Urgent: Skies grow dark for Air NZ, Ansett in Huge Trouble:CONFIRMED

[Wirraway]

Skies grow dark for Air NZ

Nick Venter and Roeland van den Bergh
06sep01

THE future of Air New Zealand was up in the air last night amid suggestions Singapore Airlines had slashed its offer to raise its holdings in the NZ national carrier.

SIA had been prepared to pay $NZ1.31 a share but sources said yesterday the offer was cut to $NZ1 as concern mounted about the airline's financial position.
Air NZ spokesman Mark Champion confirmed the airline's board yesterday held an unscheduled crisis meeting but would not say whether the directors had satisfied the NZ Government's request for extra information.

NZ Finance Minister Michael Cullen told Parliament yesterday the Government could not make decisions on the airline's future until it was "able to be precise about its plans and what implications those plans have".

SIA is seeking government approval to increase its shareholding in the airline from 25 to 49 per cent.

The increase would recapitalise Air NZ and help finance a multi-billion-dollar fleet upgrade for its ailing subsidiary, Ansett Australia.


The true state of Ansett's finances has reportedly only become apparent in the past few days as a result of NZ government negotiator Rob Cameron's inquiries and Singapore Airlines's own investigations before increasing its stake.

The airline suffered a further setback on Tuesday when British tycoon Sir Richard Branson decided against selling his Virgin Blue airline to Ansett Australia. The cut-price airline would have helped Ansett compete against Qantas.

In the wake of that rejection, SIA refused an offer from Air New Zealand to buy Ansett, sources said.

Source: Todays Daily Telegraph http://www.newsdirectory.com/go/?f=&...legraph.com.au

[ 05 September 2001: Message edited by: Wirraway ]

[ 05 September 2001: Message edited by: Wirraway ]

[ 05 September 2001: Message edited by: Wirraway ]

[Wirraway]

If the last part of this article published
in the last hour

("In the wake of that rejection, SIA refused an offer from Air New Zealand to buy Ansett, sources said.")

is true, the question is, what happens to Ansett???

[Wirraway]

Theres plenty of smoke in this story, now
how big is the fire, the first article is
published in the "Sun Herald" "Daily Telegraph" "Courier Mail" and "Australian"
This article from "Melbourne Age":

Air NZ alarmed at decision deferral

By STATHI PAXINOS
AVIATION REPORTER
Thursday 6 September 2001

The board of embattled carrier Air New Zealand was forced into a crisis meeting yesterday after the NZ Government again deferred its decision on the flag carrier's fate.

An Air NZ spokesman yesterday confirmed that an unscheduled board meeting had been called after the government said the situation was "somewhat fluid" and it was not in a position to make a final decision.

Air NZ wants to raise $NZ1 billion ($A830 million) to upgrade the jets of its subsidiary Ansett.

Singapore Airlines has agreed to fund part of that by paying $NZ1.31 a share through a placement that would take its holding in the airline to as much as 49 per cent.

It had been speculated that the NZ Government would allow Singapore to increase its stake to 35 per cent.

New Zealand's Dominion newspaper reported yesterday that urgent talks had been held to strike a deal to allow Singapore to increase its share to 40 per cent but these had stalled because of doubts over the proposal's sustainability.

In parliament, NZ Finance Minister Michael Cullen, asked why the government was not providing a quick answer, said: "I'm sure (the Air NZ board) will be meeting to revise that business strategy substantially."

NZ Prime Minister Helen Clark said earlier this week she hoped for a decision by yesterday as to whether foreign investment rules would be eased to allow Singapore Airlines to increase its 25 per cent stake.

However, a government statement said it was "concerned to ensure that any actions it takes or decisions it makes are in the best interests of Air New Zealand. The situation surrounding Air New Zealand is somewhat fluid. In those circumstances, the government is not in a position to make final decisions."

Yesterday, Air NZ's unrestricted class-B shares fell 5.7 per cent to $NZ1. The class-A shares, for New Zealanders, fell 1.1 per cent to 91 NZ cents.

[Wirraway]

Ansett is in big trouble, "FIN REVIEW"

Ansett's plight worsens
Sep 6
Jane Boyle and Jason Koutsoukis


Proposals to secure the future of Ansett and its parent, Air New Zealand, have been thrown into disarray following a deterioration in Ansett's financial position, sparking urgent talks between the Australian and New Zealand governments.

