And the kiwi's wonder why we want to see them go down with us!
quote:
------------------------------------------------------------------------------------------
Ansett: absolutely gone
By MARK WESTFIELD
15sep01
WITHIN days of Air New Zealand cementing management control of Ansett Airlines in October last year, the New Zealand national carrier ran its entire group fuel bill through the Ansett account.
Because Air NZ had not hedged its fuel costs, Ansett's cash provided the buffer and the necessary resources to get the New Zealanders through the sharp fuel price rises of 2000 and shield the parent company from this volatile cost factor. Ansett did not fare so well.
An Air NZ spokesman, Stephen Jones, denied last night that the airline had stripped cash out of Ansett and said that in the intra-group dealings over fuel, Air NZ had paid a net $184 million to Ansett in the year to June 30.
Who can believe this? Air NZ's management and board has lost all credibility and trust over recent months as it has chopped and changed its story as to its financial position. In June, chief executive Gary Toomey assured markets that Air NZ did not need a bailout and had more than adequate cash.
On Thursday, after announcing an operating loss of $NZ280.2 million ($230 million) and a writedown of its Ansett investment of $NZ1.3 billion, Air NZ announced a bailout worth $NZ850 million, or more than double its market capitalisation.
This was the blind leading the blind. One financial basket case dragging down the other.
Which was in the more parlous position? Certainly Ansett had been starved of investment funds for nearly a decade as its previous owners, TNT Ltd and News Limited (publisher of The Weekend Australian) sought to sell their stakes. Air NZ was the buyer, but was in desperate financial trouble itself.
The brief history of Air NZ's stewardship is one of starving Ansett to feed the parent.
In the sorry aftermath of Ansett's collapse this week, mainly
Continued -- Page 36
because it has been so comprehensively stripped of cash, the Air NZ board has blamed the Australian Government and Ansett management. Air NZ directors resorted to the tried solution across the Tasman of "blaming the Aussies".
The fact is, last October most of Ansett's experienced managers were sacked and replaced by New Zealanders. Ansett management was almost entirely made up of Air NZ people.
Sure, Air NZ had paid over $1 billion for Ansett including $580 million to mop up the 50 per cent it did not own from News in June last year after having paid $460 million for its first half share of the airline from TNT Ltd in 1996. It had three directors on the Ansett board from then on, and had considerable influence over the way the airline was run.
For instance, it stopped an attempt by former chief executive Rod Eddington in 1998 to sell some ageing Boeing 767s to buy later models because, as former Air NZ chief executive Jim McCrea claimed, the group funds should be applied to buying aircraft for Air NZ. McCrea was sacked in the October 2000 bloodbath which claimed so many Ansett people. He was replaced two months later by Toomey.
When Eddington suggested putting Ansett on the Australia to Los Angeles run, he was blocked by Air NZ on the grounds it might have taken some business from Air NZ.
Eddington argued that both airlines would take business from Qantas, but the New Zealanders remained stubborn.
When Air NZ moved to 100 per cent last year, Ansett's increasingly desperate need for capital to finance a fleet-renewal program worth roughly $4 billion was not a secret to the Air NZ board.
It went into full ownership with its eyes open.
Ironically, Air NZ had elbowed aside another potential buyer of the News Ltd stake. When News announced in March 1999 that it was selling its half share to Singapore Airlines for $500 million, Air NZ responded by exercising its pre-emptive rights as a 50 per cent owner. For the next 11 months Air NZ dithered and jerked News and Ansett around before finally declaring in February 2000 it would buy the remaining half share.
In the meantime, Ansett was left hanging. Its ownership had been a matter of speculation since the early 1990s when TNT ran into financial trouble. Its long-term partners News and TNT had spent only the bare minimum on Ansett in the meantime while the partners awaited buyers.
Had News been able to complete the sale of its half share to Singapore in 1999, the Singaporeans had the resources to immediately invest sufficient money to finance a fleet re-equipment program.
Air NZ was wading in way out of its depth. Ansett was twice the size of Air NZ. The New Zealanders simply could not afford Ansett.
Air NZ as the 100 per cent owner of Ansett was entitled to put its fuel bill on the Ansett account. This week, however, Air NZ walked away from Ansett by appointing a voluntary administrator.
That it cut Ansett lose and placed the airline into voluntary administration, forcing the airline out of the air at the cost of 16,000 jobs reveals a darker motive.
The decision to put the Air NZ fuel account through Ansett last October added another $30 million a month to Ansett's costs, and over the 11 months that Air NZ controlled 100 per cent of Ansett, the New Zealand airline is estimated to have stripped roughly $300 million out of the Australian carrier on top of Ansett's own fuel costs.
