Air NZ plumbs new depths

By FRAN O'SULLIVAN and AGENCIES

Air New Zealand's share price plummeted yesterday amid investor fears and falling ticket sales spurred by the Ansett failure and terrorism.

The airline has been attempting to trade out of its difficulties, but the worsening outlook for the international aviation industry and concerns it would not escape liability for $500 million in Ansett employee entitlements have dangerously destabilised its business.

By cutting Ansett Australia adrift, Air New Zealand had hoped to stem the $1.6 million-a-day losses which were wrecking its profitability.

But Australian unions are contesting that action in court.

The national flag carrier's situation has been compounded by the effect of international sharemarket volatility on its two major shareholders and confirmation that the Securities Commission is investigating its disclosure record.

Shares in the two key shareholders - Brierley Investments and Singapore Airlines - also took a pounding as markets roiled in advance of this morning's reopening of Wall St. BIL dropped as much as 34 per cent and SIA lost up to 13 per cent in trading on the Singapore stock exchange.

The big haircut to BIL and SIA share prices was matched by the dramatic lowering of financial forecasts for the two major Air New Zealand shareholders, casting doubts on their ability to contribute to the carrier's $850 million bailout on existing terms.

Under the bailout terms, the two shareholders will each pump $150 million into the airline by acquiring shares at either 67c or the average price traded for the 10 days before Air New Zealand's shareholders meet to approve the rescue package, whichever is lower.

The shareholders meeting will not take place until October 30, but with yesterday's share price plummeting to 26c before recovering slightly to 30c, it is clear that BIl and SIAwill significantly increase their stakes in Air New Zealand - on percentage terms - if the share price is not stabilised at a higher level.

Under the rescue package outlined last week, Singapore Airlines and Brierley would lift their stakes to 34 per cent and 37 per cent respectively. But that was based on a formula set at 67c a share.

At the current share price, a $150 million injection would lift the SIA stake to about 40 per cent and BIL slightly higher.

The prospect of the major shareholders getting higher stakes might worry minority shareholders, but the airline's directors were more worried about rumours the airline was going bust.

Air New Zealand acting chairman Dr Jim Farmer slammed the receivership rumours as "irresponsible" and said there was flexibility within the rescue package to cover any shareholder concern.

"The problem is that people say those sorts of things - that has a tendency to make it happen."

Other Air New Zealand directors said the international aviation outlook made it imperative that both major shareholders and the Government stabilised the situation quickly.

But the Herald has confirmed that Government bureaucrats have already formed a fallback plan to put the national flag carrier into statutory management if it cannot be restabilised.

The main factor fuelling receivership speculation is claims that Air New Zealand might yet have to pay for liabilities from Ansett, such as $500 million in worker entitlements.

But directors say that under Air New Zealand's structure, a "corporate veil" exists to isolate Ansett Australia as a separate, limited liability company.

SIA and BIL representatives met Air New Zealand officials yesterday.

SIA had its analysts' earnings forecasts reduced as much as 36 per cent for the current financial year.

Much of yesterday's initial sell-off on Air New Zealand's shares was by small investors spooked by the receivership rumours.

Other problems compounding Air New Zealand's plight are A credit rating downgrade by Standard & Poors; a reluctance by travellers to fly via the US; and consumer resistance to Air New Zealand which has been whipped up in Australia.

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