Govt to pay 27c per share for stake in Air New Zealand

9.30 am

The Government has agreed to pay 27 cents per share for an 82 per cent stake in Air New Zealand as the national airline is set to return to state control for the first time since 1989.

The $585 million injection is part of an $885 million Government bailout of the financially troubled carrier.

However, the Government said today it had agreed to inject a further $150 million in Air New Zealand by June 2003.

The fresh injection is to allow the airline to get back to a sound footing, a Government spokesman said.

It would be on terms to be negotiated. If it was needed, the Government preference would be that it would be equity, via a rights issue.

Finance Minister Michael Cullen said the transaction would take place in January subject to shareholder approval at the Air New Zealand Annual General Meeting, to be held on December 19.

"The price negotiated between the Crown and the Air New Zealand Board takes into account the current state of the company, and its likely future prospects and risks. It is below where Air New Zealand shares are currently trading, but the recent rise in the share price may reflect the market's confidence that the Crown's rescue package will restore the viability of the company."

In comment on the fresh capital, Dr Cullen said: "We acknowledge that Air New Zealand faces considerable uncertainties in the near term and that a further capital injection may be required."

Before the AGM, Air New Zealand would provide shareholders with details of the rescue deal, proposed changes to the company constitution, including a proposal to remove the distinction between the A and B shares, and a report commissioned by the Air New Zealand Board providing an independent view of the fairness and reasonableness of the pricing of the Crown's equity placement.

"I am happy with the share price the Crown is to pay," Dr Cullen said. "It is fair to all parties and will give us a controlling stake and the right to appoint the board, which is important if we are to be able to protect the taxpayers' investment."

Financial authorisation for the cash injection would be provided through an imprest supply bill to be introduced into Parliament next week for passage this year.

Air NZ's acting chairman, Jim Farmer, said the board had received advice that the price paid by the Government for the new shares was "fair and reasonable".

Dr Farmer welcomed the outcome of the airline's negotiations with the Government and said the price represented "an appropriate level for this major investment which will recapitalise the company".

The injection means Brierley Investment's former 30 per cent stake shrinks to 5.4 per cent and Singapore Airlines' 25 per cent stake falls to 4.5 per cent.

Air New Zealand's shares had not traded shortly after the announcement. The New Zealand residents-only Air NZ A shares closed unchanged at 37 cents yesterday and the Bs were also square at 38 cents. The distinction between the two will disappear after the recapitalisation is agreed at the company annual meeting.

The Government had already provided a loan of $300 million by way of convertible preference shares issued at 24 cents each that convert on January 1, 2005.

The rescue plan announced on October 4 said the issue price for the ordinary shares would be determined by the Crown after due diligence, as representing "fair value and could be higher or lower than 24 cents".

Air New Zealand began life as Tasman Empire Airways (Teal) in 1940 and first came under government control when the Australian and New Zealand governments bought half each in 1953. The Government took full ownership of Teal in 1961 and it was renamed Air New Zealand in 1965.

The airline was sold to a consortium of Brierley Investments, Qantas, Japan Airlines and American Airlines in 1989 for $660 million.

- NZPA

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