The grounding of Qantas NZ: a blow that came in the dark

JAN CORBETT and EUGENE BINGHAM chart the last hours of Qantas NZ and the battle to keep competition alive in New Zealand skies.

Deep in the dead zone between midnight and dawn on April 21 Michael Stiassny, is taking a shower. A leading insolvency expert-cum-corporate powerbroker, Stiassny's name is already attached to some of the biggest receiverships in the country and he is about to notch up another. This one will have to convey a sombre message to an irate travelling public. He had better get cleaned up and put a suit on.

Although he might prefer to spend this Saturday in casual clothes, he knows the day is going to be anything but relaxed.

Three weeks earlier, Stiassny had been called into the troubled airline's parent company Tasman Pacific. News of his arrival in itself had unsettled the potential creditors.

In that time they had drawn up about five different ways to save the company. Stiassny was sure it could be done, even though flicking through the books, he must have seen that Qantas New Zealand was virtually flat-lining, in danger of marching like a zombie to the grave.

It was hard to see a single mortal wound: increased fuel costs, the impact of the slack kiwi dollar, or the problems brought on by the 1999 pilots' strike. He could see that management had failed to cope with the strike's fallout. Any remaining loyalty from business passengers had disappeared in the six months following the strike when the airline's schedules fell apart; flights were cancelled because of staff shortages brought about by a wave of resignations.

Elbows deep in the company, Stiassny saw that the company was losing about $20 million a year. Provincial routes were losing money. What could be done? Sell it to its Australian cousin whose name it carried?

But at 3.25 am on Saturday, after rounds of tense meetings and telephone conferences between shareholders who rank among the wealthiest men in the country, and Qantas in Australia, the decision was made.

The financial situation inside the airline that challenged Air New Zealand's monopoly and promoted itself as the only fully locally owned national carrier, was anything but ka pai. All week the executive team at Qantas head office at Mascot, near Sydney Airport, was telling Tasman Pacific the numbers did not stack up. They had pored over the books all through Easter with increasing alarm, especially over the $62 million 10-year aircraft lease deal with Air New Zealand.

On the Tuesday they told Tasman Pacific there was no deal and began preparing a plan to mop up the human and public relations carnage should its franchisee file for receivership. Sure, their management and boards were separate. But the Qantas name was still on the tail.

The New Zealanders telephoned Sydney again offering to sweeten the deal. The shareholders would put more money in. Qantas said okay and it would meet them halfway, offering at cost areas where there was duplication between the two such as administration and reservations.

On Thursday morning things were looking good, but by that evening it looked to be unravelling again.

And now creditors were baying.

* * *

Terry Hay's melodic Hawaiian accent gives the impression he's laid-back. But when he arrived at work in the early hours of Friday morning he had a steely resolve. His company, Pacific Flight Catering, was owed nearly $1 million by Tasman Pacific.

For weeks Hay had been kept closely informed on the talks between the franchised airline and its Australian namesake and he knew Stiassny's firm, Ferrier Hodgson, had been called in for advice. If the Australian giant finalised a deal to buy the local airline, Hay could at last count on his bill being paid.

But on Thursday night he got the news. Qantas had completed due diligence and was no longer interested in buying the debt-ridden airline. Hay had only one thought that night: "They're doomed."

He went to bed, setting his alarm clock for 4.30 am. That gave him enough time to drive from his Epsom home to his airport base and tell his nationwide network of caterers not to service Qantas New Zealand planes before the first flight for the morning left Christchurch for Invercargill. The eight passengers on board that morning arrived in Southland hungry.

Soon after 5 am Hay took a call from Graham Rae, Tasman Pacific's chief financial officer. "I understand you're not supplying," began Rae.

"I understand you're not paying," Hay replied.

Next to plead with Hay was the airline's head of inflight services, Suzanne Booth. "She tried to lay this guilt-trip on me," says Hay, telling him he'd bring the airline down. "I said 'no, you did this to yourselves'."

By 6 am chief executive Kevin Doddrell was on the line, telling Hay the press would get hold of this and the staff would be demoralised. Hay told Doddrell he wanted to see some of the airline's money, rather than chewing through more of his own. Doddrell promised to drive out with a cheque for $300,000 by 10 am. A temporarily mollified Terry Hay ordered food back onto the planes.

