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Prime Minister Helen Clark has said that if National was in Government Air New Zealand would have been bringing the bodies of New Zealand troops back from Iraq.
Her comments came as she reacted to National's attempts to make capital over the row about the airline taking Australian troops to the Gulf.
Miss Clark said: "The fun is watching the National Party wallow in it when everyone knows that if they had been in Government, New Zealand would have had troops fighting in Iraq and Air New Zealand would probably be ferrying body bags up and back."
Australian Foreign Minister Alexander Downer says the Australian Defence Force will no longer use Air New Zealand "in any circumstances".
"This is an arrangement we have where we charter aircraft but if the New Zealand Government doesn't want us to charter Air New Zealand aircraft, that's fine," Mr Downer said.
"We'll find plenty of aircraft in the world to charter. I'm quite relaxed about it."
Last night it became clear that senior officials in at least six Government agencies, including the Department of the Prime Minister and Cabinet, knew about Air New Zealand's flights carrying Australian troops to the Middle East but none informed their ministers.
Deputy Prime Minister Michael Cullen yesterday revealed in Parliament how widely known the flights were and referred to a "cock-up by officials".
He also blasted Foreign Affairs Secretary Simon Murdoch for not alerting the Government to the flights, saying had committed "a very serious error of judgment".
That contrasted with the more forgiving tones of Foreign Minister Winston Peters, who said he had accepted an apology from Mr Murdoch, whose distinguished career should not be blighted by one error.
After New Zealand's largely state-owned flag-carrier landed the Australians in Kuwait, some of the troops headed to Iraq to participate in a conflict that Wellington strongly opposes.
Miss Clark has now ordered that all reports or papers containing the words "New Zealand, "security" and "Iraq" must be sent directly to her office.
The flights in June were the subject of a security threat assessment report the previous month by the Combined Threat Assessment Group. It is made up of representatives of the police, the SIS, the Defence Force and the Government Communications Security Bureau. Copies were also sent to the Prime Minister's department and to Foreign Affairs and Trade.
The PM's chief executive, Maarten Wevers, said that before receiving the report a staff member of his department heard about the flights and called Foreign Affairs.
Mr Wevers said he had discussed the flights with the Prime Minister this week and accepted that with hindsight it would have been better if he had alerted her earlier.
Dr Cullen suggested the State Services Commission should take Mr Murdoch's error into account at his next performance review.
Commissioner Mark Prebble, himself under investigation for his role in the Madeleine Setchell sacking, said last night that he had spoken to Mr Murdoch and that he would be held to account. But he added: "I will also take into account the high standard he has shown in stepping forward to accept responsibility."
Yesterday's revelations that top public servants knew about the two Air New Zealand flights, and an admission by Mr Murdoch that he and his ministry had been kept informed about them, silenced the previous criticism of Air NZ.
Its chairman, John Palmer, was called to Dr Cullen's office yesterday but after he explained the contact that had taken place, Air New Zealand was only mildly rebuked.
Dr Cullen said it would have been "helpful" if the company had told the Government - they have meetings about once a month.
Mr Palmer said the company had sought advice from Foreign Affairs on whether there were any areas of concern and there were none.
"The reality also is that if [Foreign Affairs] had given us different advice or raised serious concerns, that would likely have led to us making a different decision."
Mr Peters issued a memo prepared by Mr Murdoch on the charter flights. In it he says Air NZ chief executive Rob Fyfe contacted him in January seeking a steer on diplomatic/policy factors that might affect a tender the airline was submitting for the job.
He rang him back a couple of days later and said there were none but to keep the ministry in touch with the progress of the tender.
On April 20, Air New Zealand's Government relations staff told the ministry's Middle East division in Wellington and its embassy in Riyadh, Saudi Arabia, that the contract was likely to be finalised.
The information was not passed on to Mr Murdoch or ministers.
In the memo, Mr Murdoch apologises to Mr Peters for not giving him a "heads-up".
"It was the signal I gave in January that caused the matter to be treated subsequently as non-sensitive within the ministry.
"If I had foreseen the sensitivity, ministers would have been informed. Again I regret any embarrassment this has caused."
Mr Peters was asked why he was being a lot softer on Mr Murdoch than Dr Cullen and he appeared to suggest it was because of his own flaws: "It probably goes to the core of one's character. Unlike some of you people, we are not all blame-free."
- additional reporting: NEWSTALK ZB, Claire Trevett, Paula Oliver, NZPA, AAP
