Government's Air New Zealand stake becomes Budget-booster

By Nick Stride

Friday 31st May 2002

The rebound in Air New Zealand's share price could prove a much-needed budget booster if the economy slows down.

At Wednesday's closing price the government's 82% stake was worth $2.34 billion, a 162% gain on the $892 million it pumped in last year.

The holding is valued in the government's books at the acquisition price. A $469 million goodwill component will be written down by $23 million this year and by $47 million in each subsequent year until it is fully expensed.

But there is plenty of precedent from the corporate world for revaluing investments to their sharemarket worth or "marking to market."

At 68c a share that would allow Finance Minister Michael Cullen - should he retain his post after this year's general election - to book a $1.5 billion paper gain into next year's "surplus."

The government has also pledged, before June next year, to inject a further $150 million into the airline if needed.

Speculation about the shares' climb - which started late last month - had Brierley Investments selling its 5.5% stake to Australia's Qantas, the government selling enough shares to Qantas to leave it with a controlling 50.1% holding or Air New Zealand issuing new shares to Qantas.

Analysts were dubious about all three versions. They cited the cost cuts the airline will achieve with its budget domestic approach, fuel price falls and the rising dollar, which will make the airline's US dollar-denominated fuel purchases cheaper still.

The share price was also volatile because only 8% of the issued capital was available for trading.

Air New Zealand is also beefing up its international and transtasman services.

Although the market has reacted positively to the dropping of business class and meals on the airline's domestic flights not everybody is happy with the changes.

Macquarie Equities has termed the move a high-risk strategy, arguing Air New Zealand could find itself squeezed from both the top and from the bottom.

Analysts said Singapore Airlines could not be discounted entirely from Air New Zealand's future ownership.

Chief executive Cheong Choong Kong recently told shareholders that, despite SIA's unfortunate experience with Air New Zealand, his airline was was still keen on buying overseas airlines.

The airline yesterday said it was putting its Mount Cook airport up for sale.

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