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Air New Zealand Recapitalisation

TO Market Information Services

New Zealand Stock Exchange

TO Company Announcements Office

Australian Stock Exchange

DATE 4 October 2001


Air New Zealand Recapitalisation

Air New Zealand is to be recapitalised by the injection of up to $885 million in a two-phase loan and equity investment by the New Zealand Government, under the terms of an agreement reached between the Government, the Company, and its major shareholders - Brierley Investments Limited and Singapore Airlines Limited.

The company has also reached agreement with the Voluntary Administrators of the Ansett Group to settle claims between the Ansett Group and Air New Zealand.

“We are grateful for the co-operation of all parties in coming to an agreement to secure the future of Air New Zealand,” the Acting Chairman of Air New Zealand, Dr Jim Farmer, said today.

“The recapitalisation agreement contains arrangements that will enable Air New Zealand to start a process of recovery from the severe setbacks it has suffered on several fronts,” said Dr Farmer.

Unaudited shareholders funds at 31 August (allowing for the Ansett write-off in the financial statements to 30 June 2001) were NZ$506 million. Since then, the Company has recognised further losses amounting to approximately NZ$350 million arising from the closure of Ansett. This amount represents the net position after allowing for the settlement between the Company and the Voluntary Administrators of Ansett. Shareholders funds will then be in the order of NZ$156 million before taking into account the trading result for September which will not be known for a few days.

“Once the recapitalisation programme is in place, we have an obligation as well as an opportunity to move the company forward, restore it to commercial health and develop its strategic contribution to the transport and tourism sectors of our region,” Dr Farmer said.

The first phase of the recapitalisation programme is expected to be completed by 19 October 2001. It involves:

- A Crown loan to the Company of NZ$300 million.

- A payment to the Ansett Group of A$150 million in settlement of potential claims by the Group against Air New Zealand.

- The balance of the Crown loan being used by the Company for working capital.

- The Company relinquishing claims against the Ansett Group for moneys owed, amounting to approximately A$160 million as part of the Ansett settlement.

The loan will bear interest at the 90 day bank bill rate plus 4% (in total currently about 9.3%) and interest will be payable on repayment of the loan.

Ansett Settlement

Under the terms of the agreement reached with the Voluntary Administrators of the Ansett Group, the Air New Zealand Group and its directors are to be released from all claims relating to the Ansett Group.

Air New Zealand has also agreed to enter into a commercial arrangement with the Ansett Group as a preferred partner and to provide intellectual property to assist the Voluntary Administrators to carry on the Ansett business as long as it is not detrimental to Air New Zealand.

The agreement with the Voluntary Administrator is subject to the approval of the Federal Court of Australia and the Ansett Committee of Creditors. The parties will seek to obtain this approval by 12 October 2001.

The investigation that is currently being undertaken by the Australian Securities and Investment Commission, following its current inquiry, is not affected by the settlement.

The Company’s board of directors and its advisers have reviewed other potential exposures relating to Ansett and any further liability for the Company is considered to be unlikely.

Crown equity investment

The second phase of the recapitalisation programme is expected to completed between December 2001 and January 2002. It involves :

- The Company’s obligation to repay the NZ$300 million loan and accrued interest being satisfied by the issue to the Crown of new convertible preference shares in the Company;

- The investment of up to a further NZ$585 million by the Crown in new ordinary shares in the Company; and

- The reclassification of the company’s A and B shares into one class of ordinary shares

The convertible preference shares will be issued to the Crown at a price of 24 cents per share or any lower price at which the ordinary shares are to be issued to the Crown. They will carry a fixed cumulative dividend of 5% per annum and will have full voting rights. They will convert on a one for one basis on 1 January 2005 or such earlier date as the Crown decides. They will not be listed before conversion.

The issue price for ordinary shares issued to the Crown will be determined by the Crown after due diligence, as representing fair value and could be higher or lower than 24 cents. In deciding the issue price for these ordinary shares, the Crown will not have regard to the issue price of the convertible preference shares which represent funds invested in different circumstances.