At 9.30 am his partner David Nathan took a call from Stiassny, telling him Doddrell would not be coming. But Hay stuck to his agreement, watching out the window until 10 am for a car he knew wasn't coming. He then cancelled the food for the second time that morning.

* * *

Heavily pregnant Michelle Penn shifted uncomfortably in the seat behind her desk. She was beginning to wish she was already on maternity leave.

Penn had to act fast. As the services delivery standards manager, it was her job to make sure the passengers were kept satisfied with tea, coffee and something approximating a meal. She frantically spoke to senior executives of the company, trying to find a way to placate Pacific Flight Catering. As a back-up, Penn made emergency cheese and cracker arrangements with Qantas Australia's caterers, Caterair.

By afternoon Hay and Stiassny were negotiating. By 4 pm, Hay agreed to give the airline 12 months to settle the debt. "I didn't like it," says Hay, "but I said if that will help you survive, we'll participate."

This was just before Penn went home. With this in mind - and a heartfelt reassurance from senior executives that things would work out - Penn felt optimistic as she left the airline's Ellerslie headquarters just after 5 pm.

She would be working for a bit more of the two weeks left in her pregnancy after all.

What she did not know was that at the same time the airline was facing major turbulence from Wellington, where a former executive of Ansett New Zealand was about to cop the blame for the future of his old workmates.

John Sheridan, chief executive of Wellington International Airport, knew the stakes and he knew his quarry from the inside. During his 10 years as chief financial officer of Ansett, he had often stared at books awash with red as the bills kept rolling in.

On Thursday evening, at the same time Terry Hay was setting his resolve, Sheridan and his board were also deciding to play hardball in an attempt to recover the $750,000 the partly ratepayer-owned airport was owed by Tasman Pacific. It had been overdue since March 20. In the weeks before, Wellington Airport had backed off when it was informed that Qantas Airways was in discussions to buy its New Zealand cousin.

But when word came on Thursday that talks had again broken down, Sheridan sent a fax telling Tasman Pacific it would not be welcome in Wellington from 4 pm Friday if the debt wasn't settled. Through Thursday night, Sheridan's phone rang almost constantly as Tasman Pacific tried to stave off such punishment.

Tasman Pacific insisted the debt would be settled. It wouldn't happen over night, but it would happen. June 2002 was mentioned.

Arriving at work on Friday, Sheridan and his board wondered if they had gone too far. By 3 pm, they had softened their stance, after Qantas said it wouldn't fly from 3 pm if they couldn't guarantee landing with full services at 4 pm. An e-mail and fax to Kevin Doddrell mid-afternoon showed Tasman Pacific it had been given a temporary reprieve.

"Our current intention," said Sheridan's e-mail to Doddrell, "is to withdraw services from 9 am Monday 30 April, 2001." The message also said Wellington Airport was going to issue a media statement the following Tuesday to inform the travelling public about its intention to stop Qantas New Zealand using airbridges, baggage systems and other essential services.

Sheridan was leaving room to negotiate. He had given the struggling company time to come back to him with concrete proposals of how they intended honouring the debt.

Trouble was, Qantas New Zealand was running out of options by late Friday and it was horrified by a line in Sheridan's e-mail that he had also notified Auckland and Christchurch Airports about Wellington's intention. To those at Qantas NZ, this meant they were now unable to quietly settle the debt with Wellington - the others would scream out for their cash, too.

As the day slipped away, Doddrell stared down at the rush-hour traffic through the tinted windows of his Ellerslie office. He might have wondered how much longer he would be driving the company BMW.

Just as he had been doing since the day Stiassny marched through the doors three weeks earlier, Doddrell would, no doubt, have been searching for any idea that might resuscitate the company. But with apparent dissension among the shareholders, it looked like the end would be a word meaning the same thing beginning with R.

They had between 10.30 pm and 5 am to decide. Any earlier or later and planes could be in the air. Professional though aircrew may be, no one would distress them midflight with news they had lost their jobs while they still had people's lives in their hands.

By 3.25 am Saturday, receivership declared, Stiassny and his 30 or so accountants had to hit the airports before the first passengers arrived. He quickly showered and stepped into his fresh suit.

In the grey half-light of Saturday morning, ringing telephones were disturbing the sleep of those who needed to know that Tasman Pacific Airlines of New Zealand, trading as Qantas New Zealand, was in receivership.

For a while Michelle Penn couldn't figure out why her phone would be ringing at 4.30 am. It was her boss.

"She was in tears as she explained what was going on and that we were in receivership," said Penn.

