KEY POINTS:
The nomination of three new directors for the Auckland International Airport board is a clear sign that Auckland City Council and Manukau City Council have had enough.
They are fed up with the lack of consultation and believe that the only way they can become involved in these
processes is to have board representation.
The nominations also represent a challenge to airport director Mike Smith, who seems to have too much influence over the rest of the board.
Smith was the driving force behind the failed Dubai Aerospace proposal and a number of shareholders believe that this has discouraged, rather than encouraged, other proposals.
The outcome of the November 20 annual meeting could result in a major shift in power at the board table and have a significant impact on the future direction of the country's main port of entry.
When Auckland Airport listed in July 1998 it had three major shareholders: Auckland City 25.7 per cent; Manukau City 9.6 per cent; and North Shore City Council 7.1 per cent.
There were seven directors: chairman Wayne Boyd; Tony Frankham; managing director John Goulter; Mike Smith; Sir Laurence Stevens; Sir Wilson Whineray and Joan Withers.
Auckland City, Manukau City and North Shore City had no board representation but Goulter had strong political instincts and kept the local authorities well informed on the activities of the company.
Shortly after listing, Sir Laurence retired and was not replaced. This reduced the number of directors to six compared with a legal limit of eight.
North Shore sold its 7.1 per cent stake for $87 million in November 1999. These shares are now worth nearly $270 million.
Auckland City reduced its holding from 25.7 per cent to 12.9 per cent in December 2002 and received $191 million for these shares, which are now worth $480 million.
In July 2003, Goulter retired as managing director and chief executive and was replaced by Don Huse. Huse was not appointed to the board.
Keith Turner, chief executive of Meridian Energy, joined the board in April 2004.
The first sign of public discontent appeared at the 2005 annual meeting when 272.7 million shares were voted against the re-election of Tony Frankham to the board. Auckland City and Manukau City voted against Frankham but he was re-elected by the narrowest of margins, 50.7 per cent to 49.3 per cent.
It is not clear why the two councils voted against Frankham and in support of Smith, who was also re-elected at the same meeting.
Sir Wilson Whineray retired at the end of the 2005 annual meeting, John Maasland joined the board in August 2006 and Wayne Boyd retired after the October 2006 annual meeting.
Maasland replaced Boyd as chairman just two months after joining the board. It is difficult for a new chairman to exert much authority when he has only been on the board a few months and a number of his fellow directors are strong individuals with considerable knowledge of the company.
This certainly seemed to be the situation on July 23 when Auckland Airport, represented by Maasland and Smith, and Dubai Aerospace announced a proposal whereby the latter would take a controlling stake in New Zealand's major international gateway.
Smith dominated the presentation and it was clear that he, rather than Maasland, was the driving force behind the transaction.
But the deal was flawed because the city council shareholders had not been fully consulted and Dubai Aerospace started criticising the performance of the Auckland Airport management team instead of outlining its long-term strategy for the company.
Lloyd Morrison spotted an opportunity and now has voting control over 6.2 per cent of the company through shares owned by Infratil and New Zealand Superannuation Fund (the Super Fund shares in this holding are managed by Morrison's investment management company).
The Infratil/Super Fund combination is now the fifth largest shareholder after Auckland City Council 12.8 per cent, Manukau City Council 10.1 per cent, Sydney-based UBS 6.6 per cent, and Commonwealth Bank of Australia 6.3 per cent.
Meanwhile the Canadian Pension Plan Investment Board (CPPIB) has had a team of up to 10 people in New Zealand looking at Auckland Airport. This appears to support Smith's comments at the July 23 presentation that the agreement with Dubai would flush out other potential bidders.
However, Smith's strategy doesn't seem to be working. The Dubai deal has been terminated, and CPPIB is struggling to put an acceptable deal together because the two city councils no longer have full confidence in the Auckland Airport board.
The issue came to a head on Wednesday when the airport revealed that it had received director nominations for Lloyd Morrison from Infratil, Richard Didsbury from Auckland City Council and John Brabazon from Manukau City Council for the November 20 annual meeting.
This gave a clear signal that these three parties, which control 29.1 per cent of the votes, are dissatisfied with the performance of the Auckland Airport board.
The issue also reflects the problem we have in creating workable public/private partnerships in New Zealand.
Unfortunately this debate has been dominated by either the left or the right as historically we have had full public ownership of major assets with no private involvement. This was followed by full privatisation in the 1980s and early 1990s with no public involvement, while in recent years the momentum has swung back to full public ownership.
One of Morrison's attributes is that he holds no allegiances to either the left or the right. He is a practical businessman who has proved at TrustPower and Wellington International Airport that private/public partnerships can work.
Wellington Airport is 66 per cent owned by Infratil and 34 per cent by Wellington City Council. The latter has two board representatives, Mayor Kerry Prendergast and Wellington company director Denis Thom.
Infratil argues that this board representation has been extremely positive as Wellington City Council has a much better understanding of the airport's needs and, accordingly, has assisted its growth plans.
The vote at the November 20 Auckland Airport annual meeting will be more about the virtues of private/public partnerships than the quality of the newly nominated directors, although Morrison is the key person as far as the success of the proposed partnership is concerned.
The main arguments in favour of the three new director nominations are that the proposed restructurings under the current board structure are not getting any traction because the city councils have being excluded from the process.
Most shareholders, including the city councils, want a capital repayment, a new cornerstone minority shareholder and the issue of more tax effective securities. There is a better chance of this occurring if Morrison, Didsbury and Brabazon are elected to the airport board.
Disclosure of interest: Brian Gaynor is an investment strategist and analyst at Milford Asset Management.
AIA board of directors - awaiting new arrivals
Post-IPO board
Wayne Boyd (chairman)
Tony Frankham
Mike Smith
Joan Withers
Sir Laurence Stevens
Sir Wilson Whineray
John Goulter (managing director)
Current board
Maasland (chairman)
Tony Frankham
Mike Smith
Joan Withers
Keith Turner
* Legal limit is eight directors
