Asia – Pacific: Cost of saving air NZ to rise Terry Hall

The financial costs to New Zealand’s government of saving the flag carrier airline from collapse are expected to continue into the new financial year.

Papers released under the Official Information Act yesterday suggest Air New Zealand will need a further NZ Dollars 670m (Pounds 204m), on top of the NZ Dollars 1.04bn committed last year when the government was forced to take an 83 per cent stake.

Economists say these are big numbers for a country with a total revenue base of NZ Dollars 37bn, despite the country’s strong growth. Craig Ebert, a BNZ economist, said he still forecast a budget surplus of between NZ Dollars 1bn to NZ Dollars 1.6bn this year despite the government’s investment of NZ Dollars 1bn in Air New Zealand in the year to March.

Glenn Phillips, a Treasury official, said the costs of the rescue had been funded through the government’s borrowing programme.

Analysts say it is far from clear how much extra money the government will need to find as much will depend on the airline’s success in selling assets, including its valuable New Zealand skifields, an Australian travel bureau and possibly its engineering business. Air New Zealand was not available to discuss the matter.

Last month Ralph Norris, the new chief executive, said the company might seek to raise NZ Dollars 200m through a rights issue before August.

The official papers said the government’s advisers saw the airline as a high risk though viable business that should be profitable by June 2003.

Air New Zealand has posted a half yearly loss of nearly $376 million. Air New Zealand has reported its first financial results since it ditched Ansett Australia and losses from the demise of Ansett continue to hit the company hard. The airline has had to write off another $380 million.

But the company’s new managers say the worst is over. A grounded 747 is currently parked at Auckland Airport – surplus to requirements because of falling passenger numbers. Air New Zealand has written off the remaining value of the jet’s lease – and it has had to face up to the massive losses caused by its disastrous investment in Ansett Australia.

But Managing Director Ralph Norris says this is as bad as it gets and is a one-off clearing of the decks in regard to Ansett. The clean-up involves writing off another $379 million on top of the $1.3 billion it wrote off when Ansett collapsed last September.

Chairman John Palmer says Air New Zealand has put the immediate crisis of last year behind it, and is getting on building a successful business into the future. But the loss of Australian feeder traffic from Ansett is a major blow, and the prospect of even stiffer competition from Qantas will make life difficult.

“The company’s condition can now be characterised as having moved from critical to stable, but is still in intensive care,” Norris said.

The treatment involves more cost-cutting, and Air NZ is about to start a fresh round of negotiations with unions on staff cutbacks. After injecting $885 million to become the major shareholder, the government wants a “credible plan” to restore financial health.

Finance Minister Michael Cullen said the six monthly result was mostly in line with expectations and the strategy to return to financial health “is still only in the very early stages of implementation”.

National’s finance spokesman David Carter says his party is not happy with the result which represents “a substantial loss for all New Zealanders”. Meanwhile, Air NZ’s fuel and maintenance bills are falling and passenger numbers are increasing. “I’m feeling confident that we’re going to see improvements from here on in,” Norris said.

[Source: Financial Times; April 11, 2002]