Top Scoops

Book Reviews | Gordon Campbell | Scoop News | Wellington Scoop | Community Scoop | Search

 

Sludge Report #81 – How To Save Air New Zealand

NOTE: Authors of this report will be anonymous and wide ranging, and occasionally finely balanced. Indeed you are invited to contribute: The format is as a reporters notebook. It will be published as and when material is available. C.D. Sludge can be contacted at sludge@scoop.co.nz. The Sludge Report is available as a free email service..Click HERE - http://www.scoop.co.nz/mason/myscoop/ to subscribe...

Sludge Report #81

How To Save Air New Zealand

There is one way for the Government to be sure that New Zealand retains a national airline. And it does not involve relying on the goodwill of a group of nameless businessmen who would prefer to remain hiding in the shadows.

After meeting representatives of its board, the government says that stable ownership for Air New Zealand is the key to its survival.

Reading between the lines this means that the government is less than happy with BIL as a shareholder. Why? Beacause BIL is not committed enough in the long term. Similarly the Government, for obvious reasons of competition law, is decidedly unkeen on Qantas buying into Air New Zealand.

The simple truth is that our National carrier will not become a beneficiary of a white knight rescue plan.

There are no white knights in the commercial world, New Zealand ought to have learned that by now. There are only wealthy people interested in becoming wealthier. And the only business people wealthy enough to seriously consider saving Air New Zealand, almost certainly do not want to.

A shadowy, undercapitalised, consortium was behind the brief reincarnation of Ansett NZ as Qantas New Zealand. And look what happened to it.

Air New Zealand is a vital strategic asset for New Zealand. New Zealand has a tourist industry that earns close to $7 billion a year in foreign exchange earnings, an industry which is growing at over 10% per annum. In addition the ability for people to travel around their country is obviously a mission critical functionality for a modern economy.

Air New Zealand therefore cannot be allowed to fail. And the government is justly and rightly concerned.

But there is a simple solution that the government – for ideological reasons – has turned its back on.

The government could buy the BIL stake itself.

Air New Zealand would then effectively become a SOE joint venture between the Singapore Government owned Singapore Airlines and the New Zealand Government. Between the two of them a majority in the airline would be held.

Surely, given the new cosy relationhip NZ now has with Singapore (thanks to its closer economic partnership), a suitable recapitalisation package could then be arranged for the airline.

But what about the Government’s accounts? Wouldn’t this blow the budget?

No. Capital expenditure, as Finance Minister Michael Cullen has often explained (not that anyone is listening) is not accounted for against the operating balance. Rather it is a balance sheet issue. If it invested in Air New Zealand the government would possibly increase its indebtedness, but it would also increase its asset backing.

And what about the risk? What if Air New Zealand turns to be a dog thanks to the Ansett Australia debacle and requires more and more investment to keep operating?

This is indeed a very real risk. But in the circumstances the NZ Government will not be able to stand by and watch the national carrier fall over in any event. As discussed above, it would simply not be acceptable to NZ as a nation to end up in a position where it does not have an airline.

The cost of business disruption caused by an Air New Zealand collapse, and its flow through impacts on taxation receipts alone are likely to be higher costs to the government than the $300 million odd that buying into Air New Zealand will cost.

Therefore, if stability of our national carrier really is the primary objective of our Government, then in the long run it will be both cheaper and more efficient for it to buy in to the airline sooner rather than later.

And what about the price?

Well beggars can’t be choosers.

In just one month’s time BIL will - thanks to the new takeovers code - not be in a position to command a premium for its stake at all. In addition, from the look of things, there are not a lot of potential buyers in the market at present. After-all we are talking about an enterprise that is at present losing hundreds of millions of dollars a year.

Thus if BIL wants out then it should sell at the going rate in the market on the day.

Anti©opyright Sludge 2001


.

© Scoop Media

 
 
 
Top Scoops Headlines

 

27-29 Sept: Social Enterprise World Forum Live Blog

1600+ delegates from more than 45 countries have came together to share wisdom, build networks and discuss how to create a more sustainable future using social enterprise as a vehicle. Attending the Forum were social enterprise practitioners, social entrepreneurs, policy makers, community leaders, investors, activists, academics and more from across the globe... More>>

HiveMind Report: A Universal Basic Income For Aotearoa NZ

Results from this HiveMind suggests that an overwhelming majority of Kiwis believe that due to changing circumstances and inefficiencies in the current system, we need a better system to take care of welfare of struggling members in our society. More>>

ALSO:

Scoop Hivemind: Medical Cannabis - Co-Creating A Policy For Aotearoa

Welcome to the fourth and final HiveMind for Scoop’s Opening the Election campaign for 2017. This HiveMind explores the question: what would a fair, humane and safe Medical Cannabis policy look like for Aotearoa, NZ in 2018? More>>

ALSO:

Lyndon Hood: Notes On National’s Election Campaign, In Poem Form

Nationyl’s bitumen-ing / As they du du / Seed groweth / River floweth / Then ‘dozer drives thru / Highway ensu. More>>