A letter of expectations sent by Finance Minister Grant Robertson to Air New Zealand chairman Dame Therese Walsh yesterday is a real shocker.
Not only has Robertson moved to tighten his personal grip as shareholding minister on Air New Zealand by saying the Government will be an "active majority shareholder", he also wants the board's culture and skills realigned to meet his expanded laundry list of "enduring expectations" and expects the Government to be "involved in the process leading to board renewal".
The letter came as the Government walked back on an earlier commitment to support a capital raising for Air New Zealand by June 30. Both parties maintain a new capital raising deadline of September 30 has been set by agreement and the Government has reaffirmed it intends to maintain its majority stake.
But anyone who thinks saddling the national flag carrier with an expanded loan facility of up to $1.5 billion meantime – even if accompanied by a move to drop the existing interest rate from a usurious maximum of 9 per cent down to a new top rate of 5.3 per cent – makes good business sense needs to take another look at what is really going on.
In its announcement to the NZX, and subsequent media interviews, Air New Zealand contorted itself on a proverbial pin by saying the airline, Treasury and their respective advisers had been road-testing various scenarios in an environment where Covid presented an ever-changing stress to models. It all got too hard.
Frankly, this process is not as unachievable as CEO Greg Foran has made out. There have been plenty of other capital raisings for airlines since the Covid-19 pandemic decimated aviation. Yes, some have had to top up those raisings more than once.
But markets have accommodated that.
One scenario doing the rounds is that the three-month delay to the capital raise is in the Government's interest while it considers lifting its stake well above 52 per cent.
This would fit well with the Labour Government's statist approach to business.
It does not favour the mixed-ownership model under which Air NZ and three electricity generation companies operate.
In June 2018, Robertson wrote to the chairs of those companies saying shareholding ministers continue to reserve the right to nominate and vote for their own candidates as directors and to vote against board-nominated candidates, or to vote for candidates nominated by other shareholders if they felt that any of these steps are appropriate.
"We expect this to happen very rarely (and note that it has not happened to date) and that it would be a step only taken towards the end of a process of escalating concerns with the board regarding the company's performance or board composition, where shareholding Ministers were not satisfied that those concerns were being addressed," he wrote.
He added a further caveat: Chairs should normally serve, as chairs, for a maximum of 9 years.
Contrast this with yesterday's letter, where Robertson makes clear that in Air New Zealand's case intentions have sharpened.
He wrote that given the critical role Air New Zealand plays in the success of New Zealand both socially and economically, the Government's enduring expectations for Air NZ are:
• To be a "national airline" continuing in operation to support economic development, including access to international markets for our exporters and international tourism linkages, once international borders re-open;
• To maintain a comprehensive domestic route network that allows people and goods to move across New Zealand in a timely fashion at a reasonable cost;
• To demonstrate its commitment to environmental sustainability, including engaging with the development of new aviation fuels for New Zealand;
• To enhance its role as a leader for best practice workplace relations given it is one of New Zealand's largest employers;
• To continue acting as a responsible corporate citizen; and
• To achieve these objectives while operating as a commercially sustainable and capital efficient business.
"My expectation is that the executive and, where appropriate, directors of Air New Zealand should be aware of and have oversight over the activities or proposed activities of Air New Zealand and all of its subsidiaries, so that they can exercise their judgement over whether those activities or proposed activities are appropriate," he wrote.
The Government did of course want Air New Zealand to achieve these objectives while operating as a commercially sustainable and capital efficient business.
He opined that a critical part of being capital efficient is ensuring Air New Zealand is continuously re-evaluating and optimising its fleet of aircraft, and the financing of those aircraft.
"Achieving these expectations and objectives will require alignment of board culture and skills with Air New Zealand's strategy and stakeholder relationships as part of its ongoing renewal of the board.
"The Government, as majority shareholder, expects to be involved in the process that will lead to board renewal.
"The Government expects that delivering the above objectives and meeting the Government's expectations will be aligned to the creation of long-term value for Air New Zealand, its shareholders, employees and stakeholders."
Robertson contends that nothing in his letter and none of the Government's objectives or expectations conflict with the duties of Air New Zealand's directors, including their duty to act in the best interests of the company.
"The Government's expectations set out in this letter do not alter the fundamental principles of the relationship between the Crown as majority shareholder and Air New Zealand, with the board of directors, Chief Executive and executive team, not shareholders, being responsible and accountable for all company decisions," he wrote.
Robertson is splitting hairs.
The Walsh letter will have a chilling effect on other directors of mixed-ownership companies and shareholders who supported their IPOs.
As no doubt it is intended to do.