Air NZ hits fresh turbulence

Subsidiary Ansett is draining Air New Zealand's coffers at an alarming rate

By CNN's Grant Holloway

WELLINGTON, New Zealand -- Uncertainty continues to dog the fate of airline Air New Zealand amid reports of a crisis board meeting and a spiralling share price.

Shares in the regional airline hit all-time lows as Wellington's Evening Post newspaper reported suitor Singapore Airlines was reducing the amount it was willing to pay to lift its stake in the airline.

And airline analyst Arthur Lim from Australia's Macquarie Bank Thursday claimed the New Zealand Government had asked Australia to help rescue Air NZ's ailing Australian-based subsidiary Ansett.

On the New Zealand Stock Exchange Air NZ's resident-only A shares fell to a record low of NZ 75c before climbing back to NZ80c, while the unrestricted B shares also fell to a low of NZ87c, before recovering to NZ91c.

The pattern was repeated on the Australian Stock Exchange where the shares nose-dived to a nadir of A75c in afternoon trading.

COUNTRY PROFILE At a glance: New Zealand Provided by CountryWatch.com    CNN.com Asia More news from our Asia edition

"The situation with Ansett is obviously a lot worse than people thought and now New Zealand is involving Canberra it is very grave indeed," Lim said.

The Evening Post reported sources close to the negotiations saying the due diligence process -- begun by Singapore Airlines in its moves to increase its stake in Air New Zealand -- had opened a "can of worms" which continued to cause "more and more problems".

The fate of Air NZ lies with the New Zealand Government which is reluctant to let control of the struggling flag carrier pass out of New Zealand hands.

Australia's Qantas Airways is also keen to control Air NZ, but would need to hive-off Ansett in order to comply with competition restrictions in Australia.

What is certain is the Air NZ needs a massive capital injection from somewhere to stem the flow of red-ink from Ansett which is battling a price war and increased competition in the Australian domestic market.

It is estimated more than $2 billion (NZ$ 5 billion) is also needed to refurbish or replace Ansett's ageing and trouble-prone fleet.

Crisis talk denied

Another possibility is the NZ Government underwriting a rights issue to provide extra funds -- again an option which could be difficult to achieve politically for New Zealand's Labour Party-led coalition government.

Such a move would also require the co-operation and participation of the airline's largest shareholder, Brierley Investments, something which is by no means assured.

Air NZ on Thursday denied the Australian airline was facing a financial crisis.

Air NZ chairman Jim Farmer confirmed the board met Thursday to discuss Ansett's position but denied they were crisis talks, the Australian Broasdcasting Corporation reports.

Farmer said although Ansett had been hit hard by intense competition and high fuel prices, the airline had managed to increase passenger volumes in recent weeks and forward bookings remained strong.

The board meeting is continuing Thursday.

Decision expected next week

New Zealand's Finance Minister Michael Cullen told Parliament Wednesday he was unable to make a final decision on the company's share structure until the airline was able to be precise about its plans.

He also said he expected Air NZ to make a substantial 11th-hour revision to its business strategy after its board meeting.

When asked about that comment, Farmer said: "I don't know why he said that."

A decision on the ownership issue could come from the NZ Government by mid next week, ahead of Air NZ reporting its annual results on September 12.

It is expected Air NZ will announce losses of around $80 million (NZ$200 million), much of this stemming from the Ansett operation.

On Tuesday, billionaire businessman Richard Branson rejected a $120 million (A$250 million) bid from Air New Zealand to buy his Australian-based Virgin Blue carrier, a keen competitor to Ansett in its domestic market.