O'Sullivan: Air NZ bagged vital feeder service in Ansett Australia

By FRAN O'SULLIVAN

Air New Zealand's critics need a few lessons in Logic 101.

If they drew breath and asked themselves the simple question: "Why does Singapore Airlines still want to buy Ansett Australia if it is a dog," they might just re-rate Air New Zealand's investment strategy in a more positive light.

The plain answer is that Ansett's Australian feeder traffic gives Air New Zealand the critical mass to be a big player in the transtasman open skies market.

That is why the Air New Zealand board - led by then executive chairman Sir Selwyn Cushing - fought so aggressively to pick up the outstanding 50 per cent stake in Ansett when News Corp quit.

That is why they will continue to explore capital-raising options to expand their Australasian business rather than flick Ansett to Singapore.

If Singapore Airlines had beaten Air New Zealand to the draw and wrested control of the Australian line, New Zealand's national flag carrier would now be marginalised.

There is no way that Singapore Airlines would have put its Australian passengers on to Air New Zealand planes to fly the profitable routes up to Los Angeles at the expense of its own business.

In Sydney yesterday, Air New Zealand chief executive Gary Toomey took time out from announcing a cricket sponsorship to re-emphasise the soundness of the airline's merger strategy.

It is worthwhile reiterating some of Toomey's points:

* While Air New Zealand will make a loss in the June 30 year, it has turned the corner on the rampaging fuel costs that put huge pressure on earnings. It will have about $1 billion in cash by the end of next month and is in good shape to meet its present requirements.

* The lower exchange rates are boosting tourism to Australia and New Zealand.

* The merger between the two airlines is bedding down and the company is starting to capture some of the synergistic benefits.

"Think where Air Zealand would be without Ansett's domestic market reach - and 33 per cent of its critical international inbound and 53 per cent of all its outbound traffic moving between Australia and New Zealand," Toomey said.

His upbeat assessment and reiteration that the airline was still considering legal action to block the new commercial partnership between Impulse and Qantas, resulted in a significant firming of Air New Zealand's share price.

Critical to that positive assessment was his rejection of any suggestion that Air New Zealand needed a Government bailout.

A swag of unsourced news stories - some even claiming that Air New Zealand could go bust - have done the rounds.

But when Sir Selwyn outlined the airline's funding options to this correspondent two weeks ago, there was never any suggestion that a proposal had already gone to the Government.

Toomey reiterated that point yesterday.

But he left the door open for that to change if the airline cannot get Government approval to changes in the structure of the company's shareholding so it can raise development capital through share issues.

"Internally, the possibility of seeking some transitional funding from the Government has been discussed, in the event that the Government considered it was too risky to make a structural change that would provide the company with access to a broader equity market before there is a broader deregulation of the international aviation market."

Investment bank Salomon Smith Barney's report on both fleet needs and financing options, together with business strategy recommendations from the company's executive management team, will be considered at board meetings next month and in August. Critical decisions will be made then.

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