Buoyant economy underpins Labour $450 million bailout

By Rob Hosking

Friday 5th October 2001

The government yesterday broke into its emergency fund to bail out Air New Zealand, pumping $885 million into the limping national airline.

Higher-than-expected tax receipts for the last financial year left the government with $450 million in an "in case of emergency: break glass" fund.

Yesterday, Finance Minister Michael Cullen broke the glass. It is understood the remainder of the money will be made up from the bond programme.

However, the government would not have to borrow money in the current financial year to pay for the injection, he said.

"And we probably do not need to vary our debt programme for this year.

Both net and gross debt would be affected, however.

The government was targeting net debt to be 20% of the country's GDP, and it was currently sitting at 18%, Bank of New Zealand head of markets Stephen Toplis said.

"So that gives them a bit of room to move. Most of that $450 million, which would possibly otherwise have been used to reduce the bond tender programme, can now go toward funding the Air New Zealand injection.

"However, it also uses up the money that was left in the kitty for an emergency, because this is an emergency.

"But if there is a deterioration in the domestic economy, and the government comes under fiscal pressure, it will have to find the extra cash from somewhere else."

It is not clear how long the government will remain in control of Air New Zealand but Dr Cullen said if and when the government was to sell some of its shares it would retain a significant stake.

New Zealand needed a flag carrier to guarantee direct international flying rights and direct access to New Zealand from a number of major airports around the world, he said, and the government did not expect to divest itself of its shareholding for some time.

And an almost audibly purring deputy prime minister and Alliance leader Jim Anderton said he expected Air New Zealand to remain under government control "for some considerable time."

Dr Cullen made it clear the government laid much of the blame for the airline's problems at the door of major shareholder Brierley Investments.

"Air New Zealand suffered from a factionalised and dysfunctional leadership at board level and that has not been helped by the actions of some of the shareholders," Dr Cullen said.

Later, he said that he did not want to point the bone at the other main shareholder, Singapore Airlines.

So that meant the problem was BIL?

"You said that, I didn't."

Gareth Morgan
Mike Ross

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