The precise amount the Crown will invest in ordinary shares (up to NZ$585 million) will be decided after the Crown has determined the sum required to put Air New Zealand on a sound financial footing with a prudent equity base.

The Board of Air New Zealand must also conclude that the issue prices of the convertible preference shares and ordinary shares are fair and reasonable to the company and its existing shareholders.

No further capital will be sought from Brierley Investments Limited, Singapore Airlines, or other shareholders as part of the recapitalisation package. BIL and SIA have agreed to support the transactions contained in the agreement and to vote in favour of the shareholder resolutions to put it in place. They will retain their current shareholdings until at least 31 January 2002, when the recapitalisation process is expected to have been completed.

If the full amount of NZ$885 million is invested by the Crown at 24 cents per share it will hold approximately 83% of the enlarged share capital. If the issue price is higher the percentage will be correspondingly lower.

The Board

The Board of Air New Zealand is to be reduced initially to eight directors comprising one nominee of Singapore Airlines (if it requests representation), one nominated by BIL, four of the current independent directors, and two new directors nominated by the Board and approved by the Crown. These changes will be implemented today. The Board will therefore comprise:

Dr Jim Farmer (Acting Chairman)

Mr Ralph Norris

Sir Ron Carter

Ms Elizabeth Coutts

Dr C K Cheong

Mr W M Wilson QC

Mr Roger France - new director approved by the Crown

One further director to be approved by the Crown

All other existing directors have resigned with effect from today.

The Board has been given an indemnity by the Crown in respect of certain liabilities relating to the Company’s trading between now and the time new equity is invested by the Crown.

Shareholders approvals

The necessary approvals for the implementation of the second phase of the agreement - including the reclassification of shares and the adoption of consequent amendments to the Company’s constitution - will be sought from Air New Zealand shareholders.

The company’s annual meeting scheduled for 30 October 2001 will be deferred and is likely to be combined with a meeting to approve the recapitalisation programme. The likely timing for this meeting is late December 2001. A full package of information, including an independent appraisal report, will be sent to shareholders before the meeting.


The principal conditions applying to the implementation of the recapitalisation programme are as follows.

The advancing of the Crown loan is dependent on:

- The agreement with the Voluntary Administrators of the Ansett Group being approved by the Federal Court of Australia and the Ansett Committee of Creditors.

- All necessary formal confirmation of ongoing support being obtained from the Company’s banks and other financiers by 5 October 2001.

- The Board changes being implemented.

- The Crown being satisfied as to the extent of the Company’s residual exposure in relation to Ansett by 5 October 2001.

The loan is repayable on 31 January 2002 if not earlier replaced with equity and is repayable earlier in various events of default.

The Crown’s subscription for shares (convertible preference and ordinary) is dependent on:

- The completion or continued operation of the agreement with the Voluntary Administrators of the Ansett Group.

- Completion of due diligence examination of Air New Zealand by the Crown to assess its value.

- Determination of an acceptable issue price for the new shares.

- Shareholder approvals being obtained.

- Shareholders collectively holding more than 2% of the existing share capital not exercising their minority buy-out rights following the shareholders meeting.

- Air New Zealand’s unsecured bankers agreeing to continue their facilities (or replacement facilities) until at least 31 December 2003 and the Crown being satisfied as to the repayment profile of other financiers.

- No steps being taken to place any member of the Air New Zealand Group in statutory management or liquidation, and no secured creditor exercising rights in respect of material assets.

Business Plan

The Board has been considering reductions to International and Domestic Network Schedules planned by management. These changes to frequency routes and aircraft type will reflect the reduction in trans-Tasman feed as a result of the closure of Ansett and the consequences for international aviation of the terrorist attacks in America. Details will be announced as soon as they have been approved by the reconstituted Board in the near future.

The planned changes will achieve significant cost reductions to reflect the reduction in capacity and details of these will also be announced shortly.

Looking further ahead, the Company is well-advanced in preparing a business plan for Board consideration reflecting the circumstances in which the Company is now operating.

John Blair

General Counsel & Company Secretary

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