Air NZ's mishandling of Ansett for short-term survival considerations across the Tasman will cause long-term damage to New Zealand's reputation.
The dramatic decline of its corporations during the 1990s has reached the point where the whole New Zealand stock market is capitalised at less than half the value of just one Australian company, a depreciated Telstra.
The tens of thousands of Australian and overseas travellers left stranded yesterday by Air New Zealand's cynical decision to place Ansett into voluntary administration this week inevitably means that business in New Zealand is set to continue its decline.
The country is redlined now as an investment destination from abroad. The contemptuous way in which one of New Zealand's premier boards has dealt with Ansett has damaged the country's reputation and that of its managers permanently in the eyes of Australian investors.
New Zealand has a reputation as a cowboy market on the outer fringes of global market acceptance. Australians wonder why their dollar has been sold down so heavily in the last 18 months. The New Zealand unit is 25 per cent lower again.
This debacle has been exacerbated by the conflicting and ambiguous statements from Air NZ management and the Government across the Tasman which have stripped away any last shreds of credibility Air NZ may have retained after its disastrous decision to push aside Singapore two years ago.
Three months after Toomey's reassurances, Air NZ announced a $NZ1.4 billion ($1.14 billion) bottom-line loss and a bailout worth more than twice its capitalisation. Key shareholders, Singapore Airlines and Brierley Investments, would invest $NZ150 million each, and the New Zealand Government would lend the stricken carrier up to $NZ550 million.
The company's management and board has been economical with the truth.
The New Zealand Government has dithered over the question of whether it should allow Singapore to raise its stake beyond 25 per cent. In the recapitalisation, it will go to 34 per cent. This will probably not be enough.
But the Air NZ board's move to stave off the collapse of the New Zealand parent by jettisoning Ansett has serious ramifications for Australia. Ansett's two main competitors, Qantas and Virgin Blue, simply don't have the capacity to cater for the demand that Ansett's demise has left. Qantas is quoting up to a fortnight to take passengers left stranded by Ansett's grounding to their desired destinations.
Cargo clients are complaining that Qantas wants to charge two to three times the rates Ansett had charged.
Added to the thousands of angry travellers stuck in transit or unable to go where they want is the critical issue of the sudden collapse of Australia's largest cargo carrier.
Ansett carried cargo for all the major freight forwarders, TNT, Mayne, Toll, Star Track and ADX, plus much of the time-sensitive freight such as seafood out of Tasmania, South and Western Australia bound for the east coast capitals and export.
Although Air NZ chairman Jim Farmer attempted this week to blame everyone from the Australian Government to Ansett management for the airline's collapse, the inescapable fact is that Farmer and his board and the New Zealand Government created this crisis through their indecision and incompetence. Only one potential buyer stands between a possible return to the skies and liquidation for Ansett, and that is the proposed management buyout by pilots, flight attendants and ground staff. The pilots tried to buy the half share of Ansett being sold by News Limited in January last year, but appeared to have trouble gathering the resources to complete the deal.
Ansett's ownership had been in limbo for nearly a year up to that point, after Air NZ exercised its pre-emptive right to the News half share and scuttled a proposed purchase of the News stake by Singapore Airlines.
The New Zealanders then dithered and jerked News and Ansett around for the next 10 months while they worked out whether they could, in fact, afford to buy the News half-share.
Clearly, Air NZ couldn't. Air NZ's own finances were crumbling at the time when it decided finally to go ahead and buy the half share it didn't own. It was getting way, way out of its depth.
The managers it sent to Australia had never worked in a competitive environment like Australia's and quickly showed how little their grasp was of the complexities of the market.
Air NZ bungled its management of Ansett and sucked it dry of cash. Then it blamed the Australian Government.
This disaster has been a long time coming. It was a matter of when, not if.
Air NZ's stewardship of Ansett has been characterised by bungling mismanagement and the siphoning of hundreds of millions of dollars of cash out of the Australian carrier. It refused to re-invest in new aircraft and equipment and forced it to take Air NZ freight free within Australia. Until last October, Ansett had earned about $70 million a year freighting cargo on behalf of Air NZ within Australia but this cash flow stopped immediately Air NZ went to 100 per cent.
Ansett is gone now and Air NZ shareholders can ask their board how they blew $NZ1.3 billion of the company's money. The B shares are trading at a new record low of NZ51c.
The airline will be broken up now and its assets shared between rivals Qantas, Virgin Blue and perhaps the ex-Ansett pilots.
Although some will yearn for the certainty of the old two-airlines regime, competition policy has changed the civil aviation industry forever.
quote:
------------------------------------------------------------------------------------------