"There has been, certainly within the company, a good deal of speculation as to when and whether Rob was going to depart as CEO and so for the good of the company it has been important to get that speculation out of the way,'' Palmer told a news conference.
Palmer said the "clearing of the air'' would allow Fyfe and his management to focus more intently on the company this year.
International consultants had been hired to find a replacement - a process he expected to take about six months.
Palmer said Fyfe had been an "outstanding'' chief executive.
"He has ensured that Air New Zealand has remained profitable despite the backdrop of turbulent economic times that have seen airlines lose billions globally,'' Palmer said in a statement.
Fyfe, who was appointed in 2005, had given a commitment to the board that he would remain until 2012.
Palmer said there would be significant international interest in the role, and that there were some strong candidates from within Air NZ's existing executive management team.
Fyfe, pointing to the collapse over the weekend of fellow Star Alliance member, Spanair SA, said the aviation industry faced big challenges in the form of fallout from the European sovereign debt crisis and from high fuel prices.
He expected to see some other company failures during the course of the year, but that he was "cautiously excited'' about the opportunities facing Air NZ.
Palmer was appointed chairman by the Helen Clark-led Labour government in 2001 after the company nearly collapsed under a mountain of debt in the wake of an ill-faced investment in Australia's Ansett.
In 1996, Air NZ bout half of Ansett Holdings for A$475 million. Air NZ bought the rest for A$580m in 2000, creating a new world top twenty airline.
But Ansett soon ran into severe turbulence and in 2001 the Australian government placed Ansett in voluntary administration -- a form of receivership - in 2001.
The government came to the rescue of Air New Zealand late that year, and the company was fully recapitalised in early 2002.
Ralph Norris, the former ASB Bank chief executive, was appointed to nurse the company back to full financial health before Fyfe took over in 2005.
The government owns a just under 74 per cent stock as a result if its rescue package, but Prime Minister John Key's National-led government has said it intends to sell down its stake to just over 50 per cent.
Air NZ is set to report its first half result on February 24.
The company's shares last traded at $0.89, down 2c.
