Qantas NZ loses the long fight to stay airborne

DANIEL RIORDAN investigates the turbulence Qantas NZ flew into as it tried to operate a successful second airline in New Zealand.

How long did Qantas NZ last?

Seven months. Tasman Pacific, a consortium of New Zealand and Australian businessmen, paid Rupert Murdoch's News Corp $36 million for Ansett New Zealand in March last year, then rebranded the airline as Qantas NZ in September.

Although it was launched in a blaze of publicity, silence descended over its Auckland head office in recent months. The first real sign of trouble came when corporate advisers Ferrier Hodgson (now handling the receivership) were called in three weeks ago. Qantas Airways then said it had begun negotiations with its local franchise on its future.

Why did it fail?

The usual reasons, pending further dissection of the corporate accounts.

The airline faced a tough, efficient and entrenched competitor in Air NZ. The new owners' timing was terrible - fuel costs soared last year, exacerbated by a falling New Zealand dollar, and the impact of a pilots' dispute at Ansett NZ several months before the purchase hurt its already precarious market share, now estimated at less than 40 per cent.

Who owned the airline?

The most recent Companies Office records for Tasman Pacific are from the time of its Ansett NZ purchase a year ago, and show 28 per cent of the shares were owned by Australians, with the balance held by New Zealanders.

The biggest shareholder was Tappenden Holdings, the investment vehicle of businessmen Trevor Farmer and Alan Gibbs, with 28 per cent, followed by Dunedin businessman Sir Clifford Skeggs' Skeggs Group, with 25 per cent. Syrna Holdings, an investment vehicle for Sovereign Assurance executives Ian Hendry and Chris Coon, owned 15 per cent and Australian company RM Williams (the trading company of Qantas NZ chairman Ken Cowley) owned 12 per cent.

Mr Cowley and Ken Parker of Sydney also owned a further 6 per cent. Neriga (the investment vehicle for Australian media and investment mogul Kerry Stokes) owned 10 per cent and Greg Lancaster's Tranzaction 3 per cent. The rest of the shareholding was in tranches of less than 1 per cent.

Mr Cowley and Mr Parker have since sold down their joint stake, with Oakwood Securities (the investment vehicle of Dunedin businessman Graeme Marsh) picking up a 3 per cent stake last May. The consortium was stitched together by merchant banker David Belcher.

How could some of New Zealand's most successful investors buy a turkey?

Good question. It seemed a good idea at the time, even if predecessor Ansett New Zealand had lost for a variety of owners more than $230 million in its 13 years.

Although the outcome has been otherwise, industry analysts predicted the franchise might finally be able to mount a real challenge to Air New Zealand's market dominance.

Qantas would help with economic advice and management systems, provide access to the oneworld global airline alliance, offer smoother international travel connections for Qantas NZ passengers, and greater buying clout for essentials ranging from fuel to uniforms and cutlery.

Qantas contributed towards a $6 million rebranding exercise, and Qantas NZ agreed to pay what is believed to be several millions of dollars for the franchise rights, the first Qantas had negotiated anywhere. But the bright hopes - based on the previous 12 months' cost-cutting, including renegotiating pilot contracts, revamping engineering and selling a plane - were never met. Qantas NZ ended its days losing what is believed to be several hundred thousand dollars a month.

Arcus Investment Management equity head Simon Botherway summed it up: "The investors were very brave, but it was always a marginal proposition, especially since the December 1999 pilots' dispute."

That dispute, beginning in a strike and ending in a lockout, cost the airline market share it never recovered, in particular from high-value corporate travellers.

Why didn't Qantas NZ's owners react the way you'd expect hard-nosed investors to react - slashing jobs, knocking management heads together - instead of going down the plug quietly?

There was little fat to trim. Mr Cowley said at the time that the investors had taken over an airline which was "lean and efficient" after six months of restructuring as Ansett NZ.

Chief executive Kevin Doddrell had been running Ansett NZ under similarly difficult market conditions for several years, and his retention at the helm was trumpeted by the new shareholders.

Although the full extent of Qantas NZ's losses are not yet known, it would appear huge amounts of capital were needed to keep it airborne.

Why didn't Qantas Airways take over its ailing franchise and prevent the huge disruption taking place?

Money. Negotiations between the hard-nosed Australians and their franchise-holder lasted several weeks, and Qantas went through a due diligence process, but in the end walked away from the table.

Sticking points are believed to have included the future of aircraft leases, most of which, by historical accident dating from Ansett NZ's ownership changes, were held by Air New Zealand. That involved Air NZ in the negotiations.

A major issue was who would assume the company's debts, which unconfirmed reports put at close to $20 million.

Cracks within the key members of the consortium are also understood to have opened - several were prepared to put in extra capital, but others refused to do so.

Now Qantas has the option of moving in on its own account.

Has a second major airline ever made money in New Zealand?

Only for three years out of the 13 since Ansett NZ arrived in July 1987.

The new airline introduced competition to the domestic skies, trimming prices and enhancing passenger services overnight.

This was wonderful for consumers but less so for the new airline's shareholders, which at various times included Ansett Transport Industries, Brierley Investments, Newmans Group and News Corp.