26.09.2001
By FRAN O'SULLIVAN, VERNON SMALL and DANIEL RIORDAN
Prime Minister Helen Clark has advised investors to hold on to their shares amid reports that her office has tested market reaction to the Government's increasing its commitment to the multimillion-dollar bailout of Air New Zealand.
"I'd recommend they hang on to them, because I am absolutely convinced that Air New Zealand has a viable future," she said yesterday.
"I'm certainly getting tickets bought for me on Air New Zealand and I have every confidence it's going to be flying."
Helen Clark's "don't sell" warning reversed the precipitous slide in Air New Zealand's share prices, which fell by 40 per cent on Monday after she raised statutory management as a viable option for the troubled airline.
Those close to the deal have suggested that one option would involve the Government's buying out either of the two main shareholders, Singapore Airlines or Brierley Investments.
Yesterday, Air New Zealand shares gained 50 per cent as the Prime Minister issued her confident statement that the airline would survive, and news filtered into the market that the Government was thinking about strengthening its role in the proposed $850 million bailout.
The A shares, restricted to New Zealand shareholders, closed at 26c, up 8c. The internationally tradeable B shares closed at 24c, up 8.5c.
Under a plan formulated before the terrorist attacks in the United States sent international aviation markets into turmoil, Brierley Investments and Singapore Airlines were each to come up with $150 million and the Government was to provide a $550 million loan.
A highly placed broking source said a representative from Helen Clark's office had placed calls to several major broking houses wanting to know how the market would react to one of two actions by the Government: putting capital into the airline or underwriting a rights issue.
A spokesman for Helen Clark declined to put specific questions to her on the move, saying she would not comment on such issues.
But MacQuarie equities analyst Arthur Lim said he believed a rights issue would be better received by the market, because it gave existing shareholders the option of maintaining their relative stakes in Air New Zealand.
A capital injection at the present low share prices would severely dilute their holdings.
In the past four weeks, Air New Zealand has lost 90 per cent of its value.
This has put pressure on the Government, the airline's independent directors and its two major shareholders to come up with a viable rescue plan to avoid putting the airline into statutory management.
Government negotiator Rob Cameron was yesterday working with Singapore Airlines and Brierley Investments on a new recapitalisation plan to replace that announced on September 13.
Speculation suggests that Mr Cameron has tested a proposal for the Government to buy out either of the two Singapore-based companies if they oppose increasing their commitments to the bailout.
That option would allow the Government to acquire shares at a deeply discounted rate, and the shareholders a quick exit path.
Mr Cameron, together with Treasury solicitor Ivan Kwok and a team of officials, was working in Auckland last night on the rescue and was not available for comment.
But acting Air New Zealand chairman Jim Farmer, QC, said the parties were continuing to make satisfactory progress on their negotiations.
"While negotiations are not yet completed, the directors of Air New Zealand remain hopeful that a successful outcome will be achieved soon," Dr Farmer said.
Until last night there had been no sign of job problems at Air New Zealand, despite airlines around the world cutting staff after the terrorist attacks in the United States.
But an indication came when 48 Air NZ flight crew trainees were told there would be no work for them at the end of the course.
One of the three groups of 16 trainees on six-week intensive courses received the news yesterday, just hours before they were due to graduate.
nzherald.co.nz/aviation
Stock Exchange has taken exception to PM's comments and Air NZ shares ceased trading earlier this morning.
Statutory management seems inevitable after this latest news.