'Virgin deal 'could have saved Ansett' say's Toomey
Sat "Weekend Australian" 7/9/02
'Virgin deal 'could have saved Ansett'
By Aviation writer Steve Creedy
September 07, 2002
FORMER Air New Zealand chief executive Gary Toomey believes Ansett would still be flying if an audacious plan to buy Virgin Blue for $US120 million ($220 million) had succeeded.
Now living in Auckland, Mr Toomey said yesterday he had planned to run Virgin as a low-cost operation in a strategy that would have seen Ansett halve its costs on some routes and boost its market share overnight from 41 to 49 per cent.
The plan proposed keeping Virgin Blue as a separate brand and using it to replace Ansett's troublesome BAe 146 aircraft on secondary routes.
Breaking a long silence a year after Ansett went down, Mr Toomey said: "I'm not saying we would have been giving a 50 per cent return on equity, but we would have turned around.
"We would have migrated Virgin Blue and it would have become a much greater piece of Ansett. Ansett would have gone back to operating the premium . . . end of the market on the main trunk routes with a new product."
Mr Toomey set up the Virgin deal with Richard Branson in April of last year and agreed on the $US120 million price, about half that paid by Chris Corrigan for a 50 per cent share in Virgin Blue last March. But a disagreement with Air NZ shareholder Singapore Airlines about the purchase price delayed the deal for four months.
By that time, Virgin had moved into the black and the deal famously collapsed during a press conference at Melbourne airport in which Sir Richard ripped up a check for $250,000. Mr Toomey believes the failure of the Virgin deal was a major factor in Ansett's collapse. "Basically, Ansett without Virgin was pretty much not a goer in its own right," he said.
"It couldn't exist in its current form, even with more capital."
The failure of the Virgin deal left Air NZ looking at the so-called Qantas strategy – where Qantas bought into Air New Zealand and Singapore took on Ansett – or simply selling Ansett to Singapore.
In the end, both options proved untenable, as did an attempt to sell the airline to Qantas for $1.
While conceding his short reign at Air NZ was not perfect, Mr Toomey believes history is giving the airline's management and board a rough deal.
"The way it appears in the epitaph is that it was a total stuff-up, but when you look at it at it there was a lot of work by a lot of people in difficult circumstances," he says.
Mr Toomey is frustrated with claims he had not made inroads into Ansett's high-cost structure, saying he identified $100 million of savings found in 2000-01 and a further $450 million last financial year.
He said he held extensive discussions with unions to restructure enterprise bargaining agreements largely due for renewal at the end of 2001. Mr Toomey also remains frustrated with claims that it was a lack of cash that prompted Air NZ to cast Ansett adrift.
"The company had the cash, it was the absence of a funding strategy and the need for a capital injection that was the problem" he said. "The directors had to make a judgment call about the carrying value of the investment and it was that decision to write down the carrying value . . . that prompted the loan covenants to be breached."
"Once Air New Zealand's debt became payable, it had no choice but to put Ansett into administration."