Long-haul pledge to keep Ansett

By DANIEL RIORDAN aviation writer

Singapore Airlines (SIA) says there is no way Ansett will be torn from parent Air NZ, even if the Government turns down SIA's rescue package for the national carrier.

Speaking to the Business Herald in Auckland yesterday , SIA deputy chairman and chief executive Dr Cheong Choong Kong said Ansett would remain within the Air NZ group, whatever the outcome of SIA's proposal to increase its stake in the combined group from 25 per cent to 49 per cent.

Dr Cheong met officials from the Prime Minister's Department, Transport and Treasury on Thursday. He said he had not added to the submissions already made to the Government, but had wanted to talk to officials to emphasise certain issues.

He said there were no new signals from the Government. Finance Minister Michael Cullen - the key minister in the decision - has said it would be "very, very difficult" for the Government to approve the proposal.

Dr Cheong would not be drawn on discussing any alternatives.

"But I can tell you those alternatives will not involve us selling down our stake. I have said this many times but it bears repeating. When we bought into Air NZ it was for the long term. We were buying into an Air NZ/Ansett combination for strategic reasons. We are not the type to call it quits when there is trouble.

"We do not perceive any circumstances in which we would sell down our stake in Ansett. Air NZ selling Ansett doesn't make sense."

He said it was an oft-reported fallacy that SIA's interest in Air NZ was largely because of the conduit it offered to Ansett.

"If there was any vein of truth in that belief, we would be jumping for joy at Qantas' proposal, and we are not."

Qantas has proposed buying SIA's 25 per cent stake, buying Brierley Investments' 30 per cent stake and selling it to other investors, and offloading Ansett to SIA.

Dr Cheong said SIA had not asked for any more influence than what it already enjoyed. The airline was happy to have fewer than half of Air NZ's 13 directors. It has three directors at present.

The chairman would continue to be a New Zealander, as required by the company's constitution.

Dr Cheong stressed that New Zealand management would continue to make the major decisions.

"We bought into Air NZ as a New Zealand brand and we don't want to see that brand diluted."

Air NZ would still have to raise money with a rights issue and/or notes issue, even if the SIA proposal went ahead, but Dr Cheong would not be drawn on the size of that funding requirement.

The removal of the airline's A and B share structure is understood to be part of the proposal.

The As are for New Zealand nationals only; the Bs for allcomers. The fact that the B shares comprise 49 per cent of the total keeps Air NZ majority-owned by New Zealanders, including Brierley Investments.

Dr Cheong cautioned that although SIA was prepared to inject $466 million into Air NZ, and then contribute more through a rights issue, it did not have unlimited cash reserves to support the airline.

"We do have surplus cash but within 12 months we will be in a net borrowing position."

SIA decided this month to give shareholders more than $S600 million ($809 million) through a capital reduction.

"But we do have the ability to put adequate cash into Air NZ and Ansett, turn the combined airline around, and tide it over its present difficulties."

It has been conjectured that SIA could also help Air NZ with its aircraft leasing requirements, a major cost for Ansett in particular as it looks to renew its ageing fleet. SIA has its own leasing firm.

Dr Cheong said any transactions between the two companies would have to be at arm's length - transferring the debt that the leasing obligations represent from Air NZ's balance sheet to SIA's would hardly be fair to SIA's shareholders.

"But everyone knows SIA has some influence with vendors simply because of the volume of our purchases. That relationship would be useful to our partners but I can't be more specific than that."

Dr Cheong also had a word of caution for Virgin Blue, the Australian discount airline owned by Sir Richard Branson which is seeking Government permission to cross the Tasman.

SIA has a 49 per cent stake in Virgin Atlantic but Dr Cheong stressed that Virgin Blue had no corporate link with SIA, beyond being within the Branson empire.

How would SIA feel about Virgin Blue flying in New Zealand?

"We wouldn't like it at all. There are things I cannot say publicly but I would be surprised if we see Virgin Blue in New Zealand."

Had he suggested to Sir Richard it would be a good idea if it did not turn up?

"Richard and I have a lot of discussions on a lot of things, including this."

Dr Cheong said he did not know when the Government would make a decision on the SIA proposal.

Dr Cullen has said Air NZ's board should know by the time it meets on August 30 to sign off the airline's June-year accounts.

Dr Cullen, one of three ministers considering the proposal - alongside Deputy Prime Minister Jim Anderton and Transport Minister Mark Gosche - plans to take a paper to the cabinet on Monday, but his office has said no decisions would be announced that day. Instead, the paper will narrow down the options.

Australian Transport Minister John Anderson will meet Dr Cullen and Mr Gosche in Wellington on Tuesday.

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