Government-ownership bad for share price, Air NZ bosses say

The Government's majority shareholding in Air New Zealand is probably a drag on the company's share price, the airline's bosses told MPs yesterday.

For the first time, managers of a publicly listed company were subjected to a parliamentary grilling, as they faced the finance select committee.

The Government owns 73.7 per cent of Air NZ's ordinary shares and 77 per cent of total shares, after putting in $885 million in 2001 to rescue the foundering airline.

The Government paid 27c a share - equivalent to $1.35 now, because of a share consolidation.

Air NZ shares closed yesterday at $1.68.

Air NZ chairman John Palmer told the committee that the Government's stake, like any tightly held parcel of shares in a listed company, was an "encumbrance" on the price, which was probably "below fair value".

Despite the drag on the share price, Palmer said Air NZ was happy to have the Government as a "secure" shareholder.

The board had never asked, and had no plans to ask, the Government to sell all or part of its stake, he said.

Before the meeting both MPs and Air NZ acknowledged that the airline could cast little new light on its operations because of disclosure rules.

The airline's chief executive, Ralph Norris, said it was well placed and was looking at spending $2 billion in coming years to refurbish its fleet. Another "crunch" would be in 2010 when a large number of planes would need replacing.

Norris told the committee Air New Zealand's position was vastly improved from when the alliance talks with Qantas first took place.

But he said discussions on ways to cooperate with Qantas were continuing as it was commonsense that there was some working together despite rejection of the alliance plan, particularly on Tasman routes.

Norris said opportunities being explored covered cargo operations, engineering, and sharing of parts inventories - particularly on common aircraft like the Airbus A320.

"Discussions are going on at various levels between Air NZ and Qantas to see how we can take some advantage of some of those opportunities," he said.

Answering a question from Green MP Rod Donald, Norris said the relationships the airline had with Qantas - for example, use of each other's ground staff - did not cause problems with Air New Zealand's membership of the Star Alliance airline network.

"Certainly some members of the Star Alliance do have relationships with Qantas as well. And so the issue for us is that we will make sure that anything we do with regard to arrangements with Qantas don't jeopardise our relationships with the Star Alliance."

Palmer said both Qantas and Air NZ looked like significantly different businesses from when the alliance talks started.

"The Air New Zealand business is certainly stronger than it was at the outset of those discussions.

"We would expect in our ongoing discussions with Qantas that some forms of cooperation are almost inevitable in order to ensure that we make sense of the operating framework in this part of the world."

In October last year, Air NZ was declared to be a "public organisation" under Parliament's standing orders. This came about after the Auditor-General recommended the airline be subject to greater scrutiny.

When that definition changed, Finance Minister Michael Cullen said the select committee should not expect Air NZ's managers to give it information that had not already been given to the market.

The taxpayer has now invested more than $1 billion in Air NZ since the collapse of its subsidiary Ansett Australia put it on the verge of bankruptcy in 2001.

Still talking

* Qantas' budget wing Jetstar and Air NZ are new owners of Airbus A320 aircraft. Air NZ wants to find ways to share maintenance costs with Qantas.

* Qantas and Air NZ wanted to join forces in an anti-competitive alliance, where Qantas would buy a 22.5 per cent stake in Air NZ and integrate services operating to, from or within New Zealand.

* The alliance plan was rejected by New Zealand competition regulators, a decision which was endorsed by the High Court.