Government lobs $1bn at Air NZ bailout

By DANIEL RIORDAN and VERNON SMALL

Air New Zealand's taxpayer-financed bailout is set to top $1 billion after the Government yesterday pledged to give up to $150 million more to keep the airline viable.

The extra capital, on top of the $885 million already committed, would be made available to the airline before June 2003 - if and when required, Finance Minister Michael Cullen said.

Its shape and terms were yet to be determined, although Dr Cullen's preference was a pro-rata rights issue for all shareholders.

He said the extra money was approved after a recommendation from the Government's negotiators, Cameron and Co. It was not sought by the airline.

By setting a share price of 27c yesterday for the second instalment of its rescue package, the Government will end up owning 82 per cent of the national carrier.

Singapore Airlines will own 4.5 per cent (compared with 25 per cent before the rescue deal) and Brierley Investments will own 5.5 per cent (down from 30.3 per cent).

Institutions will own most of the remaining 8 per cent.

The airline will have 4.174 billion shares on issue and each New Zealander will "own" about 900.

Shareholders will vote on the proposal at the annual meeting, set down for December 19. If it is approved - as seems almost certain - it will be consummated in January.

Air NZ A shares were unchanged yesterday at 37c and the B shares rose 1c to 39c. The share classes will be merged as part of the deal.

The first part of the package was a $300 million loan, made in October, which will convert with accrued interest into convertible preference shares at 24c a share.

Dr Cullen yesterday was wary of making further comments on the deal. The Securities Commission has started a probe into trading in the shares after comments by Prime Minister Helen Clark.

Asked if the extra money indicated further problems ahead for Air NZ, Dr Cullen said:

"You put me in a difficult position. The answer to the question is 'no'. I just hope we are not breaching the bloody law in saying that. It has got to the point where I regard some of our rules in these matters as almost in breach of common sense."

Air NZ executive director Roger France said the Government and airline had held "candid, constructive and worthwhile" discussions on the airline's business plan, leading to yesterday's announcement.

Trading conditions remained tough, but Air NZ at least had the advantage over its Northern Hemisphere peers of entering its peak season. The airline was focused on achieving a sound, properly geared balance sheet.

ABN Amro analyst Malcolm Davie said: "The industry is in such dire condition globally it's no surprise the Government had earmarked the possibility of putting more money into it."

Macquarie Equities analyst Arthur Lim said the standby facility would give the company's financiers some comfort.

UBS Warburg analyst Timothy Ross warned that when investors realised the extent of the dilution of holdings, the share price could fall.

He had a reduce weighting on the stock and said that while the $150 million standby facility was useful, it suggested Air New Zealand was not out of the woods.

Mr Davie said the Government was unlikely to sell its stake until it could maximise its returns - when the airline was back in profit.

"I can't see that happening for another couple of years," he said.

Air NZ last month said it was looking to cut about 800 jobs, half of them in management. Between 100 and 200 employees have been given redundancy notices.

Mr France said a shortlist had been drawn up for candidates to replace chief executive Gary Toomey, who resigned on October 9.

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