The worsening position at Ansett has prompted the NZ Government to defer a decision on whether to allow Singapore Airlines to increase its shareholding in Air NZ and consider whether to provide financial support to the airlines.

"The situation surrounding Air New Zealand is somewhat fluid," a statement issued by the New Zealand Government said yesterday.

"In those circumstances, the Government is not in a position to make final decisions."

Australia's Minister for Transport, Mr John Anderson, last night ruled out a government-backed financial bailout, but conceded that Ansett's financial situation was very serious.

"The continuing discussions have taken on a new note of urgency," Mr Anderson said.

"It's very hard to get to the bottom of exactly what Ansett's real position is, but it's obviously serious."

But he expressed confidence in the future of Ansett as a going concern, and said he did not believe any of the company's 15,000 Australian jobs were at risk.

The Air New Zealand board held an emergency meeting yesterday to review its options after Sir Richard Branson on Tuesday knocked back the NZ airline's offer of more than $250 million to buy his discount carrier.

Air NZ had pinned its hopes on a deal with Virgin to remove the competitive pressure on Ansett.

Virgin's entry to the Australian market has eroded Ansett's market share to less than 40 per cent and the air-fare discounting it has triggered has stripped Ansett's yields and profits.

Sources said yesterday Air NZ now needed an immediate cash injection of "several hundreds of millions of dollars" in addition to the more than $1 billion it had hoped to raise to help fund a fleet upgrade for Ansett and recovery plan for the group.

The NZ Government received a report on Tuesday from Wellington investment bank Cameron & Co that detailed further deterioration in Ansett's financial position in the past few months.

A NZ Cabinet committee met yesterday to debate a proposal from Singapore to lift its 25 per cent stake in Air NZ to 49 per cent.

It has not rejected Qantas Airways' rival proposal to buy Singapore's stake in Air NZ in return for the sale of Ansett to Singapore, although Singapore has refused to sell its Air NZ shares.

The NZ Government committee said yesterday:

"The Government is concerned to ensure that any actions it takes or decisions it makes are in the best interests of Air New Zealand."

Sir Richard's rejection of a deal and Ansett's deterioration has also caused jitters for Air NZ's 25 per cent shareholder, Singapore Airlines, which is now reviewing whether it will proceed with its proposal to lift its stake in Air NZ.

Sources said that in light of the latest news, the proposal may no longer be adequate to address Air NZ's and Ansett's requirements and may not be commercially attractive to Singapore.

There was speculation yesterday of various other deals including a deal between Singapore and Virgin Blue.

Air NZ has steadfastly refused to comment on the speculation regarding its future. However, Dr Cullen took the unusual step of commenting on Air NZ's problems in the NZ Parliament yesterday.

"The Air NZ board is meeting today. I'm sure it will be meeting to revise that business strategy," he said.

Mr Anderson said: "I'm very, very concerned that Ansett does indeed get the recapitalisation that it needs and certainly the situation is a serious one, but I don't for a moment concede that the situation is a hopeless one.

"I do not believe the speculation that Ansett will be forced into liquidation, and I don't believe that any jobs are at risk."

But Mr Anderson rejected any suggestion that the Australian Government would be part of a bailout package for Ansett.

--------------------------------------------------------------------------------

[Wirraway]

More confirmation from NZ Herald:

Government rejects Air NZ strategy

06.09.2001 By DANIEL RIORDAN aviation
reporter

Air NZ's billion-dollar rescue plan is in tatters after the Government blanched at the risk of supporting its capital raising.

The Government had indicated it might give its decision yesterday on allowing Singapore Airlines to lift its stake in the national carrier from 25 per cent to a probable 40 per cent.

The Government would also have underwritten a rights issue, allowing Air NZ to recapitalise its troubled subsidiary, Ansett Australia.

A source close to the negotiations said they fell over at the last minute after Sir Richard Branson on Tuesday turned down Air NZ's offer to buy his Australian discount airline Virgin Blue.

Without Virgin Blue, analysts say, Ansett has no viable long-term business plan, regardless of how much money its parent pumps into it.

Now the Government has told Air NZ to go away until it can be more precise about its plans and their implications.