Stunned, she hopped in the car and drove to the airport with her partner, also a Qantas New Zealand staffer.

Sleep still in her eyes, Penn immediately saw there had been a takeover. Security guards were blocking the entrances to the terminal and unfamiliar men and women in dark suits were directing operations.

Doddrell was there, athough he seemed somehow impotent.

Around him, disbelieving staff clutched stark letters handed to them by the men in suits. Close to 1100 lost their jobs.

"Unfortunately at this stage the company is unable to trade," said the notice on Ferrier Hodgson letterhead. "As such, your services are not required and your employment is hereby terminated, effective immediately."

Penn hugged her colleagues, some of whom had been with her for nearly 15 years.

"It was a weird feeling. You wanted to be there even though there was nothing you could do."

Keith Molloy was driving back to Christchurch from his holiday in Akaroa when his cellphone rang. As president of the Airline Pilots' Association it was natural that television reporters would want his reaction. This was the first he knew of the receivership, but by the time he reached Christchurch he had already fielded five more calls. Andrew Little at the Engineering, Printing and Manufacturing Union was getting similar calls. Smaller shareholders such as Greg Lancaster were finding out by word of mouth, too.

By Saturday afternoon the receivers were meeting with union members in the Commodore Hotel in Christchurch and the Brentwood Hotel in Wellington.

In Palmerston North, Garry Goodman was feeling helpless. As general manager of the city's airport, he had been rung at home just before 6 am. Plans for his weekend off were in tatters and it was barely dawn.

Arriving at work, he noticed security guards and a woman he soon figured out was the receiver's representative.

Goodman watched her break the news to the check-in staff and baggage handlers who had turned up expecting to load passengers for the first flight of the day and instead found themselves in need of help.

Passengers straggling in were handed pamphlets explaining what was happening.

Goodman helped passengers for the three flights out of Palmerston North to make alternative arrangements. With Air New Zealand fully booked for the day, there were few options. Some booked rental cars. Others just cancelled their travel plans for the weekend.

Shocked Qantas staff tried their best to help.

The week ahead was already going to be a tough one for them. Dash-8 pilot Garry Sotheran, who flew for the airline's predecessor Ansett, was on trial for manslaughter that week, after his plane slammed into the nearby Tararua Ranges en route to their airport six years ago.

Crashing a company inspired similar high-level calls for accountability.

Deputy Prime Minister Jim Anderton wondered aloud if the directors should be liable for the millions of dollars in debts.

Anderton attacked the directors through media interviews. His cabinet colleague Mark Gosche, meanwhile, was being hounded for answers over what the Government would do to ensure the public was not left with one airline.

It had not come as a complete shock to the unionist-turned-Minister of Transport when a staff member who had taken her mother to the airport that morning phoned him to say the Qantas New Zealand terminal was shut.

Regular briefings from Ministry of Transport officials who had been keeping a close eye on the situation had warned him of the possibility. Likewise when Qantas officials from Australia had earlier sought to alter the terms of their licence to operate in New Zealand to enable them to fly domestic routes. Gosche's ministry approved the application.

Nonetheless, that phone call came as a blow.

"We knew that there were difficulties right through ... But there was some surprise because we thought they had managed to pull things together in those last few days - the Thursday and Friday," said Gosche. The way his officials read it, Tasman Pacific was going to pull out of the dive.

Gosche's immediate concern was ensuring the country didn't suffer.

"It's an important part of our economy in more ways than one. It's an important part of our tourism industry and an important part of how New Zealanders were able to travel around the country.

"We're keen to send signals to people that there is a competitive market here. The entry for domestic operation is very open and without restrictions and obviously we've benefited as a nation from competition over the past 13 or so years. The Government is keen to see that continue."

Tasman Pacific's shareholders - men such as Alan Gibbs and Trevor Farmer - were not commenting. The only word from them was a carefully-controlled statement on Thursday by alternate director Rob Campbell. Another of the shareholders, Sir Clifford Skeggs, would say only that he was not closely involved with the decision-making but was deeply disappointed.

Fellow director and chief executive Kevin Doddrell, at home with his labrador yesterday, was in no mood for talking either. "I have nothing to add," he said. A Tasman Pacific-owned company BMW was still in the garage attached to his townhouse. That surprised other company managers whose cellphones had been unceremoniously disconnected mid-week.

