Dialogue: Maybe it's better to ride on hope and hot air

By JOHN ROUGHAN

So much has happened this month that September 3 seems a lifetime ago. That Monday, the Prime Minister was asked at her post cabinet press conference how hard the Air New Zealand decision was proving to be.

"Oh, about five out of 10," she replied. "It is not really the Government's problem."

The next day it all started to slide. Sir Richard Branson announced that he would not sell his Australian fledgling, Virgin Blue, to the Air NZ-Ansett Group. In Parliament, Finance Minister Michael Cullen's face became more ashen and distant at each message he received.

Branson helpfully mentioned that Ansett was losing more than $1 million a day. In short order, Singapore Airlines withdrew its offer to buy in at $1.31 a share.

It has been downhill ever since, a tailspin in which anything anyone could say or do only made things worse. It would have carried the force of a national calamity had not a real one hit the world the following week.

The demise of Air New Zealand likewise leaves everyone gasping and asking, how could it happen?

The blame no doubt begins with Brierley directors and other corporate flyers who turned out to have feet of clay. But the Government's role has been particularly interesting.

When "CK" Cheong, chief executive of Singapore Airlines, approached ministers in June, they were faced with making a fine commercial judgment of the national interest within a vital industry that was already in the throes of a shakedown worldwide.

Surprisingly, the Coalition had no reluctance to raise the cap on foreign ownership so that Singapore could buy out Brierley. Even Jim Anderton declared that at times like this he distinguished between Alliance policy and the national interest.

The negotiations that started in July were based from the outset on raising the cap to 49 per cent and merging Air NZ's foreign and residential share registers.

This Government draws its character from Helen Clark: calm, methodical, diligent in its preparation, direct and factual with the press and public, adept at political management, proficient in ordinary public administration.

That could be the reason Air New Zealand is in a desperate state today.

The Singapore Airlines offer for Air NZ-Ansett ought to have taken ministers out of their comfort zone. But it did not seem to. A team of them went about preparing for the decision much as they would with any unfamiliar subject.

That is, they engaged an analyst who studied the proposition to death.

Rob Cameron was once high in the Treasury. He was, as Helen Clark, Michael Cullen and others well know, a leading light of the 1984 revolution, tinder dry in his economic outlook. In choosing him, the cabinet could be confident he would not expose public money to commercial risk.

His job essentially was to see that in return for raising the foreign ownership cap, certain public interests could be protected. He was to negotiate a commitment from Singapore to maintain Air NZ's international destinations, its promotion of New Zealand tourism and its aircraft engineering facilities.

But, quite properly, he did more. He ran a financial rule over the deal and found the Singapore proposal would not improve Air NZ's balance sheet to the extent needed to revitalise that sorry acquisition, Ansett Australia.

He told the Government the deal would not work and, if accepted, the company's problems would return, possibly in even worse shape.

To this day, Helen Clark, Michael Cullen and other ministers in the discussions firmly believe the directors of Air New Zealand and Singapore Airlines had no idea of the true condition of Ansett until Mr Cameron told them. It is still hard to believe.

In any event, the Government invited Air NZ and its shareholders to come up with a better business plan. By that Monday, September 3, they thought they had one. There was talk of an announcement in two days, before Dr Cullen departed for an Apec meeting.

But within 24 hours, Helen Clark, Dr Cullen and the others were looking very grim indeed. The purchase of Virgin Blue, it turned out, had been Plan B.

Thereafter Ansett had to be cut loose. It was offered to Qantas for a dollar, or even with a dowry. Qantas said no thanks.

With Air NZ due to report its losses, the board and the Government jointly announced Plan C. Ansett was abandoned. Air NZ was to be rescued with $150 million each from SIA and Brierley and loans of $550 million from the taxpayer. It did not work. The share price went into freefall.

This week we awaited Plan D. A Government buy-in? Statutory management? It was becoming tragicomic. The stock was so delicate that Helen Clark's mildest comment sent the price down one day, up the next. The Stock Exchange halted trading, demanding to know what she knew.

Loose lips is a harsh judgment. The Government let barely a word slip until it did not matter. Day after day in Parliament ministers calmly denied accusations of "dithering". But one day Acting Finance Minister Trevor Mallard snapped.

This Government, he said, does not do cosy, backroom deals with business the way a National government would. He was right. People more familiar with business might have responded more instinctively, sensed the urgency and made sure a deal could be grabbed while it was going.

Business, particularly airlines, I suspect, has to ride sometimes on hope and hot air as well as balance sheets. And sometimes their regulators should look beyond the books and the most thorough advice. Sometimes, for reasons risk-takers cannot justify out loud, it might have been better just to go for it.