Finance Minister Michael Cullen said he expected Air NZ's board of directors - who held a crisis meeting yesterday - to revise substantially their business strategy.

Dr Cullen said the blame for delaying the decision on a rescue package did not lie with the Government, but he would not comment further on what may have gone wrong.

A spokesman for Dr Cullen's office, Peter Harris, said earlier that the cabinet policy committee had discussed proposals relating to Air NZ.

"The Government is concerned to ensure that any actions it takes or decisions it makes are in the best interests of Air New Zealand. The situation surrounding Air New Zealand is somewhat fluid.

"In those circumstances the Government is not in a position to make final decisions."

He would not say when a decision might be forthcoming.

The Government is understood to have been happy about allowing Singapore to move to 40 per cent - raising $248 million - and Singapore had begun due diligence.

But the Government was prepared to underwrite a rights issue that would have helped bridge the gap to the $1 billion the airline group needs for its short-term funding requirements, only if it could be assured of Ansett's future.

Where Air NZ goes from here is unclear. The Government is clearly not interested in Qantas Airways' counter-proposal and the last thing Air NZ wants to do is sell Ansett, citing its long-term strategic value.

After the board meeting, Air NZ spokesman Mark Champion said the airline was continuing to work with Government officials and representatives to provide information to assist the decision making. It remained hopeful it would be in a position to report progress when it announced its profit result on September 13.

Arcus Investment Management equities head Simon Botherway described the situation as a debacle.

He said Air NZ had needed to reassure the Government that Ansett could make money in the foreseeable future, but could not do that without Virgin Blue.

Ansett had no prospect of returning to profitability in the foreseeable future, he said, and called for Air NZ to write down its subsidiary's value - something Air NZ directors have said they do not want to do.

Such a move would put even further pressure on the company's share price. Air NZ A shares - available only to NZ nationals - fell 3c yesterday to 89c and the freely tradeable B shares dropped 7c to 99c. The A shares have fallen 43 per cent this year and the B shares 56 per cent.

Ansett needs Virgin Blue as it cannot start a discount airline alone.

Analysts estimate Ansett is losing $A1 million ($1.2 million) a day. They say it was breaking even over the first five months of the June year, but now expect it to report a loss of $A300 million for the year.

Ansett has about 39 per cent of the Australian market, down from 47 per cent before the entry of Virgin Blue and Impulse, the other discount airline now owned by Qantas.

Every 1 per cent in market share is worth $A15 million to Ansett's bottom-line profit, analysts say, and Virgin Blue, now trading profitably, is expected to add to its 5 per cent market share - gained in less than a year - largely at the expense of Ansett.

Air NZ would have used some of the proceeds of its capital raising to pay for Virgin Blue.
www.nzherald.co.nz/aviation

[Wirraway]

Last one from NZ "Dominion" What a mess:

Singapore Airlines rejects Ansett Australia
deal

06 September 2001

Singapore Airlines has rejected an offer by Air New Zealand for it to buy Ansett Australia in an effort to extract itself from the financially crippled Kiwi carrier, sources said on Wednesday.

Singapore Airlines considered Ansett Australia, Australia's second biggest airline, "too financially and operationally impaired", sources said.

The offer was made by Air New Zealand last week as it became clear that the financial difficulties at Ansett Australia were much greater than first thought. The airline is reportedly losing A$1 million (NZ$1.2 million) a day.

Singapore Airlines has since tightened the screws on Air New Zealand further by slashing the price it was prepared to pay for an increased stake in the beleaguered national carrier, sources said.

It has dropped its offer to pay $1.31 for each new share that increases its ownership from 25 per cent to as much as 49 per cent to just $1 a share as part of a modified proposal to bail out Air New Zealand.

Air New Zealand needs a greater shareholding from Singapore Airlines to recapitalise its balance sheet and help finance a multi-billion dollar fleet replacement programme, mainly for subsidiary Ansett Australia.

An analyst said if Singapore Airlines paid only $1 a share, the Government would have no choice but to agree to a 49 per cent holding. It is thought that the Government had agreed on limiting Singapore Airlines to 40 per cent.

At 49 per cent, the new shares issued would raise only $356 million toward the at least $1 billion needed to recapitalise Air New Zealand's balance sheet.

