SIA climbdown blamed for Air New Zealand indecision

By Nick Stride

Friday 7th September 2001

On Wednesday - 68 days after being asked formally for an Air New Zealand ruling - Prime Minister Helen Clark's cabinet decided to ponder some more.

Official sources gave no reason for the delay other than stating the situation was "fluid."

Market commentators were quick to point to the refusal of Sir Richard Branson to sell his Australian discount operator Virgin Blue to Air New Zealand's ailing Ansett unit.

Others suspect Singapore International Airlines (SIA), caught by deteriorating profitability and pressure at home from shareholders, has dropped the price at which it proposes to buy further Air New Zealand shares.

The carrier has been criticised for "squandering" its cash resources in overseas ventures. This week it withdrew from bidding for Air India.

Air New Zealand chairman Jim Farmer insisted yesterday the airline's board had had "no indication from Singapore Airlines that it has changed its position in relation to seeking additional equity in the company up to a level of 49%."

He said there had been no agreement between the two carriers' boards on the pricing of SIA's proposed higher stake "other than the publicised price of $1.31 a (B) share contained in a non-binding memorandum of understanding."

The government has given no indication of when it will now rule on a higher SIA stake. Air New Zealand, having twice delayed its June-year financial results announcement, is hoping the decision will be made before next Thursday when it is scheduled to report a huge deficit.

Analysts are expecting an operating loss as high as $300 million but the size of the bottom-line deficit is in the hands of the airline's auditor, Deloitte Touche Tohmatsu.

The auditor is understood to be insisting Air New Zealand write down Ansett's carrying value to a realistic level. As Ansett is estimated to be losing $1.2 million a day a full writedown would add hundreds of millions to Air New Zealand's loss.

In the vacuum created by the government's indecision the airline's shares have been plunging and the pundits have had a field day. Australian newspapers - many of them citing "government insiders" - have variously reported the government will contribute equity, will supply debt funding in the form of capital notes, will underwrite a rights issue, won't put any public money in at all, favours Qantas' rival deal, favours a higher SIA stake, will refuse SIA a higher stake, and has a backdoor deal going with major "A" shareholder Brierley Investments (BIL).

The issue has also become a political football. In an unusual move opposition leader Jenny Shipley has pledged her National Party's support for a higher SIA stake.

Act New Zealand MP Stephen Franks this week announced he would stand for election to the Air New Zealand board at the annual meeting on October 30.

He intends to grill directors on their stewardship of the airline and their allegiances as representatives of major shareholders.

Sharemarkets are bracing themselves for a hefty Fletcher Challenge Forests-style rights issue.

Commentators believe this will be discounted to a price of as little as 25c an A share.

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