Dialogue: Singapore Airlines' conflict of interest cries out for investigation now

By STEPHEN FRANKS*

I am aghast at the ineptitude displayed in so many quarters in the Air NZ saga.

I cannot believe that the warning by Air NZ's acting chairman, Dr Jim Farmer, of a conflict of interest in Singapore Airlines' behaviour has attracted so little attention.

I have asked the market surveillance panel to investigate this extraordinary revelation and I hope the response will be forthright.

Its performance up to now seems to have been tardy. To be investigating now - apparently only after pressure from the New Zealand Securities Commission under pressure from the Australian Securities Commission - is a disgrace.

The panel is apparently looking only at the past. Vital current issues have gone uninvestigated.

In particular, the market, the Government and taxpayers should know immediately whether Air NZ can be held legally liable for debts of its abandoned Australian subsidiary.

If that is a muddy legal question, with the answer unlikely for months, then statutory management will become inevitable, and it should be prompt.

Any real risk that fresh capital, or even positive cash flow from efficient New Zealand operations, will simply be siphoned away to Australia, will mean that no one will want more exposure to the company. That will hit bookings and ticket sales.

Uncertainty fostered by the Australian Government and Qantas will kill Air NZ, even if we find in six months that Australian belligerence was unjustified.

I have long suspected SIA of having, at the very least, a bob each way. I am sure it did not expect any destabilisation to be so dire as to culminate in the loss of its Air NZ investment, but for SIA there has always been a silver lining if things went too far.

It gets the removal of Air NZ, a better international competitor than Qantas in operating costs, service quality and engineering reputation. Plus a chance to get an Australian domestic airline, where it was heading when Brierley Investments snookered it into investing in Ansett through Air NZ.

SIA can now help Virgin pick up Ansett jetsam for next to nothing.

BIL has seen a clever stunt go wrong, without an upside. I suspect that BIL, perhaps with the knowledge at least of SIA, pushed the Air NZ board into buying the second half of Ansett knowing both companies were undercapitalised, to create an "undercapitalisation" crisis that they expected would force the Government into lifting the ownership cap.

The cap had to go to allow SIA as the only natural buyer, to take BIL's shares at a premium.

With the links between the owners of BIL and of SIA, it is possible that part of the premium might not have been tangible, or might never have appeared in BIL's books under our new takeover law, and the covert stratagems it rewards.

BIL did not count on two things - cash flows from Ansett going negative as it went septic, and the Government's dithering over raising the cap. I am sure BIL, too, did not know how fragile Ansett was.

What should happen now?

When the Government failed to tell Qantas, SIA and BIL months ago that the cap would not be raised and that there was no question of putting in Government money, ministers were hooked.

From then on, the company, its major shareholders and, more importantly to the Government, New Zealand voters, saw the Government as essential to the solution. Labour became politically liable for any unpalatable outcome.

The airline will now dive as forward bookings plummet. But the Government cannot allow the planes to be grounded in New Zealand.

Instead of fiddling around with more alleged "due diligence", Finance Minister Michael Cullen should:

* Announce as soon as possible that the Government will ensure that Air NZ tickets are honoured. The guarantee will not exceed any exposure the Government would face in any event, to keep services going in New Zealand and a continuing flow of bookings will reduce the exposure, not increase it. To the extent it is a credit guarantee, any liability can be deducted from the $550 million already promised.

* Advise that if alleged liability to Australia is unfair, or legally improper, or unlikely to be determinable promptly, Air NZ will be put into statutory management.

* Tell SIA and BIL and Qantas that raising ownership caps is now off the table, so that if part of their strategy includes an expectation of picking up the airline for nothing from the statutory manager, they have miscalculated.

* Convene an urgent investigation into the role of Qantas, SIA and BIL as partners, shareholders and appointers of directors, before proceeding further with a rescue package that could leave any of them with the pickings from the wreckage.

The warnings that they may have been using their share holdings for strategic purposes inimical to the interests of Air NZ have been there for months.

* Stephen Franks is an Act MP, a former leading commercial lawyer and a former member of the Stock Exchange market surveillance panel.

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