A subsequent two-for-one rights issue at 25 cents a share would raise another $556 million, leaving the Government to pick up about $90 million, probably secured by a capital notes issue. A five-for-two rights issue would take the total to $1.05 billion.

The rescue plan for Ansett Australia was blown apart yesterday when British tycoon Sir Richard Branson rejected a A$250 million takeover offer from Air New Zealand for his budget airline Virgin Blue.

Singapore Airlines considered the purchase of Virgin Blue as integral to the rescue of Ansett Australia. Without it, the turnaround of the carrier would take too long, sources said.

Air New Zealand wanted to fold Virgin Blue into Ansett Australia and use its 5 per cent market share to give Ansett the critical mass needed to compete with Qantas. Ansett's market share has slumped from about 48 per cent 18 months ago to about 38 per cent and is still dropping.

The airline approached Sir Richard last week when it became clear that the situation at Ansett Australia had deteriorated to a point where it needed Virgin Blue to rebuild, sources said.

Market commentators point to Sir Richard's rejection as the reason why the Government did not announce its decision on whether to grant Singapore Airlines the increase holding on Wednesday as planned.

Sir Richard's decision was the only factor that had changed since Monday, when Prime Minister Helen Clark said she hoped to make an announcement today, they said.

The Government deferred a decision on Singapore Airlines ownership level, saying: "The situation surrounding Air New Zealand is somewhat fluid."

"In those circumstances, the Government is not in a position to make final decisions," Finance Minister Michael Cullen said.

The future ownership of Air New Zealand was now unlikely to be decided before it issues its financial results on September 13, expected to be a loss of at least $200 million.

Air New Zealand spokesman Mark Champion said the company hoped to report progress on the ownership structure on September 13.

Mr Champion would not say if Air New Zealand expected a decision from the Government by that date.

[Kaptin M]

Drastic times demand drastic measures. In spite of the Minister's claim that he didn't believe any of the 15,000 jobs at Ansett are at risk, I tend to hold a different point of view.

IF AN survives in the short term, it will only be because of some extremely radical, immediate cost-cutting measures. By simply increasing ticket prices, the minmal increase in revenue will be insignificant.

The offer of ALL staff to "donate" one week of work would be far more effective, but still not enough, I don't believe.

For Ansett management to have been even CONSIDERING the purchase of Virgin Blue, seems to fit in well with the "Nero fiddles, while Rome burns" analogy.

Ansett staff can thank Abeles, Murdoch and Hawk for the mess they're in!

[lame]

Wirraway,

Yes, doesn't sound too good. So now the 13th, one week today, appears to be decision day?

I will not comment further as certain people will take anything as anti Ansett, lets just see what happens?

Best regards,

"lame"

[Wirraway]

Kapt M & Lame

I hope the members don't mind all the reposts
I found the first article at 2.10am this
morning and as I followed it up it became
clear that SIA has pulled the plug on Ansett.

Whats ringing in my ears, is what RB was asked the other night he would do with
Ansett, his reply was to close it down and
start again.

Wirraway

[EPIRB]

I wonder if the situation would be as bad as it is now if the NZ government was capable of making a decision much earlier (that is if they are going to make a decision at all)?

[sprucegoose]

The most unbelievable aspect to this mess is that Ansett has been for some time either at zero growth or losing money. The only real attemp at salvaging the carrier has been through a series of plans to have someone elso come along and buy into them thus injecting short term cash into the company. The boat has long since sailed when a new business strategy should have been adopted to ensure the future competetiveness and viability of the airline. The history books would reflect that such internal inertia ate the lunches of bigger carriers around the world in the last last decade or so. The purchase of Virgin Blue would have done little except delay what may prove to be the inevitable in any case.

[Buster Hyman]

Yes Kaptin, they certainly extracted their pound of flesh from it, then dropped it like a hot potato.

I wonder how the NZ people that did the sums on AN before getting 100% feel now?

AN will certainly be able to start a low cost airline & very soon too, despite all this. It will be called Ansett Australia and will start up about 3 weeks after Ansett Australia folds. I can assure you it WILL be low cost!

[lame]

This from the Straits Times in Singapore this morning.......

