Letters warned of risk to Air NZ in Government's delay

By FRAN O'SULLIVAN assistant editor

EXCLUSIVE - Letters from acting Air New Zealand chairman Jim Farmer to Finance Minister Michael Cullen reveal the Government was repeatedly warned that its delays had put the airline's future in jeopardy.

On August 3 - two months before the Government's $885 million bailout - Dr Cullen was warned the Government's sudden decision to let Qantas back into talks could upset the airline's proposal for its major shareholder, Singapore Airlines (SIA), to lead a recapitalisation.

Dr Farmer wrote: "The Government's latest initiative in conjunction with Australia appears to have jettisoned prospects of the board's course of action being implemented.

"Unless the decision by the New Zealand Government to cause the Qantas proposal to be investigated reflects an understanding that SIA may be willing to change its position, it would seem the Government has embarked on a high-risk and speculative course that had the danger of putting the Air NZ group at risk.

"I would be failing in my duty if I did not bring to your attention the seriousness of this situation and the grave financial risk faced by Air New Zealand Limited as a result of the current uncertainties."

The letters have been disclosed one week after Dr Cullen dismissed allegations that Government dithering had contributed to the collapse of Air NZ/Ansett.

At a press conference last Thursday to unveil the Government's $885 million bailout, Dr Cullen said the claims were "crap, to put it bluntly".

"The Government has never dithered through this process. I think it's fair to say for the Government negotiators that Air New Zealand has been brought to realise its own position, and brought to realise what the effective solutions are."

Asked specifically about the effects of the Qantas proposal, Dr Cullen said he thought he had met Qantas chief executive Geoff Dixon for slightly over an hour in July and it did not hold matters up at all.

"I think [Government negotiator] Rob Cameron spent about two days in discussions with Qantas. It had no significant impact on the process at all."

But the Farmer letters tell a different story.

The August 3 letter - copied to Prime Minister Helen Clark and Transport Minister Mark Gosche - was the first of two explicit warnings that delay in approving Air NZ's recapitalisation plan was seriously threatening the airline's future.

Ten days later Dr Farmer - in a letter which the entire board of 12 directors signed - again warned about the consequences of delay.

"I urge you to accept that, while Air New Zealand will work constructively and expeditiously with your newly introduced process, Government must also do its part by placing a realistic limit on the duration of this process."

Air NZ's options were eroding as it faced the obligation to report its financial results on September 13.

On September 6, Singapore Airlines said it was no longer willing to pay the $1.31 share price it had offered in a June memorandum of understanding.

Subsequently, Dr Farmer said that made the successful negotiation of financing from the Government an imperative if statutory management was to be avoided.

On Holmes last night, former Air New Zealand chairman Sir Selwyn Cushing said Government "prevarications" definitely killed the Singapore Airlines deal.

" I believe Singapore was honest and straightforward in its desire to increase its holding ... to provide the $650 million. That would have saved Ansett and the Air New Zealand group would not have suffered a $1.3 billion writeoff and we would be in the Australian skies."

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