Banks give Air NZ lift

Our national flag carrier in the skies has much to thank its bankers for as it emerges - bloodied but still intact - from the rocky ride with Ansett, writes FRAN O'SULLIVAN.

Air New Zealand has been trading on the goodwill of its bankers since it closed Ansett's doors on September 12 and punched a $1.3 billion hole in its own balance sheet.

The seven-strong group of unsecured bankers - which between them are owed $590 million - had forcefully told Air New Zealand that their cooperation and "continued grace" were entirely dependent on no further payments being made to the failed Ansett Group.

On Friday, the Australian Federal Court approved a settlement deal with the Ansett administrators.

The banks have since agreed to waive lending breaches and keep their current facilities in place at least until December 31, 2003.

Without this agreement, the Government's $885 million bailout offer would have been withdrawn.

At any time in the past month the unsecured banks could have demanded immediate repayment of their loans, which would have forced the airline into statutory management or liquidation.

That has been disclosed in documents obtained by the Herald.

Once Air New Zealand's directors wrote down Ansett's carrying value to zero in preparation for the release of the airline's annual result, the New Zealand national flag carrier was immediately in breach of its banking covenants.

Air NZ treasurer Robert McDonald - who for six years had overseen the airline's treasury before Ansett's financial functions were integrated into a new group operation - advised:

"If one bank makes a demand and it is unsatisfied, this will create an event of default which will cause a cross-default with all of Air New Zealand's secured banks, unsecured banks and aircraft leases."

Each unsecured bank had had the right to make a demand since September 12, Mr McDonald said in an affidavit sworn last week.

The banking covenants had stipulated a minimum net worth ratio, maximum secured borrowing ratio and a maximum leverage ratio.

"There was considerable disquiet and anger amongst the banks when Air New Zealand made the initial $A20 million payment to the voluntary administrator on the 14th of September 2001 and subsequent payment of $A12 million," said Mr McDonald.

He warned the Australian Federal Court that if any further payments were made to Ansett without the bankers' consent, he believed "one or more of them" would make a demand.

Air New Zealand also had 25 secured banks which between them were owed $US670 million ($1589 million).

Those banks had already been spooked by the Prime Minister's statements on September 24 that statutory management was a "viable option" for the airline if a rescue deal could not be sealed.

"The banks had strongly favoured a commercial resolution and public statements like this are likely to heighten their concerns," Mr McDonald said.

He denied that the airline had "siphoned cash" out of the Ansett Group.

But both Ansett and Air New Zealand had sold and leased back aircraft to produce much-needed cash after a board report on October 17 last year detailed the method to right a significant deterioration from budget.

"Selling and leasing back aircraft was (and is) an orthodox and acceptable method of increasing liquidity within an airline," he said.

"Many airlines carry out this practice, particularly if aircraft have reached a mature stage."

This year, Air New Zealand produced $US61 million cash to bolster its liquidity by selling and leasing back three 767-200 aircraft.

And Ansett raised $US72 million through an arm's length deal with Ansett Worldwide Aviation Services on three A320 Airbuses.

A further $US48 million was raised through a complex restructuring of existing lease arrangements for a further four A320 aircraft, a simulator and two spare engines. The first Ansett transaction took place in June this year and the second in late July.

Mr McDonald denied the timing had anything to do with Ansett's financial position or any solvency developments.

The deals were struck then because that was when the leases expired or aircraft became unencumbered.

He stressed there was "no haste" with the programme, which had been planned and pursued since October last year.

But by the time Air New Zealand's directors decided to put Ansett out of its misery, $A80.9 million of inter-company loans had vanished into a bottomless hole.

In October last year, within months of acquiring the outstanding 50 per cent of Ansett, Air New Zealand was giving "substantial financial support" to its problem child.

The decision not to perform a full due diligence exercise had rebounded.

In early January, the amount Air New Zealand had advanced to Ansett through inter-company loans stood at $A15.2 million.

By the time Ansett went into voluntary administration eight months later the inter-company loans had swelled to $A80.9 million - $A24.5 million of which was lent to Ansett in its final four weeks in operation.

Air New Zealand's loans were being used to meet Ansett's own substantial loan repayment obligations.

The Air NZ advances were to have been offset by impending cash receipts from the sale and leaseback programmes, but when Ansett failed, $A80.8 million was outstanding.

Mr McDonald said financial support continued until a "letter of comfort" which the airline's directors gave to Ansett was withdrawn on September 12, a day before the company unveiled its $1.4 billion loss for the June 30 year.

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