Air NZ at 'point of no return'

By Phil Boeyen, ShareChat Business News Editor

Tuesday 14th August 2001

Air New Zealand chief Gary Toomey has stepped up the pressure on the Government to allow Singapore Airlines to increase its stake in the airline.

Mr Toomey says the company is fast approaching a point of no return where it can either aim to be a global top 20 carrier or a smaller South Pacific operation with a limited international focus, and that a decision on its future must be made very soon.

The former Qantas executive told the American Chamber of Commerce in Auckland today that there is currently a complex mesh of conflicting interests - national, political and commercial - which the New Zealand Government must address before Air New Zealand can see clearly where it must go.

"We remain hopeful - but concerned - that the critical decisions can be made before the end of this month, because we are at the point of no return."

Air NZ is due to deliver its full-year results on September 4. Mr Toomey says it will be announcing a significant operating loss, and at that time must come to the market with a comprehensive strategy for future development.

Despite the woes that Ansett has brought to the airline Mr Toomey says it was an investment that Air New Zealand couldn't afford not to make.

"It delivered comprehensive market access to Australia that was otherwise denied - and scale and efficiency benefits that otherwise couldn't be achieved.

"It attracted Singapore Airlines as a new cornerstone investment partner in Air New Zealand with a 25% shareholding in the expanded Australasian business. And it secured influence for us in STAR - the most significant and stable global airline alliance that's been created."

Mr Toomey says as a group, Air New Zealand and Ansett have more capacity and more options to meet the challenges that confront every airline in the world today.

The Air NZ boss has also addressed the question of Qantas buying 25% of Air New Zealand, saying it simply can't happen because Singapore Airlines owns that 25%.

"It doesn't want to sell it. It wants to increase its stake in Air New Zealand and Ansett. It wants to inject additional capital into the combined business - because it wants a strong partner in this part of the world to combat the Qantas-British Airways presence."

"Singapore Airlines is prepared to accept reasonable conditions required by the New Zealand Government to protect effective New Zealand control of Air New Zealand, the international landing rights available to Air New Zealand, the Air New Zealand brand, and Air New Zealand's ability to promote New Zealand as an international tourism destination."

Mr Toomey says if it accepts these conditions, the airline's public opinion polling shows that 75% of New Zealanders would support a Government decision to relax its foreign investment rules and allow Singapore Airlines to have a 49% shareholding in Air New Zealand.

"All the areas of concern - including the need for more balanced competition in the global, regional, Australian and New Zealand markets - can be addressed."

"If they are, we can proceed to our intended goal - and deliver another locally-based world top 20 airline to our home region. If they aren't, it seems inevitable that we will have to shrink Air New Zealand. There is no obvious alternative source of capital to grow it and rejuvenate Ansett."

Mr Toomey says the airline needs capital to rejuvenate and grow a run-down Ansett in Australia and to continue the steady growth of Air New Zealand but under the current rules it must raise more than 50% of it equity capital within New Zealand.

"To meet the long-term challenges ahead in the next five years, we need more capital than the New Zealand market can provide - just as Qantas says it needs more capital than the Australian market can provide.

"The decisions taken this month by the Australian and New Zealand governments will determine who wins - who loses. Air New Zealand wishes them well in their deliberations - and will provide whatever they need to come to fully-informed conclusions."

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