Virgin turbulence buffets Air NZ

By SIMON LOUISSON

Air New Zealand shares took a further deep dive as investors continued to jettison the stock in the wake of a double whammy from Sir Richard Branson's Virgin Group.

Air New Zealand's A shares, supposed to be owned by New Zealanders, dived 11c to 200c, while the B shares fared even worse, dropping 9 per cent, or 22c, to 223c.

The A shares have plummeted 38.7 per cent since last June and the B shares 46 per cent.

Brierley Investments has a paper loss of more than $50 million, having increased its holding in Air NZ to 47 per cent from 42 per cent last year. Its share price was steady on 38c.

Air NZ's shares have been in decline since Sir Richard said in November that he would set up a cut-price airline in Australia. Those plans were seen as upsetting the recovery of Air NZ's half-owned Ansett Australia.

Last month, Sir Richard further hurt Air NZ when Virgin Atlantic tied up with Singapore Airlines, which bought 49 per cent of the British airline.

On Tuesday, Singapore said it was talking to Virgin Atlantic, the holding company for Virgin Airways, about working together on the cut-price airline in Australia.

BIL had hoped to exercise its pre-emptive rights with News Corp over the 50 per cent Ansett stake and then sell a stake in Air NZ to Singapore.

But BIL executives botched the deal, upsetting Singapore Airlines by interfering in its planned purchase of Ansett and appear to have little hope of resurrecting that deal, US Investment house Morgan Stanley Dean Witter reported last month.

Singapore also considered Brierley's price for Air NZ shares was too high.

Although BIL, now foreign-owned and foreign-based, recently received approval from the new Government to circumvent the Kiwi share foreign ownership rules of Air NZ, it has been left with no plan of exit for its holding, which represents 37 per cent of its total assets.

Deutsche Securities analyst Kevin Bennett said three large factors were dragging Air NZ down, Virgin being the single largest.

"Operationally, Virgin has cast a pall over Ansett, which had been going very well. There is no impact yet but there is potential impact.

"Fuel costs clearly have had an impact already.

"Then from a strategic perspective, you have a heightened uncertainty both as regards the final shareholder and also, if Singapore were to go into the Virgin camp, from what that does to competitive forces in the region."

Mr Bennett said that if the Singapore-Virgin deal was consummated in Australia then it raised questions about what sort of relationship Air NZ and Ansett could have with Singapore Airlines

The Australian Competition and Consumer Commission has opposed collusion and, given that Virgin is the best hope to break the Australian airline duopoly, is unlikely to play ball.

Brokers have also downgraded their forecasts for Air NZ's profit, partly because of the rise in fuel prices.

BIL in November extended its notice to raise its stake in Air NZ to 60 per cent, saying it would pay $2.40 to $3.40 for up to 22 million A shares and $3.30 to $4.30 for up to 52 million B shares. Although the notice applies to March 31, it can be confined to the list of bad jokes.

- NZPA