Air NZ hits turbulence

Air New Zealand shares dropped a further 4c to $1.27 yesterday as the London bomb attacks signalled more turbulence ahead for the airline.

The fall means the Government is now well out of pocket on the billion-dollar investment it made to save the airline from bankruptcy.

The Government paid $885 million in 2001 and a further $150 million last year, or an average of 26 cents per share, for its 81 per cent stake.

Following a five-for-one share consolidation in August last year, that average is $1.30 in today's terms - 3c above Air NZ's present price of $1.27 (down 4c Thursday and 4c yesterday).

The difference between what the Government paid and what the shares are now worth? A cool $16 million.

Compared with a high of $3.03 (in today's terms) reached in May 2002 - when Air NZ announced a "no frills" revamp of its domestic services designed to turn the business around - the Air NZ investment is looking decidedly dubious.

At that point the Government was $1.34 billion in the money.

Only briefly, in 2001 when the airline was teetering on collapse, have the shares traded lower than yesterday's price.

They hit an all time low of 88c (in adjusted terms) on September 24, 2001, when the idea of placing Air NZ into statutory management was being considered.

Air NZ's share price has been under pressure lately as world oil prices have climbed to record levels.

The news that four blasts ripped through London's transport system during the morning rush hour yesterday added further downward momentum, with investors weighing up the implications for tourism. Airline analysts said the impact should be minor and short-lived.

Jamie Baker at J. P. Morgan Securities said "given the size of the UK tourist market and disruptions to its infrastructure, it is reasonable to expect a slight decline in UK booking levels for at least the next six to 10 weeks".

Although limited in scope, the blow to the industry comes at a time when airlines are already struggling to overcome soaring oil prices and growing competition from low-cost carriers.

Crude for August delivery hit an all-time high of US$61.35 ($91.42) a barrel on Wednesday - the highest price since oil futures began trading on the NYMEX in 1983.

On Thursday night, crude softened to US$59.72 a barrel, amidst nervousness that the attacks raised the prospect of an economic downturn, similar to that following the September 11, 2001 attacks in the United States.

Oil prices are expected to quickly resume their upward trend.

"It is not 9/11 in its devastation or its impact on global demand," one analyst said.

- NZPA