UNSCHEDULED AIRLINE BOARD MEETING

Kiwi Cabinet remains mum on future of Air NZ

WELLINGTON - Shareholders and the public remained in the dark about the future of the national carrier Air New Zealand (Air NZ) yesterday, despite an unscheduled meeting of the airline's board.

The meeting was called after a Cabinet committee meeting made no public response to the airline's request to lift limits on foreign ownership levels and government help with a financial bail-out.

Neither the government nor Air NZ would comment on what was now being considered.

Finance Minister Michael Cullen suggested in his answer to parliamentary questions yesterday that Air NZ might have gone back to the drawing board.

He said the problem did not lie with the government but an 'announcement will depend on when Air NZ is able to be precise about its plans and what implications those plans have'.

Singapore Airlines (SIA) wants to lift its stake beyond the current 25 per cent limit to 49 per cent as part of a badly needed equity injection.

Air NZ's freely tradeable B shares dropped seven NZ cents to 99 NZ cents yesterday and its New Zealand-resident only A shares fell three NZ cents to 89 NZ cents.

The B shares, which SIA owns, have fallen further than the A shares as investors take advantage of the prospect that the government will have to remove the share class distinction if it allows SIA to increase its stake.

Air NZ needs around NZ$1 billion (S$761 million) in new equity to help fund a fleet replacement for its troubled Australian unit Ansett, which Virgin Blue owner Sir Richard Branson said on Tuesday was losing NZ$1.2 million a day.

Share brokers said investors were rattled after Wellington's Dominion newspaper reported that the government's rescue package deal was faltering amid doubts about the sustainability of the plan.

Prime Minister Helen Clark said on Monday the government hoped to send a signal on a decision by yesterday, although the government had earlier said it was unlikely to announce anything before Sept 12, the day before the deadline for Air NZ's result announcement.

Air NZ has indicated it will report a loss before unusual items of around NZ$200 million , with Ansett's pre-tax loss expected to be around NZ$300 million. --AFP

[Flyspray]

Methinks Branson is right. Close it down and start again.
Start up the next day as Virgin Pacific?? and let AirNZ do its own thing.

[eagle767]

I bet Mr "T" wishes he stayed with the rat, because if Ansett goes then Air New Zealand will probably be not too far behind.
Sad days both sides of the ditch.


[ 06 September 2001: Message edited by: eagle767 ]

[Bob Hawke]

Isn't it great when pollies and nationalism runs an airline - NOT!

[lame]

Bob,

Well you spent many years running it, with your buddy Peter, didn't you??????



Best regards,

"lame"

[Wirraway]

2 sobering posts from Airline Net:

Username: Tullamarine
Posted 2001-09-06 02:12:54 and read 16 times.
The problem with letting AN close down then trying to restart it is that apart from probably having to reapply to AOCs etc you would also be destroying a huge amount of goodwill meaning the market share on restart may be tiny. For example, on day 1 of any AN liquidation you could expect QF to come forward and announce it will honour all FF points and club memberships of AN Platinum and Diamond members who would naturally rush at the opportunity. These are the cream clients who pay full-fare and travel frequently. Without retaining these clients any airline Virgin tried to put up against QF would be always a bit-player.

You also risk losing leased assets which would be reclaimed by lessors meaning access to fleet, terminals etc maybe difficult particularly if another external party tried to take advantage of the situation and decided to commence a domestic airline in competition to QF and Virgin. In this situation the other competitor would have equal rights to purchase assets from a liquidator meaning whatever Virgin ended up may not be enough.



Topic: RE: Urgent:Skies Grow Dark For Air NZ
Username: Mx5_boy
Posted 2001-09-06 02:17:01 and read 13 times.
Scuttler,

I am sure the federal government on both sides of the Tasman are well aware of the financial strains AN / NZ are under. Most of the media reports we are hearing are pure heresay and unpredictable at best.

Given that we are currently under conservative leadership I still can not entertain the idea of the Howard government allowing the capacity of AN to fold overnight. This is not a onetel type debacle (minimal capacity) it is 47% capacity (capacity v's actual % of market share) of our domestic airline network. There is no airline in the region that would be able to step in immediately with that type of capacity.

When you think of the businesses that rely on that capacity, pax, freight, mail, regional areas, tourism and a whole host of others - it would be in the best interests of any government to keep it floating and sort the mess out post haste. A collapse would have Aust' wide ramifications both economically and politically.

