Worsening Crisis Is Nothing New For Air NZ
By Stephen Wright
Of DOW JONES NEWSWIRES
WELLINGTON (Dow Jones)--Friday was business as usual for Air New Zealand . The airline's credit rating was cut, flights were canceled, its shares plumbed record lows, and there was speculation of mounting losses amid buck passing from management.
A question mark now hangs over the airline's future as it flies into heavy financial and political turbulence following the collapse overnight of its Australian subsidiary Ansett.
Air New Zealand believed voluntary administration had quarantined it from Ansett's liabilities and A$1.3 million a day losses, but that step couldn't shield it from the anger of Ansett's now jobless 16,000 workers and the 45,000 travelers stranded at Australian airports.
Air New Zealand jets were prevented from leaving Australian airports by labor action, and in an embarrassing low point for trans-Tasman relations, a flight carrying New Zealand's Prime Minister Helen Clark was stranded at Melbourne Airport by Ansett service vehicles.
Air New Zealand has yet to find an estimated NZ$500 million to cover the entitlements of Ansett's jettisoned employees, putting at risk the NZ$850 million refinancing plan stitched together by the government and major shareholders on Thursday.
The carrier Thursday reported a record NZ$1.425 billion full year net loss after writing down to zero its NZ$1.3 billion investment in hemorrhaging Ansett Australia.
Subject to due diligence, and the already satisfied condition of cutting Ansett adrift, the government will provide a NZ$550 million credit facility, while major shareholders Singapore Airlines (Singapore: SIAL.SI - news) (P.SAL) and Brierley Investments (A.BRY) will subscribe an equal share of NZ$300 million of new equity.
"My view is that Air New Zealand will be placed in administration and the government will end up owning it," said a local investment manager who asked not to be named.
The four to five week due diligence period exposes Air New Zealand and its bankers to considerable uncertainty while the emergence of significant contingent liabilities from Ansett could ground the rescue effort altogether, he said.
New Zealand's Finance Minister Michael Cullen, one of the architects of the refinancing package, also cast fresh doubt on the airline's future.
"There will no doubt be some liability owed by Air New Zealand to Ansett and those liabilities will be paid," Cullen said earlier on Friday.
"People are missing the point, perhaps, that Ansett's debts must be paid and if Air New Zealand can't pay that, then Air New Zealand is in threat of going into receivership," he said.
Cullen later clarified his comments, telling Dow Jones Newswires through a spokeswoman that "it should certainly not be taken from what I said that all Ansett's liabilities are Air New Zealand's."
Singapore Airlines, however, Friday reiterated its support for the refinancing arrangements.
"We are still committed to the NZ$150 million. That's still in place," a spokesman told Dow Jones Newswires.
Air New Zealand's shares, after surging Thursday on news of the rescue plan, hit fresh lows Friday amid concern about the financial implications of the Ansett collapse and general pressure on airline stocks from the U.S. terror attacks.
The carrier's resident-only A shares closed down 28.2% at NZ$0.51 and the unrestricted B shares gave up 32.4% to finish at NZ$0.50.
"There is quite a lot of uncertainty with Ansett being grounded and with all sorts of problems stemming from that," said Craig Robins, head of equities at Salomon Smith Barney in Wellington.
The airline canceled all flights to and from Australia after Ansett related industrial action shut down major airports there.
After the close of local stock market trading, Standard & Poor's cut Air New Zealand's B+ credit rating to B- which is one step above the vulnerable to default rating.
The credit ratings agency cited the airline's "very weak" financial position, limited financial flexibility, and the "uncertainties" associated with the recapitalization package.
"Commitment to the rescue package hinges on Air New Zealand releasing a full set of audited accounts, and clarification of its current financial position and contingent liabilities, without Ansett on its balance sheet," Standard & Poor's Corp. said.
The fall Friday in Air New Zealand's share price is also a concern, the agency said, because if sustained, will reduce the size of the proposed shareholder equity injection.
Air New Zealand, for its part, ineffectually pleaded it had given the Australian and New Zealand governments ample notice of the seriousness of Ansett's financial situation.
It's business as usual.
- By Stephen Wright, Dow Jones Newswires