The Shoeshine Column: More to Ansett's woes than Polyfilla can fix

Friday 27th April 2001

Who'd take those News Ltd boys on at poker?

A fortnight ago, as Ansett Australia's crack-induced nightmare got into full swing, a colleague of Shoeshine's bowled up to Adelaide airport for the flight back to Auckland via Sydney.

As he waited for his call to Gate 12 he spared a few sympathetic thoughts for the Ansett passengers booked on a flight to Darwin, who were told they faced long delays.

As it turned out his sympathy was misplaced. As he queued to board his flight it was cancelled "due to unforeseen circumstances." Outraged, he watched the Darwin passengers climb aboard the aircraft that was to have borne him to Sydney.

Not being shy he remonstrated at the Ansett desk. Many of the Sydney passengers, he pointed out, would, like him, have international connections to make. Wouldn't it have made more sense to send them on their ways before worrying about getting Crocodile Dundee home?

"Well, yes," the Ansett staffer replied. "I suppose it would."

As crisis management is now a standard subject on the management training syllabus Air New Zealand and Ansett's handling of the Boeing 767-200 grounding fiasco is likely to take its place as a case study in how not to do things.

The airlines were astonishingly slow wheeling out the top brass for the TV cameras. When they appeared they were less than impressive.

Chairman Sir Selwyn Cushing vaguely threatened legal action but later claimed he'd been misquoted. He is now apparently also denying admitting Air New Zealand "may have paid too much" for Ansett.

Chief executive Gary Toomey sweated famously in front of the cameras, eyeballing the lens nervously and repeating, over and over again, a mantra about how safe Ansett was.

Almost immediately he took the opportunity to exonerate himself from any blame for Ansett's flawed maintenance systems, laying the responsibility squarely at the door of previous management. In doing so he and his public relations flunkies showed an astonishing naivety about the public psyche.

True, the fiasco must have roots far deeper than his tenure of only a few months. But the voting, and travelling, public long ago tired of successive governments blaming the previous administration for all the ills of the world.

In a crisis good communicators don't waste valuable airtime pointing the finger, a strategy that only reinforces the point that there is a problem to be dealt with. They tell people how they're going to deal with it.

In the meantime, the airlines floundered over their handling of the issue that sparked it all off - cracks in some of the 767-200's engine mounts.

Ansett insisted they were "hairline" cracks about 5cm long. This wasn't much reassurance. People like to fly on aircraft that are crack-free, hairline or otherwise.

The angle of spin only made more dramatic the photos Australia's Civil Aviation Safety Authority later released showing cracks that looked as long as your arm and wide enough to stuff a cigarette butt into.

Also misplaced was the effort Air New Zealand/Ansett invested in arguing about how much the groundings were costing them. Toomey heatedly denied reports the cost was $5 million, settling on $3.5 million.

Five million or $3.5 million, the quantifiable financial cost is immaterial beside the damage to Ansett's brand and to confidence in Air New Zealand's board and management.

It's tempting to attribute the preoccupation with dollars and cents to the dawning of realisation at Air New Zealand about what it took on when it bought Ansett.

The publicity about maintenance problems has finally forced the airline to address publicly the huge problem it faces bringing Ansett's aircraft fleet up to scratch.

Why this has taken so long is a mystery. Way back in mid-1999, when Air New Zealand was arm-wrestling with Singapore Airlines over who would get to buy News Ltd's 50% Ansett stake, commentators pointed out huge amounts would be needed in the near future to upgrade Ansett's ageing mixed-pedigree fleet. Even at that time it didn't look as though Air New Zealand, which owned the other half, would have the balance sheet strength to pay its share but in public at least the issue was ignored.

Sir Selwyn has now admitted the airline needs to stump up $5 to $6 billion over the next four years for the upgrade. He has talked about buying new aircraft, buying them on financing leases, leaning on Singapore Airlines' balance sheet, short-term leases, and mezzanine finance.

Cut it how you will, $5-6 billion looks like an impossible sum for a company with a market capitalisation of $1.1 billion. It's not as though the cash is rolling in either. Air New Zealand made just $2.5 million in the first half and is expected to book a $100 million loss for the full year, due mainly to the unprofitability of Ansett, the asset into which it proposes to pump billions.

Over at News Ltd they must be laughing like hyenas. Only last year News sold the now-defunct Ansett New Zealand to Tasman Pacific Airways for $36.5 million and half of loss-making Ansett Australia to Air New Zealand for $A580 million ($734 million).

News also gets, over the next one to three years, $A100 million ($123 million) in cash, or shares equivalent to 10.5% of Air New Zealand's capital.

How will that work? News is a foreign company so it can't own A shares. And Air New Zealand can't issue that amount of B shares without breaching the 49.5% foreign ownership rule, unless it issues an equal amount of A shares. That would entail a vast dilution of existing owners' holdings.

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