purpose other than a short-term financial crutch. The real problem is Ansett and quick money alone will not fix it.

Air New Zealand must find a way to disengage itself from the Australian carrier. That will not be a simple task given Ansett's parlous state and Air New Zealand's inability to simply walk away from it. Every week that has passed - indeed every day that has passed, given Friday's revelation that Ansett was losing $NZ1.5 million every 24 hours - has exacerbated the problem. The prospect of a fire sale cannot be far away.

Air New Zealand, if it can do so, should offer Ansett outright to Singapore Airlines at the best price it can get, which probably will not be much. As part of the deal, Singapore should be bound to increase its holding in Air New Zealand to 49 per cent. Then, at least, it will have some cash with which to restore its own position.

That shareholding increase will not now, however, represent the capital injection it would have produced a couple of months ago. Singapore Airlines has withdrawn its original offer to provide the rescue capital for Air New Zealand at $1.31 a share. Who can blame it? The failure by Air New Zealand's directors to stitch up a deal and by the Government to sanction it saw B shares drop to a record low of 81c on Friday. That drop in value, and the need to resurrect Ansett's operations, would put Singapore in no mood for generosity.

Singapore Airlines' ownership in both carriers would provide the benefits of size and management skill that have long been touted as a reason for the cap to be raised. It would have the added benefit of ensuring that Singapore maintained strong passenger links between Air New Zealand and Ansett.

All of that supposes, however, that Ansett can be restored to health. Singapore Airlines can probably achieve it but it will need help from the Australian Government. That assistance would be support for the labour-shedding and route rationalisation that will almost certainly be part of the recovery process.

Canberra apparently wants domestic airline competition beyond the cut-price services provided by Virgin Blue. It will need to give Ansett an environment in which it can be cured.

The New Zealand Government should also see that it has a similarly indirect supportive role to play. First, it should stop acting as if Air New Zealand has a highly contagious disease.

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