BUSINESS
MONDAY, 26 NOVEMBER 2001
B U S I N E S S S T O R Y
Further asset sales by Air NZ not ruled out
26 November 2001
Air New Zealand is understood to be "seriously considering" the sale of part of its engineering business, potentially worth between $100 million and $150 million, according to industry analysts.
The airline confirmed yesterday it is selling its South Island skifield business, but market analysts said that would be worth just a few million, and was a small part of the company.
The ski business, NZSki.com, includes Coronet Peak, The Remarkables and Mount Hutt, and may be worth $3 million to $5 million. It was seen as a distraction for Air New Zealand management.
But the real jewel in the crown that may be sold is the engineering business, though an airline spokesman said engineering was under review for job cuts, not for sale.
"Engineering is not under review for sale, but certainly under review in terms of cutting back staff. Everything is under review (for possible staff cuts)," a spokesman said yesterday.
But Air New Zealand could not rule the possible sale of its interest in an engineering joint venture in Christchurch. "We are looking across the group" he said.
The airline lost $1.4 billion in the year to June, after writing off $1.3 billion on the failed Ansett airline in Australia.
Air New Zealand shares have risen to 37 cents recently on the back of a 27 per cent fall in jet fuel prices in the past two months.
At present prices, the fall could save the airline as much as $80 million a year. The airline is now buying 80 per cent of its fuel at low spot prices, which is giving it a significant benefit.
Other assets would be identified for sale when the company decided to call for expressions of interest, rather than tagging them now as possible sales, but property sales are expected too.
The Government is bailing out Air New Zealand to the tune of $885 million, taking an expected stake of 80 per cent of the airline, though the deal is not yet complete.
Air NZ said recently it would cut the equivalent of 800 full-time positions - about half of them in management - from a total staff of 10,000.
Air New Zealand has a high international reputation for the quality and expertise of its engineering division, including a half share in an engineering business in Christchurch servicing engines from around the world. This could be packaged up with other parts of engineering for sale.
Engineering makes between $10 million and $15 million a year, indicating a value of up to $150 million one industry analyst, who did not want to be named, said yesterday.
It would be sad to see Air New Zealand sell off a large part of its engineering business the analyst said. But because of its financial problems the airline had little choice but to sell non-core assets and cut debt as much as possible.
Air New Zealand would always need its own engineering division of some sort, but it could package up a part of the operations for sale, buying back services from the sold business the analyst said.
Potential engineering business buyers could include international engine maker Pratt and Whitney, aircraft maker Lockheed or even other airlines.
Air New Zealand has a joint venture engineering business with Pratt and Whitney in Christchurch, which was launched earlier this year. Pratt and Whitney paid more than $50 million for 51 per cent of the business, employing about 350 staff. This interest could be put together with other engineering operations for possible sale, the analyst said.
Workers at Air New Zealand's joint venture engineering workshop in Christchurch are bracing themselves for layoffs as one of the key profit units suffers from the world aviation slowdown. International airlines send engines to Christchurch for repair, but sales are down an estimated 80 per cent, sources said last week.