Soft landing out after Cushing's ride to hell

FRAN O'SULLIVAN discovers that the last month has taken a heavy toll on Air New Zealand's chairman.

Sir Selwyn Cushing at 64 is looking every bit his age, and more.

The Air New Zealand chairman has been to hell and back since the dubious grounding of the airline's Australian offshoot right on Easter Weekend, costing the company the thick end of $100 million.

His physical and mental limits have been clearly stretched.

This week Australia's highly political Civil Aviation Safety Authority reinstated the vital airworthiness certificates for Ansett Australia's B767 fleet after a penetrating examination found the planes fit to fly.

The Casa fiasco rankles with Cushing, who has some sympathy with the suspicion that it may be part of a broader plot to bring down Air New Zealand.

But his attention is now turned to the urgent need to recapitalise Air New Zealand so it can raise the cash to finance the $5 billion programme to renew Ansett Australia's fleet.

"Ansett is still a jewel despite this," said Cushing.

"It will be an even bigger jewel if we had new 767s. But we have got to have a proper balance sheet."

It is a complex situation where one false step could end with New Zealand's international aviation rights under challenge from competitors and their host Governments alike.

Cushing, fronting a tough challenge, is working up a proposal to ask the Government to come to the party with $500 million to $700 million of new capital investment in the next two years so Air New Zealand can raise the money to replenish its Australian fleet and maintain its position in the highly competitive international aviation market.

Air New Zealand has asked the Government for a formal meeting to consider its future. But the date has not been made public.

From the Beehive, Prime Minister Helen Clark has been keeping a watching brief. In a late-night call from Invercargill on Thursday, Clark said the situation "was very sensitive."

Her "for the record" comments were atypically parsimonious.

"Obviously, in the national interest we have to safeguard the bilateral rights we have negotiated."

But she would not be drawn on the Government's response to a potential Air New Zealand request to inject taxpayer money if it could not obtain sufficient capital overseas without jeopardising its vital international landing rights.

When the last Labour Government privatised Air New Zealand it took up a Kiwi, or Golden share, to protect the country's national aviation interests.

Under the provisions of this special rights share, the airline cannot change the name of the company or relocate its head office outside New Zealand without the Government's permission.

More importantly, no shareholding changes that threaten the vital foreign ownership levels can take place without Government approval.

Government policy has been to restrict a single foreign airline to a 25 per cent holding, with the total foreign airline interests capped at 35 per cent and total overseas ownership nominally capped at 49 per cent.

Air New Zealand shares have been designated as either A or B shares to ensure these thresholds are kept. But New Zealand's weak capital market has made it difficult to maintain these limits.

Cushing's push for Government finance is a risky one. He must beat off the claims that will inevitably emerge that the Government is being asked to bail out Air New Zealand. While the request to the Government may simply be the first step in a long negotiation which ultimately ends up with another capital solution, Cushing says the airline has few other alternative options for overseas financing which do not shift its vital ownership balance and give rise to the risk that international landing rights may be withdrawn.

Cushing must also maintain confidence in the national flag carrier as media speculation swirls that directors aligned with the airline's major shareholder, Singapore Airlines, are jostling with their New Zealand-based counterparts for domination of the company's board following his upcoming retirement.

Breaking from his back-to-back schedule for an in-depth discussion on Wednesday morning at his offices marked simply S. J. Cushing, on the 26th floor of Auckland's Big Pinky tower, the business knight was his usual elliptical self.

But his warm civility masks a cold-blooded determination that control of New Zealand's national carrier must remain in local hands until the transition to the 21st-century era of global aviation markets is complete.

"We've got to have a capital structure that conforms. I don't see this as a long-term situation, just until the international air rights situation beds down."

The complex system of bilateral inter-Government agreements that control the international aviation market has begun to break down as the forces of globalisation gather pace.

Large areas such as Europe have moved to open skies agreements which enable qualifying airlines to move freely across broad territories without having to negotiate bilateral landing rights country by country.

But Air New Zealand is not in that camp. Yet.

Some of its routes, including the US and Singapore, are governed under open skies arrangements. Others such as Japan and the UK are controlled by bilateral agreements that restrict flights to the designated flag carrier which must be majority owned and controlled by New Zealand nationals.

The situation is hugely complicated by Air New Zealand's existing structure. Two shareholders, Singapore Airlines (25 per cent) and Brierley Investments (30 per cent), between them have the majority of Air New Zealand shares. Both these companies are linked by a series of inter-locking directorships and shareholdings.

