Thursday, February 26, 2009

Dr Cullen and Air NZ

Well it is worthwhile noting both Air NZ's drop in profit and the pending retirement of Dr Cullen. Especially given it is entirely because of Dr. Cullen that you all have a share in Air NZ's future, a piece of history the left conveniently whitewashes over. You see what happened back when Air NZ was in crisis is something that SHOULD have brought Labour down in the 2002 election, but Bill English was too inept, and the mainstream media lacked sufficient journalistic talent and nouse to research it properly. Fortunately, almost all of the relevant papers are now on the Treasury website.

The pro-Labour history around this is simple:
- Air NZ made a bad investment in Ansett Australia;
- Air NZ needed a capital injection to save Ansett and expand its business;
- Two airlines offered this, Singapore Airlines and Qantas;
- As the government was considering both deals, the airline went into crisis;
- This was exacerbated by 9/11 and the global drop in air travel;
- Had Labour let things go, Air NZ would have gone into receivership, damaging tourism and resulting in the end of long haul flights with a NZ brand on them, hurting tourism further. There wouldn't have been flights to many centres in NZ;
- Dr Cullen bravely saved the airline, but required it dump the Australian liability Ansett;
- Then Dr Cullen wisely sought an international partner for the airline in the form of Qantas, because it "makes sense" to have a single South Pacific dominant carrier against the "world".

In other words, the private sector cocked up, and while the government was considering bids for investing in the airline, it was going to fold, and Dr Cullen saved the day. Much of that is nonsense.

That version of history misses out a few facts, facts that demonstrate that the whole situation came about because first the Australian then the New Zealand government stuffed up:

- Air NZ invested in Ansett Australia because the Australian government reneged on a deal for an "open skies agreement" between Australia and NZ. Air NZ originally wanted to set up its own Australian domestic operation in competition with Ansett and the then Australian Airlines. The Australian government reneged on the deal (the famous fax from Laurie Brereton to Maurice Williamson) because it feared it would reduce the price it would get for selling Qantas (which was subsequently to merge with Australian Airlines);

- The Australian government made it clear that it would far prefer Air NZ invest in an established airline - but it was not allowed to invest in Qantas. So Air NZ bought 50% of Ansett in 1996, but was not permitted managerial control at that level of investment and Ansett was required to provide various "social services" (unprofitable routes);

- Increasing frustration with the management of Ansett saw Air NZ finally decide to buy the whole thing out. However it paid too much, it outbid Singapore Airlines as it had aspirations to grow to the size of Qantas. What it found with Ansett was an airline in desperate need of restructuring and new capital;

- Singapore Airlines, which already owned 25% of Air NZ sought to increase its investment to 49% of the airline group, as a capital injection in June 2001. This was unanimously supported by the Air NZ board, but needed support from the Kiwi shareholder - the Crown. Official advice was that issues from such foreign ownership were manageable and that it appeared this was the best option, but the government needed to act promptly.

- Qantas lobbied the New Zealand and Australian governments to oppose Singapore Airlines increasing its investment in Air NZ. Obvious of course that it was seeking to kneecap its biggest competitor. Official advice in June 2001 was against the proposal on competition grounds. The Air NZ board rejected the proposal and Singapore Airlines refused to sell its shareholding, effectively making the proposal academic. Qantas continued to lobby for it;

- In July Cabinet REJECTED the option preferred by Air NZ and officials, preferring either a part state/part Singapore Airlines shareholding or a Qantas takeover;

- Air NZ wrote to Dr Cullen saying that "it would seem that the Government has embarked on a high risk and speculative course that has the danger of putting the Air New Zealand group at risk". The then Acting Chairman warned of the "grave financial risk faced by Air New Zealand Ltd as a result of the current uncertainties;

- Dr Cullen tried to pursue a half and half option allowing some Singapore Airlines investment along with some Crown investment, which was bypassed as the Crown bought out the airline.

Oh and as a side note, the economic geniuses at the Greens believed Air NZ was NOT in a dire financial straight and opposed any new foreign investment, but promoted taxpayer shareholding.

