Air Transport World

Life on the edge: Air New Zealand was rescued from the brink of failure by a government bailout; now it has turned to a partnership with Qantas in hopes of preserving long-term viability. (Profile).

In the country that is known for inventing risky lifestyle sports such as bungee jumping, one Auckland-based analyst has likened Air New Zealand's long-term predicament to "standing at the edge of a cliff without a hang glider, parachute or even a bungee rope, holding an anvil." Soaring overhead with talons ready for the rescue--or kill--is Australia's Qantas.

There probably is no better way to describe ANZ's position 18 months after it cast away another anvil in Ansett Australia. This created at ANZ the worst writeoff in New Zealand financial history-a staggering NZ$1.71 billion ($936 million) over two years. The government was forced to rescue the airline in October 2001 with an NZ$885 million injection after majority shareholders Brierley Investments International with 30% and Singapore Airlines with 24.9% declined to com mit more funds to prop it up following the collapse of Ansett that September (ATW, 11/01, p. 50).

That put ANZ back in government bands with an 82% share while Brierley and SIA were left holding 5% and 4.5% respectively. The government, though viewing itself only as a caretaker, replaced most of the board members. The reconstituted board then swept away much of the old management and gave the new team a clear mandate to put the carrier on a strong commercial footing and find a strategic equity partner. Executive management was cut from 17 to just seven, business units from 11 to seven, management payroll slashed by 30% and board fees by 50%. Some 800 jobs were shed through layoffs, attrition and voluntary redundancy and flying was cut back.

ANZ was now in survival mode and a new CEO had to be found quickly. The board turned to its own, and respected banker Ralph Norris--the only board member to survive the collapse of Ansett--was appointed in February 2002 to lead the recovery and identify a potential partner. In fact, talks with the most likely suitor, Qantas, had begun in November 2001. The Australian airline's bid to win a stake in ANZ gained momentum last May when the NZ government rejected a request to inject an additional NZ$670 million, telling ANZ "it needed to meet the shortfall through costcutting and revenue-enhancing measures as well as asset sales."

Consultants had cautioned the government not to bail out the airline fully in order to keep maximum pressure on it to restructure and find other ways to raise cash. …

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