Make-or-break week begins for Air NZ

By DANIEL RIORDAN aviation writer

Air NZ today begins one of the most crucial weeks in its history, with chief executive Gary Toomey warning it will be back to square one if the Government rejects greater investment by Singapore Airlines.

Air NZ submitted its formal proposal for relaxing limits on foreign ownership last Thursday, but expects the Government to take several weeks to decide.

This afternoon Mr Toomey meets Transport Secretary Alastair Bisley, and possibly Treasury Secretary Alan Bollard and Mark Prebble, head of the Prime Minister's Department.

He also hopes to meet Transport Minister Mark Gosche and Tourism Minister Mark Burton later in the week, and he and acting chairman Jim Farmer have sought a meeting with Prime Minister Helen Clark.

But Mr Toomey said that meeting could be delayed as he understood the Prime Minister wanted Michael Cullen to be present. The Finance Minister is away for two weeks.

Ahead of these meetings, Mr Toomey is talking up the Singapore proposal, taking pains to point out that there is "no Plan B or Plan C."

"There are other alternatives, but this is by far the best because it gives us growth and takes care of all the national issues," he told the Business Herald.

"If this proposal gets knocked back, we would have to go back and examine all the other options."

Those seven other options, including selling Ansett, are in a report prepared for the airline by investment bank Salomon Smith Barney, which the Government now has as part of the Singapore proposal.

Mr Toomey said the report gave all the financial and qualitative information on each alternative.

Parliamentary sources say the Government is signalling that it cares only about Air NZ, not Ansett, and any arguments for lifting the ownership cap must aim at improving the core Air NZ operations, helping the koru fly in tourist markets, rather than helping Ansett.

However, selling Ansett would not be a quick fix and would damage Air NZ, according to Mr Toomey.

He said going back to the "good old days" of being small but profitable would offer only illusory medium-term benefits, and Air NZ's long-term future would probably be at risk. The same arguments that made the Ansett purchase a sound long-term move for Air NZ still applied, he said.

Air NZ got 25 per cent of its international business from across the Tasman, but would gradually lose that feed with Ansett under new ownership.

"Air NZ [without Ansett] is going to be a very, very small player in this global market. Eventually, it will lose all those things that attract the high-yield traveller."

Bigger players such as Qantas drew their passengers from larger home markets than New Zealand's, and enjoyed greater traffic feed on the return flights. That allowed them to fly more routes more frequently, and eventually Air New Zealand's tourism-boosting presence in overseas markets would be curtailed.

"The koru just won't be there."

Mr Toomey also emphasised that it would not be simple to sell Ansett.

"Given its current trading position, anyone acquiring it will not want to pay much for it. That puts our directors in a dilemma - selling into the bottom of a market before they can rebuild it. If you can't find a solution, ultimately you're left with the worst-case scenario of all: a business that needs a lot of work, losing value and money, which puts the whole show at risk.

"We're not trying to put pressure on the Government - we just don't want to lose the debate before it's even started."

He said Singapore did not want control and that Air NZ's international landing rights would not be compromised under the proposal.

The Australian Government's concern is keeping Ansett airborne and maintaining healthy competition in the domestic market. Air NZ/Ansett employs 15,000 staff in Australia.

Mr Toomey met Australian Prime Minister John Howard last week and reports from Canberra suggest that his Government would be happy with Singapore increasing its stake.

Meanwhile, Qantas is maintaining pressure from the sidelines.

It has told the New Zealand Government that its recently modified proposal to take a 25 per cent stake in Air NZ would deliver $150 million of synergy benefits for the Kiwi airline.

Those benefits would come from network expansion and savings in areas such as maintenance, purchasing, freight and sales.

Chief financial officer Peter Gregg said Qantas would continue to try to convince the Government of the merits of its proposal, which would involve buying and retaining Singapore's 25 per cent stake, buying and offloading Brierley Investments' 30 per cent stake - even if it meant a loss for Qantas - and selling Ansett to Singapore.

But given that Singapore has categorically stated it is not interested in quitting Air NZ, Qantas' chances of success appear slim.

Qantas is also using the debate in New Zealand to turn up the heat on its own Government over raising its foreign ownership caps, which are similar to Air New Zealand's.

British Airways owns 25 per cent of Qantas, which argues that if Singapore gets a bigger piece of the Air NZ/Ansett group, Qantas risks being marginalised in the region.

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