Brian Gaynor: Infratil on shaky ground over charges

Lloyd Morrison is not at the top of Air New Zealand's invitation list. Infratil's boss is one of the strongest opponents of the proposed alliance between the national carrier and Qantas and he is now fighting the airline over increased aeronautical charges at Wellington Airport.

In August 1998 the Crown sold its 66 per cent stake in Wellington International Airport to New Zealand Airports Ltd for $96.4 million.

Infratil owned 40 per cent of NZ Airports and a few months later bought the remaining 60 per cent for $68 million. The airport cost Infratil $116.8 million and this investment has subsequently been revalued to $129.4 million.

Wellington City Council owns the remaining 34 per cent.

The airport's performance has fallen short of expectations. At the time of the acquisition the company was forecasting total passenger movements of 3.9 million for the 2002 financial year but the actual figure was 3.7 million.

Since 1998 the total number of passengers passing through the airport has risen by just 200,000, or 5.7 per cent, whereas Auckland International Airport has achieved growth of 1.3 million, or 17.3 per cent, and now processes 8.8 million passengers.

More importantly, international passengers account for only 13 per cent of total movements at Wellington compared with 59 per cent at Auckland.

Wellington's operating profit has been better than expected but its after-tax earnings have been lower because of financing costs associated with the airport's $116 million redevelopment.

The group's interest costs have risen by $10 million since 1998, yet its total revenue has increased by only $9.6 million.

Wellington Airport achieved net earnings of $3.4 million in the June 2002 year and analysts were forecasting a marginal increase for the current year before the hike in aeronautical charges, which are backdated to July 1.

By comparison, Auckland International Airport achieved net earnings of $71.5 million for the June 2002 year.

In early February the airport announced it would raise its aeronautical charges by 78 per cent, from $5.20 to $9.20 a passenger. The company said it was the first increase since 1997 and was "a direct result of the $116 million development of the new Wellington terminal".

Since then Infratil and Air New Zealand have been going at each other hammer and tongs.

Air New Zealand chief executive Ralph Norris said he was bitterly disappointed with the announcement and the new charges were substantially higher than at any other Australasian airport.

Infratil then produced figures indicating Auckland Airport's charges were much higher and Wellington Airport has filed High Court proceedings against Air New Zealand for $7.1 million, which is the amount due on the new charges backdated to July 2002.

On Friday, Air New Zealand's chief operating officer, Andrew Miller, went on the front foot, claiming the new charges were 2.6 times higher than Auckland and would cost Wellington 45,000 visitors a year.

The big difference between Wellington and Auckland airports is that the former has a low percentage of international passengers and international departure tax revenue. As this tax is an important source of funding for airport development, Wellington had to borrow a substantial portion of its $116 million redevelopment cost, whereas Auckland raises these funds through the international departure tax.

Thus international passengers contribute a high proportion of Auckland Airport's aeronautical revenue, while Air New Zealand supplies most of Wellington Airport's income. The figures the airline produced showed its contribution to aeronautical charges at both airports, rather than the total aeronautic revenue received by the two.

Morrison, Infratil and Wellington Airport are on shaky ground on this issue. Wellington has been unable to generate the passenger growth, particularly international, to fully justify its $116 million redevelopment and has boosted aeronautical charges by 78 per cent to compensate.

This is the action of a monopoly supplier, yet Morrison is highly critical of the proposed Air New Zealand/Qantas alliance because of its monopoly characteristics.

Annual Reports

In the past few weeks six companies - Carter Holt Harvey, Genesis Research & Development, Metlifecare, New Zealand Refining, Property for Industry and Waste Management - have released their annual reports. Several observations from these reports include:

* Based on share trading activity, directors don't have much confidence in these companies. There was no director share trading in four companies, Waste Management's directors were net sellers of 55,000 shares and Peter Masfen purchased 250,000 Property for Industry securities. The net investment by directors in these six companies was a paltry $22,000.

* The combined number of shareholders of the six companies has fallen from 61,535 to 59,684 in the past 12 months. Carter Holt lost 2702, or 6.4 per cent, of its shareholders but all the rest had slight gains.

* The share registry of all six companies has remained remarkably stable in the past 12 months.

* Increases in chief executive remuneration were kept in check with the exception of Genesis. Jim Watson's total pay rose from $297,000 to $370,000, even though the company's net loss widened from $9.6 million to $10.7 million.

* The five companies (Property for Industry is excluded because it operates under a management contract) paid 882 employees $100,000 or more compared with 814 employees in the previous year. The number of Carter Holt New Zealand employees paid $100,000 or more increased from 343 to 479 and from nine to 17 at Genesis. The increase at Carter Holt was the result of the positive impact of a rise in group earnings on profit-based employee incentives.

* Former Property for Industry chairman Allan Lockie received a retirement allowance of $135,000 (equal to three years' remuneration) but Alton Jamieson received nothing when he resigned as chairman of Waste Management.

* Waste Management is seeking an increase in directors' fees from $220,000 to $330,000 at the April 10 annual meeting.

* The six companies were fairly stingy when it came to donations. Three of them did not disclose any donations, Waste Management gave $9000, NZ Refining $28,000 and Carter Holt Harvey $719,000. The three main beneficiaries of Carter Holt's donations were Project Crimson $325,000, Project K $151,000 and the Knowledge Wave Trust $133,000.

* Payments to auditors for non-audit work fell dramatically, indicating that companies are taking corporate governance issues seriously.

The standard of the six reports is extremely good, but Property for Industry stands out because of its clarity and detailed information on individual properties. Two have slight deficiencies; Carter Holt's is poorly bound and Metlifecare is printed against a dark background that makes it difficult to read.

Metlifecare is the most optimistic about the future. Chief executive Gavin Aleksich wrote that the outlook for the company is "very positive" and it expects strong sales of apartments and villas.

Waste Management expects another year of growth, Property for Industry is in a strong financial position, NZ Refining is concerned about the proposed carbon tax and more exacting fuel specifications, Carter Holt believes it has good growth prospects in Australia and Genesis will concentrate on creating shareholder value.

* Disclosure of interest: Brian Gaynor is a Carter Holt and Metlifecare shareholder.

* Email Brian Gaynor