By VERNON SMALL and DANIEL RIORDAN
Singapore Airlines has dropped its objection to the Government having a direct stake in embattled Air New Zealand, opening the way for the state to again hold shares in the airline it privatised in 1989.
Singapore Airlines has twice blocked a Government holding, which would
dilute its own stake and influence on the Air NZ board.
But it has now dropped its objection after pressure from the Government and unions.
SIA holds 25 per cent of Air NZ and Brierley Investments has 30 per cent.
Each has agreed to put $150 million of new capital into the airline, and the Government has offered a $550 million loan subject to due diligence.
But Council of Trade Unions president Ross Wilson on Tuesday urged SIA to increase its pay-in or allow a direct Government stake.
SIA yesterday changed its stance, saying there should be more talks on the shape of the Government's contribution if due diligence showed it was inappropriate.
"This further discussion would necessarily include all options, including zero coupon debt instruments, convertible securities and common equity," it said.
But Finance Minister Michael Cullen said a big Government stake was unlikely, as was an increase in the proposed Government loan. However, some of the $550 million loan could be put into convertible securities.
"The Government is determined to ensure the survival of a viable Air New Zealand. It is not the Government's brief to ensure the protection of the existing major shareholders," he said.
Asked about the possibility of a direct equity stake, he said: "I think there are very serious risks for the Government because then we're signing up to parts of the liabilities of Air New Zealand.
"I doubt you're going to see the Government rushing in with a large amount of equity to rescue Air NZ."
Dr Cullen again referred to "other processes", seen as a reference to a contingency plan to put the airline under statutory management if it cannot trade out of its woes.
He is determined any decision on statutory management should be initiated by the Air NZ board.
The Government wants to avoid any suggestion it engineered a failure, because it may need to take a key role in re-establishing the airline if it falls into statutory management.
Commerce Minister Paul Swain, who would be responsible for recommending the appointment of a statutory manager on the advice of the Securities Commission, said yesterday the process had not started.
"It is for the board of Air NZ to decide whether that is the best way to go."
He said the best chance for Air NZ was to support the present rescue package. But Act leader Richard Prebble said statutory management was the only way to safeguard jobs and customers' tickets and keep the national airline flying.
As the politicians argued over Air NZ's future, Charles Goode, a SIA representative on the board, resigned his directorships of Air NZ and Ansett. Mr Goode, the chairman of ANZ Banking Group, had been a director since November last year.
He did not give a reason for his resignation, although there is speculation it relates to a potential conflict of interest as ANZ is one of the airline's creditors.
ANZ has said its exposure to Ansett is "not material", but analysts have estimated it could be between $A20 million ($24 million) and $A30 million.
It is not known how much Air NZ owes the bank.
Air NZ chief executive Gary Toomey has taken a leave of absence from the board of ANZ "because of time commitments associated with his role as CEO of Air New Zealand Ltd", the bank said.
Analysts on both sides of the Tasman say the present $850 million rescue package will not be enough to keep Air NZ flying. Estimates of how much more the airline will need to survive the next 18 months start at $500 million, but as world aviation markets go into freefall this is sure to increase.
The rescue package will leave the airline with estimated shareholders' funds of $800 million and net debt of $2.1 billion - too highly geared for the comfort of its bankers.
DF Mainland analyst Bruce McKay says the board could look at selling assets outside the core business of flying people from A to B - including travel agencies, properties, terminal and engineering services - and contract back the services it needs.
The total value of such assets is not disclosed in the airline's accounts.
Air NZ's big shareholders are also struggling, limiting their ability to contribute further. SIA has yet to give an indication of how much it will be affected by the fallout from last week's terrorist attacks, but its share price has slumped along with those of other airlines around the world.
Brierley Investments has its own problems. Two of its key assets are in the tourism industry - its 30 per cent stake in Air NZ and its 46 per cent stake in Britain's Thistle Hotels, long an anchor around its neck.
Rumours are circulating that Singapore Airlines may start a discount operation in Australia, where the collapse of its major domestic rival has allowed Qantas the rare luxury for an airline of being able to expand.
Meanwhile, the Securities Commission yesterday confirmed its "strong interest in disclosures of information by Air NZ over the past year".
The Market Surveillance Panel also said it was reviewing Air NZ's compliance with the disclosure requirements of the Stock Exchange's listing rules, was working closely with the Commission, and hoped to report its findings soon.
Commission chairwoman Jane Diplock said it would consider whether any further action was required when the Panel completes its review.
Air New Zealand A and B shares closed at 32 cents yesterday, down 6 cents and 4 cents respectively.
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By VERNON SMALL and DANIEL RIORDAN
Singapore Airlines has dropped its objection to the Government having a direct stake in embattled Air New Zealand, opening the way for the state to again hold shares in the airline it privatised in 1989.
Singapore Airlines has twice blocked a Government holding, which would
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