Auckland Airport suffers less in terrorist fallout than many

Friday 30th November 2001

Anyone who had suggested a year ago that control of Air New Zealand could be obtained for 27c a share would have been advised to take a lie down.

The company's A shares sold at $1.43 on November 30, 2000, and the Bs at $1.90. That was after the airline reported a substantial slump in operating profit and a net loss of $600.14 million when $786.23 million of deferred tax arising from an accounting policy change is brought to account.

The government's agreed 27c a share for new shares was a 30% discount on Monday's closing prices for the A shares (37c) and the B (38c).

Air New Zealand's financial plight was stated calmly, but starkly, in an announcement on October 4: "Unaudited shareholders" funds at August 31 (allowing for the Ansett writeoff in the financial statements to June 30, 2001) were $NZ506 million.

"Since then, the company has recognised further losses amounting to approximately $NZ350 million arising from the closure of Ansett.

"This amount represents the net position after allowing for the settlement between the company and the voluntary administrators of Ansett.

"Shareholders' funds will then be in the order of $NZ156 million before taking into account the trading result for September, which will not be known for a few days."

The opening sentence of an accompanying "shareholder support agreement" was succinct: "Air NZ urgently requires a substantial amount of capital."

The recent situation was a massive slide from June 30, 2000, when shareholders' equity was $1.59 billion and the net asset backing was $2.46 a share.

Air New Zealand has to hold a meeting soon to ratify the deal with the government. That would be an opportune time to update shareholders, the market and the public - who now come under the "shareholders" classification in a broad sense through a government holding - on the company's current operating performance about three months after the September 11 events.

September 11 affected many companies in many industries.

The recent annual meeting of Auckland International Airport was told "the reality is that most people now have only an historical interest in the
previous performance of companies associated with the aviation industry. Without doubt everyone is now more focused on the performance going forward."

Auckland International Airport shareholders were told Air New Zealand remained the company's single largest customer, accounting for nearly 60% of the landing charges and representing about 15% of its total revenue.

"The liquidation, receivership or statutory management of Air New Zealand, should it have transpired, could well have had a short-term impact on the company."

Terrorist attacks in the US had changed the face of the aviation industry forever.

"Airline companies, and those operations reliant on aviation, from aircraft builders to airport, are having to assess the various and potentially far-reaching impacts on their business.

The significant reductions in domestic travel in the US, reductions in patronage on the transatlantic routes and the general negative impact on all air travel will have significant consequences, especially in the US and Northern Europe."

The impact on Auckland's airport company seemed to be less than previously envisaged and also less than that experienced in the northern hemisphere.

Auckland International Airport has other customers as well as Air New Zealand, a matter referred to in a comment that an agreement on landing charges reflected the company's acknowledgement of the general state of the international aviation market and the current difficulties in some of the international airlines serving Auckland.

In that context, it was ironic, but understandable, for the government to rescue Air New Zealand.

Some governments have questioned the wisdom of owning airlines, a point taken up when an earlier government sold Air New Zealand.

The desire to have a "national carrier" was one reason for the financial problems of operators, from changes in fuel and the flow-on effects of September 11.

There are just too many airlines, particularly in the heavily populated northern hemisphere countries.

European countries lead the way in the national carrier concept, whether the airline is wholly or partly government-owned or a private operation.

Governments have an extraordinary additional involvement in airlines through the landing rights' system.

The system is effectively a form of market rigging and controlling competition, practices that the participating governments have outlawed in other industries operating within their countries. Aviation is apparently a special case, which can operate as an exception to general national laws.

A government owning an airline has another incentive, apart from controlling its skies, to be tough on landing rights.

It will be interesting to see how control of Air New Zealand affects our government's approach to landing rights' questions.

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