Cash needs test Air NZ board

By DANIEL RIORDAN

Air New Zealand directors meet next week with a major capital restructuring and realignment of the company's Ansett fleet at the top of their agenda.

After its shares took another hammering from the Easter weekend grounding of Ansett's 767 jets, investment sources said Air NZ was considering resurrecting the $150 million capital notes issue it shelved last year - and bringing forward plans to revamp the ownership structure of its Ansett fleet.

Air NZ chairman Sir Selwyn Cushing said the company needed to spend $5billion to $6 billion over the next four years renewing its fleet and rebranding Ansett (while retaining the Ansett name). Those plans had been in place well before the Easter groundings of 10 Ansett 767 jets by Australian regulators.

Unusually for an airline, Ansett owns almost all its fleet - a not entirely desirable situation for Air NZ's institutional investors.

Air NZ had an estimated net debt including operating leases at December 31 of $6.2 billion. The chances of being able to raise more equity from investors are slim.

Although the intentions of 25 per cent shareholder Singapore Airlines are not known, analysts contacted by the Business Herald thought the company would tackle its problems with a mix of bank debt and quasi-debt through leasing arrangements as it began replacing Ansett's 60-odd planes. The financing leases used for the new planes would be akin to buying them on hire purchase.

Yesterday, Air NZ shares crashed to 10-year lows after the Easter groundings affected 20 per cent of Ansett's passenger capacity at one of the year's busiest times.

Sir Selwyn said the final cost had yet to be tallied.

Air NZ chief executive Gary Toomey said the grounding had cost the airline $A2 million ($2.5 million) over five days and that losses would continue at $A500,000 a day until the 767s were back in the air.

While the investment community wondered how the airline would raise the $5 billion to $6 billion it says it needs over the next four years to upgrade its ageing Ansett fleet, a sanguine Sir Selwyn said the company need not worry about the final capital cost.

"We can buy more planes, we can buy them on financing leases, we can approach Singapore [Airlines] through its finance agency, we can go to others, we can work with them, we can take short-term leases with them and take some mezzanine finance to acquire them when the capital situation permits.

"We can do all of that - and bear in mind we can change the capital base if the Government and Singapore come to terms over the proportion of equity holding."

Sir Selwyn said that decision was between the Government and Singapore Airlines.

A spokeswoman for Transport Minister Mark Gosche said there would be no lifting of the 25 per cent foreign ownership cap on Air NZ.

The minister wanted to have a briefing session with Mr Toomey when he returned from Australia, said the spokeswoman, after he was reported by Australian media saying he wanted Singapore Airlines to increase its stake.

A Singapore Airlines spokeswoman said the airline had loaned a 747 and four engineers to Ansett, but had no comment on its ownership intentions in Air NZ.

Although investors have been dismayed at Ansett's poor reporting and maintenance procedures, they have some sympathy for Mr Toomey and his new management team.

Armstrong Jones equity manager Shane Solly said the airline was handling the situation as well as it could by being upfront.

"It's probably the most difficult trading period an airline could actually face. To have two new competitors, rising fuel costs and a slowing Australian economy.

"When they bought this business, the economy was cranking and you had a duopoly. All it needed was a bit of tender loving care."

Air New Zealand's grief was Qantas's joy - its shares rose for the fourth day in a row.