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Home / Business / Companies / Airlines

Ansett pulls Air NZ further down

28 May, 2001 07:59 PM4 mins to read

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By DANIEL RIORDAN aviation reporter

Analysts have slashed their profit forecasts for Air New Zealand, with some adding an extra $100 million to projected losses for the June year because of problem child Ansett's continuing difficulties.

One New Zealand analyst, who asked not to be named, said most in the investment community
forecast operating losses for the June year of at least $180 million. Some estimates were as high as $200 million.

However, an already signalled gain of $80 million from one-off asset sales would haul the airline back to a reported loss of around $120 million.

Chief executive Gary Toomey said last week that the airline also expected to report a loss next year.

Analysts on average had been expecting Air NZ to lose $95 million to $120 million this year, but circumstances have worsened since chairman Sir Selwyn Cushing issued a profit warning in late March.

The airline continues to be beset by falling market share, stiff competition in Australia, higher fuel prices because of weak currencies and losses from groundings because of safety problems with Ansett aircraft.

Air NZ is understood to have steered analysts towards the revised forecasts, but yesterday the company was not commenting on the downgrades.

Nor was it commenting on a weekend story in Melbourne's Age newspaper which said merchant bank Salomon Smith Barney would recommend Air NZ sell all or part of Ansett to Singapore Airlines. The story quoted unnamed insiders.

Air NZ's board has commissioned SSB to report on its funding options and will consider those options next month.

Air NZ yesterday repeated what it has said all along - that it would consider all options open to it.

Shareholder approval for a capital note issue expires at the end of the month and the company is unlikely to approach the Government for help, although directors had discussed such a move.

Mezzanine debt funding remains an option, alongside a rights issue, more attractively priced than the undersubscribed effort of last year. Thirty per cent shareholder Brierley Investments is in a strong position to take up its entitlement as it prepares to bank $710 million from the sale of its stake in James Hardie.

Air NZ A shares (available only to New Zealand nationals) closed unchanged yesterday at $1.00, while the B shares (available to allcomers) slipped 1c to $1.37.

Meanwhile, the possibility of an alliance between Air NZ/Ansett and Virgin Blue in the Australian market has been ruled out by both parties - at least in the foreseeable future.

Virgin Blue commercial head David Huttner told the Business Herald talks had broken off.

"We found no common ground where we could work together. We were both concerned at the Qantas/Impulse takeover, and we addressed those concerns individually to the ACCC [Australian Competition and Consumer Commission]. But having those in common didn't mean we had enough to go further. Both parties agreed to walk away from the conversation, because there wasn't much to work on.

"You never say never, because you never know what's going to happen in the industry tomorrow, but there's nothing foreseeable that would show any possible continuance with Air NZ/Ansett any time in the near future."

Virgin Blue's owner, Sir Richard Branson, last week told Australian journalists that Air NZ and Ansett had approached him about a partnership. He said he was committed to his Australian operations and discussion had gone no further.

Air NZ spokesman Mark Champion said Air NZ "is not engaged in any discussions with Virgin at this point."

"We have had discussions with Virgin on matters of mutual concern, regarding the ACCC decision and conditions."

The ACCC decision allowed Qantas Airways to acquire ailing budget operator Impulse Airlines, with some conditions - a move Air NZ and Virgin Blue tried to block.

Mr Toomey has also denied the airline group was talking to Virgin Blue about "acquisition or mergers or anything like that."

He said Ansett might establish its own budget carrier in Australia.

One option would be to send Air NZ's budget subsidiary, Freedom Air, to fly Australian domestic routes. Another would be to start an Australian budget operation from scratch, something the airline was talking to unions about.

Virgin Blue has appointed Mark Siladi New Zealand manager. An American with a New Zealand wife, he helped set up Virgin's Shanghai and Hong Kong bases.

www.nzherald.co.nz/aviation

Air wars - the cast list

www.nzherald.co.nz/travel

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