I have stated before that this whole mess is about the carve up of the region. Every player has been keeping their cards close to their chests and spitting out spurious stories to a curious media on a constant basis.

What do I think will happen? We can go over the possible scenarios a hundred times and not get a clear answer but I beleive that the SQ and QF boards have been talking about this for quite a while and NZ has been scrambling to protect itself using AN as a shield / bargaining tool to keep itself in the trifecta.

If you have an equiring mind, remember when Impulse went to QF? Mysteriously Singapore Inc pulled funding (supposedly) from Gerry's little adventure. Barely a peep out of the federal government about the issue. Seems a bit odd?

As for AN returning to profitability, it's a cyclic business and one that is in the low part of the wave at the moment. Obviously most business keep cash reserves on hand for times like this and we don't really know what AN / NZ has, although I suspect the pollies do.

AN relies mostly on high yeild pax (like me) and needs to boost that part of it's business as well as keeping the back of the plane full too. If AN was to change it's cost structure to that of DJ it would certainly only end up being DJ - a low cost carrier ferrying tourists around the country. It's kind of inconceivable to imagine AN as simply a low cost carrier - AN has relied on it's innovation and superior service in the past and they are it's strong points.

Staff taking pay cuts are a novel idea, but it has to come from the top down for that scenario to work. AN staff have already been through the ringer and further demoralisation of staff through wage cutbacks probably wouldn't be a great idea in the short term.

Underpaid staff do not make for happy faces at the coal face - which would undermine so many things. You have to remember pay people peanuts and they will behave like monkeys. If you want good quality professional staff you have to pay for it, otherwise they walk. On the other hand, which is better 'a job' or 'no job'?

I can only remember one company that went down that road and suceeded - 'SPC' in the early nineties?

So it's back to reading the news reports.

[gaunty]

One wonders what Air NZ were allowed or not allowed to see as part of any due diligence on the pruchase.
It is clear Rupert had been looking for away out for yonks and his little boy Rod did little but window dressing for the sale before bailing out.
Air NZ haven't covered themselves in glory for the decision to buy them, but I find it hard to believe that they were that incompetent and I can't imagine Mr Toomey, would have left QF for a "basket case".

He went very very quiet for some time after the intial huff n puff on his appointment.

I suspect it did not take very long for a man of his competence to suss that he was now in charge of an even sicker puppy than he could possibly have imagined.

Whilst not quite on that scale I've been there in the long ago and it's not pretty or easy.

The only option you have is to get down and dirty and see if there is a way out for the company.
If you're lucky and time, tide and change in external events don't get you first, you just might make it.

The odds though, are mightily, almost to the point of inevitability, against it.

So far he has shown tremendous grace under this enormous pressure.

Unless their Government/Board do something more constructive than rearranging the deck chairs in the next few days then they no have alternative but to put it to the sword and use what funds, if any are left, to look after the staff and go after Rupert and his gang.

[ 06 September 2001: Message edited by: gaunty ]

[Wiley]

It’s easy (and I admit, totally appropriate) to lay much of the blame for this current sorry mess at the feet of the Fat Man, his silver-locked bumboy, (and let’s not forget the real spider at the centre of the web, the pseudo Yank, who’s still enjoying the millions he stripped from the once healthy AN carcass), as is the bumboy in his waterfront mansion.

But spare much of your opprobrium for the bit players – the upper level underlings, some, I understand, with a keen interest in football now and some still on the increasingly sloping and ever more slippery AN deck – who knew where the Fat Man’s policies were leading the company ten (and especially twelve) years ago, but played along with him for their own short term advancement.

There were those who spoke up – and I saw what happened to them. Their places were filled by yes men eager to tell the overweight king what nice clothes he was wearing. (Which is not a good analogy, because the fat ‘king’ knew exactly what he was doing.)

I have more than a little sympathy for many among the current AN staff and the hard times they have ahead of them. (Dare I say it - ‘Been there, done that, goy the T-shirt’.) However, I’d be a hypocrite to say the same about the many in AN (and not just pilots) who hopped on the gravy train and took the high wages the Fat Man offered for them to look the other way at what Blind Freddie could see he and his ‘Yank’ mate were doing to the assets of the company.