But because both shareholders are based overseas, the company has had to set up an arrangement vesting Brierley Investments' holding within an entity called BIL NZ Assets.

This trust has a board, headed by New Zealand QC Bill Wilson, which comprises New Zealand nationals, the majority of whom have no connection with Brierley Investments.

But with the Australasian aviation market heating up, both Air New Zealand's chairman, who is also chairman of Brierley Investments, and the Government alike, are concerned that other competing airlines, particularly Qantas Airways, may attack the structure as mere window-dressing.

When Air New Zealand struck trouble in Australia last month, Singapore Airlines issued a statement saying it would not inject funds at that point.

Brierley Investments had already sold some of its own Air New Zealand holding to Singapore Airlines, but the Clark Government has so far refused to let it increase its holding above the current 25 per cent level.

In any event, a mere shareholding shuffle will not provide the extra capital the company requires.

Even if both major shareholders put extra capital into Air New Zealand there are doubts local institutions and private shareholders will be able to contribute enough on their own account to maintain the relative shareholdings.

No successful businessman likes having to eat crow by going to the Government for funds, particularly one with Cushing's track record as a corporate doctor and company chairman.

"Everyone realises that this is not a bailout," Cushing says. "We suffer from an accumulated shackling of our capital raising ability."

From the Prime Minister down, the Government will not be enamoured with the prospect of having to shell out cash to support the national flag carrier.

Finance Minister Michael Cullen and Transport Minister Mark Gosche have been informally briefed about the airline's problems.

Intense discussions taking place in Wellington and Auckland will probe all the options before any proposal for the Government to subscribe to an issue of capital notes or convertible shares is approved.

US investment bank Salomon Smith Barney will present its own report on recapitalisation options to an Air New Zealand board meeting next month.

As one investment banker put it: getting a handle on New Zealand's capital requirements is a bit like caressing a woman with breast implants.

"The silicon shifts about and it's hard to work out whether you are dealing with C or D cups."

As Cushing himself puts it: "Since the collapse of Qantas New Zealand, the Australasian market has been changing on a week-by-week basis as player after player changes plans - with it Air New Zealand's business case."

The airline needs a large capital injection to renew its fleet and pay for the expansion of its markets.

It is cash-flow positive and the crippling fuel costs which have savagely affected the profits of airlines worldwide have now subsided.

Importantly, it will be able to contribute up to $1 billion of the $5 billion recapitalisation programme from its own cash balances.

Air New Zealand has been a relative minnow in the shark-infested global aviation market.

But with its acquisition of Ansett Australia and its membership of the Star Alliance, it has now entered a larger and tougher game where no quarters are given.

An Australian article headlined "Goode for Whom" has been seized on by Cushing and Prime Minister alike as giving rise to concern that there is a hidden agenda to control Air New Zealand from Melbourne.

Charles Goode, a Singapore Airlines appointment to the Air New Zealand board, had been described as helping SIA smash international boundaries to that airline's advantage.

Reports that Goode associate John Rose - who like him is both a Woodside Petroleum director and a director in Air New Zealand- is hunting for an Auckland residence, have been seized on by media as evidence that a push is on to make Rose the next chairman of Air New Zealand, rather than the expected local contenders: former National cabinet minister Philip Burdon and ASB Bank chief executive Ralph Norris.

Cushing will hold the role until Air New Zealand's June 30 balance date is passed. A four-person nominations panel headed by Auckland QC Jim Farmer is now charged with identifying a new chairman to take the airline forward.

The panel, set up two weeks ago, includes Air New Zealand's managing director Gary Toomey, Brierley Investments CEO Greg Terry and Goode, who is also chairman of ANZ Banking Corporation. The committee has yet to meet.

Credited as the country's best chairman in the 1998 Deloitte/Management Top 200 Awards, Cushing, like most successful businessmen of his vintage, has long learned to take the rough with the smooth.

Yesterday afternoon Sir Selwyn and his long-time partner Glennis Webber flew up to Fiji for a few days at the Nadi Sheraton.

But as the silken frangipani-laden breezes waft in from the Pacific to filter through the open air dining rooms, Cushing can be forgiven for taking a breather.

He will be straight back into the fray when he returns next week.

"Four weeks ago I did not believe we would suddenly have the planes we leased to Qantas New Zealand back on our plate.

"It is very difficult to forecast. It's so volatile and so turbulent and there are a lot trying to stop us."

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