Vice-chairman David Belcher, the merchant banker who originally stitched the shareholders together, was overseas, believed by aggrieved staff to be attending a wedding in California's Napa Valley, while details of convoluted director and shareholder structures began emerging.

Tasman Pacific's sole shareholder is a company called Zazu, the name of the loyal creature in the Lion King movie and suggested to Belcher by his daughter. It and Tasman Pacific shared common directors. But in the weeks leading up to receivership, chairman Ken Cowley and fellow Australian Ken Parker, Farmer, Gibbs, Campbell and Sir Clifford's son Bryan Skeggs, resigned from both companies, leaving Belcher, Doddrell, David Skeggs, Fred Watson and newly appointed Ian Farrant.

Within hours of the receivership, alternative players were circling. Qantas Airways was on the phone with Ministry of Transport officials throughout Saturday morning confirming that they would pick up the tab for Qantas NZ passengers. Later in the week, they would supply their own Boeing 767s to fly the main trunk line.

Over at Air New Zealand, chief executive Gary Toomey was in Melbourne dealing with his own PR calamity - grounded planes belonging to subsidiary Ansett Australia. When he heard that his direct competitor in the New Zealand domestic market had gone belly-up, his mind must have immediately turned to how his company could capitalise.

At least the media in New Zealand would be setting their sights on another aviation target. Only that morning, an Australian newspaper had carried a front-page picture of the devastating engine cracks. Before the sun rose, middle managers had roused staff from their beds.

For a while, it was chaos in Air New Zealand's 24-hour logistics control centre at Auckland Airport. They sorted out where they could accommodate extra passengers, how many planes could be pulled out of the hangars, and how many crew would be needed to pull off this extra effort on this, the final weekend of the school holidays. An extra 20 flights soared into the sky on Saturday alone. By week's end, more than 25,000 people who had booked to fly Qantas New Zealand would be carried instead by the national carrier.

Qantas in Australia was already considering its longer-term options. But by the end of this week chief executive Geoff Dixon was telling his New Zealand regional manager, Peter Collins, no decisions had been made. The board had decided to look at any New Zealand commitment in the context of an overall review of its portfolio.

Not even confirmation that its Australian rival Virgin Blue was eyeing up New Zealand could hurry along the Qantas board. Dixon just scoffed. "The sun will cease to set the day Virgin Blue flies the Tasman and flies into New Zealand."

At Virgin Blue's Brisbane base, they laughed hard at that. Virgin's flamboyant founder Sir Richard Branson had talked of New Zealand as a natural development for his airline ever since he took it into Australia last year. When Virgin Blue executives heard the news of Qantas New Zealand's receivership they realised expanding across the Tasman could become a short-term goal.

Head of its commercial section David Huttner phoned contacts in this country on Monday ("and I'm not going to tell you who") who advised him to go straight to the top.

On Tuesday morning, secretarial staff at the Beehive picked up a letter to the Prime Minister from Virgin Blue asking for a meeting about its intention to enter the New Zealand market.

On Anzac Day, Virgin executives spoke with Branson himself who urged them not to delay and to fly the company's new 737-800 directly into Wellington on Sunday, so he could talk to the politicians and Civil Aviation.

Smaller operators were gearing up to take advantage of the collapse, too. Nelson-based Origin Pacific picked up a mayday call about the receivership from Qantas Australia in the early hours of Saturday. By 7.30 am Origin staff, called in from their days off to cope with the expected heavy load, were arriving for work. Extra ground and air crew along with call-centre staff had answered the rallying call.

Serious work was also going on in Origin's management suite where executives were planning how to pick up Qantas New Zealand's customers without incurring the same debilitating losses. Small-scale expansion was set in trail almost immediately but the longer-term plans were still being hotly debated as one of the most exciting weeks in the company's history ended.

One of the most distressing weeks for Qantas New Zealand staff was still marching cruelly on.

Come Wednesday, Stiassny and his business partner Grant Graham were facing a room crammed with about 200 Qantas New Zealand staff, all wondering what was to become of them and when they would get the thousands of dollars in pay and entitlements owed to them.

In the stifling atmosphere, Stiassny slipped his jacket off and loosened his yellow tie. Check-in staff, ground crew and air hostesses politely asked when they could expect final pay and what this meant for their superannuation.

After half an hour, Stiassny and Graham squeezed through to the door, behind them union officials handing out another bleak reminder of their predicament: yellow folders from the Department of Work and Income.