Forum Archive Index - August 2001

[Greg <g&jelliott@xtra.co.nz>]

Are the Air NZ watchers still active? Earlier this week, the Dominion
carried a story that the Govt's decision had been 'leaked' and that they are
going to tell Air NZ to sort out their own mess ie. no increase in
ownership, hence no Qantas and no SIA. The story was a little strange, in
that the decision has yet to be made (think Cabinet consider the issue next
Monday). So why announce such a leak, except that its a tactic used
previously to lower the steam on an issue prior to the day of a bad
announcement.

Today's Herald carried an editorial plea to go with the Air NZ board
recommendation and let SIA increase their stake - the Herald tends towards a
more conservative, pro-business stance.

So what are the implications for Air NZ if the Govt does say no to Qantas
and SIA? (ie SIA stake capped at current 25%)

Air NZ would face a difficult financial position requiring some hard
decisions. Increased ownership is vital to recapitalisation, which is vital
to turning the company around and achieving a growth strategy.

Toomey has already said they will be announcing a considerable loss this yr
on 4 Sep. That much was expected. But without recapitalisation, the Ansett
millstone is likely to continue to drag group finances down for several
years, and threatens the company's viability.

Air NZ has proposed a rights issue. But Brierley (who own 30%) have already
indicated they're not interested. So NZ investors would have to find several
hundred million. I think some of the big players in NZ (eg WHS?) have said
they're not interested either. This issue has been discussed previously as a
non-starter.

Another likelihood is having to sell off major assetts. Us Kiwis would
prefer this happens on the West island, but that can't be very comforting
for a large portion of the group right now. Some likely assets include
airbus aircraft, terminals, HQ buildings. Still leaves the group with debts
over $1b though.

The final straw would be having to sell Ansett itself. This would render the
whole vision thing a pointless exercise. Air NZ paid too much for Ansett in
the first place and would lose again in a firesale. There are pluses in
terms of arresting the downward spiralling balance sheet, but Air NZ would
be limited to being the best little airline in the region, after however
long it takes them to pick themselves up again. End of the growth strategy
and maybe some further downsizing/restructuring for the company.

As a shareholder, I'm in favour of SIA at 49% (along with the Board), but
that's only a personal choice. If the above scenario plays out, anyone care
to say what their shares might do between now and next week?

Greg E. (still hold some AIRVB)



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