BIL to make or break Air New Zealand deal

Friday 22nd June 2001

TENSE TIMES: Air NZ acting chairman Jim Farmer pushed the SIA deal at this week's press conference

By Nick Stride

Brierley Investments could be in a position to torpedo Singapore Airlines' proposed deal with Air New Zealand.

Air New Zealand has asked the government to approve a Singapore Airlines (SIA) shareholding greater than the 25% it already holds. If approval is given Air New Zealand plans to issue new shares to the Singaporean carrier.

Air New Zealand is not saying how many shares SIA wants. But the airline's constitution says the board needs shareholder approval for any issue of more than 10% of either of the two classes - A and B - of existing shares.

The issue would have to be approved by a majority of the votes cast by holders of both the A and B shares.

BIL has 227.1 million A shares, or 58.8% of that class, so it would be in a position to vote down a resolution proposing an issue to SIA.

A higher SIA shareholding would also require an amendment to Air New Zealand's constitution.

That would also need shareholder approval.

Air New Zealand spokesman Mark Champion declined to comment on the issues beyond saying "the constitution may not particularly apply in this case."

The danger for Air New Zealand and SIA is that BIL favours a rival proposal from Qantas - or any of the six other options the airline's board has considered.

BIL chief executive Greg Terry could not be reached for comment but market observers say the relationship between BIL and Air New Zealand has become less than cordial.

"I understand there's been a major fallout between BIL and SIA, and between BIL and Air New Zealand management," said one analyst, who declined to be named.

Air New Zealand is now under the direction of acting chairman Jim Farmer after Sir Selwyn Cushing resigned both from that post and from the chairmanship of BIL.

"Selwyn had a controlling influence. Now BIL's lost all control at Air New Zealand," the analyst said.

BIL's attitude will also have an effect on the rights issue Air New Zealand plans later this year if the SIA proposal succeeds.

Mr Terry has ruled out investing any more money in the airline unless it is clear that money will get a return.

SIA's placement and any rights issue will have to preserve the majority of New Zealand shareholding written into Air New Zealand's constitution. Mr Farmer this week confirmed SIA would not seek to go beyond 49% of the airline.

Placements or issues of B shares to SIA will have to be balanced by issues of A shares to New Zealanders to preserve the ownership ratio.

But analysts point out the local market's capacity to come up with large tranches of capital to support Air New Zealand is limited - particularly if BIL, with nearly 60% of the A shares, won't support a rights issue.

The airline's shares have fallen heavily since the SIA proposal was announced.

The government has previously declined to give SIA permission to lift its holding but it has made it clear the option has not been ruled out.

Air New Zealand's financial state of health has taken a distinct turn for the worse since the government's previous ruling. It is arguing changes in aviation markets make a stronger SIA alliance imperative.

"Air New Zealand simply cannot sustain its position as a commercially viable enterprise on its own on a market base of just 3.8 million people," Mr Farmer said this week.

"Not in a world where consumers want access to global air travel, where conditions of market access are being liberalised and the international airline industry is rationalising and combining into large-scale multinational alliances."

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