Dr Cullen helped bankrupt Air NZ, because of his peculiar pursuit of the Qantas deal, and the delays in approving the Singapore Airlines investment proposal. You might ask yourself why Dr Cullen didn't like money from Singapore, but liked it from Australia. Not xenophobia surely?

While it is all a bit more complicated than that, the truth is that the slow progress of Dr Cullen and the interference of Qantas has cost the NZ taxpayer dearly, as well as Air NZ. The Greens didn't help either. Air NZ warned that the government's approach created grave risks, and it was right.

So when Dr Cullen steps down, it is worth remembering part of his legacy - the legacy of the lecturer who couldn't make a critical business decision, and surrendered a major strategic opportunity for Air NZ to be a significant airline.

and of course don't forget the Kiwirail deal of the century!

6 comments:

James said...

LS....you may wanyt to pop over to Kiwiblog and address this gem...

# MyNameIsJack (268) Vote: Add rating 1 Subtract rating 0 Says:
February 27th, 2009 at 12:48 pm

"Liberty Scot takes quite a few liberties with the truth of AirNZ and Ansett. in fact, one could say, he lies."


http://www.kiwiblog.co.nz/2009/02/blog_bits-36.html#comment-537773

iiq374 said...

LS - the one bit you leave out was that it was still a piece of political manoeuvring by Air NZ in terms of timing:

http://iiq374.blogspot.com/2006/05/air-nz-troubles-caused-by-accounting.html

Although they were in trouble, their breach of debt covenants et al was their own choice...

MyNameIsJack said...

Air NZ invested in Ansett Australia because the Australian government reneged on a deal for an "open skies agreement" between Australia and NZ.

This is as poor a reason as any I have heard for "investing" in a business. its like opening a fishnchippery because there's a vacant shop, not because there's a demand.

So Air NZ bought 50% of Ansett in 1996, but was not permitted managerial control at that level of investment ... AirNZ had the input its shareholding entitled it to. This is as fatuous as its later claim that it had no idea how bad Ansett was after it bought the other 50%. What were their directors doing if not overseeing the business?

However it paid too much, it outbid Singapore Airlines ...

that was Air NZ's decision, one they must live with and cannot blame any other party for.

Dr Cullen helped bankrupt Air NZ...

That's right. The directors of AirNZ are blameless, eh Scott?

What happened when the Ansett receivers (Mentha and Corda) came in?

To summarise, they found no accurate records of assetts, no real accounting records, a complete and utter shambles. AirNZ attempted to swallow a much alrger fish, and choked on it. The AirNZ directors and amangement had no idea of the business they were trying to run and simply fucked it bigtime.

They took control of an airline that bounced between 52 and 48% of the market and improved the market share to around 20%, before finally letting Ansett go in to receivership.

But none of that's the fault of the directors and management of AirNZ, is it LS?

Canterbury Atheists said...

Find myself agreeing with Jack here.

Air New Zealand got too big for its own boots, ideas above its stature.

Rather than being a profitable regional airline, its management went off and purchased an airline that was going-down the gurgler, and in the end almost dragged them down the vortex as well.

In your history you forgot to include one crucial piece in the jig-saw: Air New Zealand management took-over Ansett without proper diligence.

These senior managers made a decision, which wasn’t helped by the politicians on either side of the Tasman – but it wasn’t an economic imperative for Air NZ. to get involved in the Australian domestic market, in the first place.

The Government should have let them fail at the time, as other carriers would have taken-up the slack.

Air New Zealand has a history of self-servicing management and if it wasn’t for competition we’d still be walking out on rainy days across the tarmac to aircraft which always ran behind schedule.

See ya.

Paul.

libertyscott said...

Jack - I never said Air NZ management was blameless, not at all. However things were far far worse with government interference from both sides of the Tasman.

Paul- I think there was a strong case for getting into the Australian domestic market, the question is how. I believe if the government let NZ fail it would have been operated by receivers who would have run most of the services. The bigger issue remaining being who would buy it! The key for me is what harm was there for Cullen to let SQ buy the airline? None - at worst it would have folded anyway, at best NZ would be part of a major feeder network to many cities in Europe, Asia and the Middle East.

Yes NZ was hasty with Ansett, but all those shareholders at the time have paid a hefty price.

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