Cullen Press Conference with Rob Cameron, Jim Anderton, Mark Burton
9.00am, 4 October 2001
Cullen
On 13 September we announced a package which involved the government injecting significant amounts of capital into Air
New Zealand by way of debt. Since that time a number of things have happened. Firstly, obviously the international
aviation situation has got a good deal worse than was anticipated as a result of the world trade centre attacks.
Secondly, and perhaps in the context of Air New Zealand more importantly, the voluntary administrator of Ansett offered
to settle the issues surrounding the letter of comfort and some other matters for AU$150 million.
The two events combined meant that Air New Zealand wanted to achieve some level of recapitalisation earlier than was
previously thought to be necessary and needed that money more upfront than would have occurred under the previous
process. It therefore approached its two major shareholders, SIA and BIL for some level of shareholder commitment in
order to make that possible.
Neither one was able to make that commitment for various reasons, or was willing to make that commitment for various
reasons.
That therefore left the government in the position that either we face the very real prospect of statutory management or
other options which were not considered desirable, or the government had to take the lead role in saving New Zealand’s
national carrier.
The government opted to take the lead role in saving New Zealand’s national carrier. That will be done by the following
mechanisms:
Firstly, an initial injection of $300 million will occur, subject to confirmation of the voluntary administrator deal
through the Australian courts which will probably occur next week. That deal is for a settlement of AU$150 million,
approximately NZ$185 million. The remainder of that $300 million will be used as working capital by Air New Zealand. It
will be initially injected by way of subordinated debt, partly of course for legal reasons, it can only be done quickly
by means of subordinated debt. It cannot be done by means of new share issues, that is subject to shareholder approval
which cannot be obtained within the time frame which is desirable.
But [the injection] will be convertible to equity subject to shareholder approval of the total package. The price of
those shares will be the lower of 24 cents or the fair value price which will be set when the second tranche of
injection occurs.
Assuming the 24 cent price, that will give the government 1.25 billion compared with the present share issuance of, I
think its 757 million. So clearly the government will have majority ownership of Air New Zealand. No shares are being
bought from SIA and BIL, indeed it is part of the agreement that SIA and BIL have to maintain their present shareholding
through to the shareholders’ meeting and are committed to voting for the package at the shareholders’ meeting.
75% approval is required at that shareholders’ meeting for the package itself. SIA and BIL, at that point, [will] still
retain 55% of the shareholding.
A second tranche of injection will occur by means of ordinary shares to the value of $585 million. That to be based on a
fair value assessment which obviously has to be agreed between the government and Air New Zealand. If one assumes that
that value is 24 cents, the same as the upper limit for the first tranche, then the government will end up owning 83% of
Air New Zealand, Brieley’s shareholding will fall to 5.2% and SIA will fall to 4.3%.
I make the last point for a very clear reason. I am sure that when we have an urgent debate this afternoon, which I am
sure we will have, some will want to make the point that we are rescuing SIA and BIL. They have lost something over 80%
of their share value and are losing something over 80% of the proportion of their shares in Air New Zealand. If that is
a rescue package, I would hate not to be rescued looking at it from the perspective of SIA and BIL. In essence this is a
package where the New Zealand government is taking the lead in ensuring the future of our airline.
The board will initially be reduced in size, probably to eight – one each from SIA and BIL, four independent directors,
a new co-opted director who will be Mr France [Roger France is a consultant to Pricewaterhouse Coopers and an adviser to
the Air NZ board] who has been assisting in this package throughout from the Air New Zealand side and probably another
co-opted director.
But that of course is only an interim arrangement through to the point where the government takes the clear majority
shareholding within the company. In that respect I would like to pay tribute to Jim Farmer who has provided some real
leadership and I think moral character in taking Air New Zealand though the difficult processes of the last few weeks.
If anyone has ever been delivered a hospital pass in terms of their career and commercial life – I think its fair to say
that Jim Farmer was delivered one hell of a hospital pass by the previous leadership in Air New Zealand.
Majority ownership by the government, which will be ongoing for the foreseeable future, will ensure a clear strategic
direction and purpose in an organisation that has not had that for a very long time. I think I am now in a position to
say what I have wanted to say for a very long time which is that Air New Zealand has suffered from factional and
factionalised and dysfunctional leadership at the board level for a very considerable period and certainly it has not
been entirely helped by some of its shareholders through that period.
Finally let me reiterate a point, because I saw that one of the instant aviation analysts that we have spawned in the
last few weeks, repeating yet again,* if only the government had agreed to the original proposal, none of this would
have happened. Let me take you through the very simple steps again – it simply requires understanding of our commercial
legislation.
Had that been approved in principle it would have required a lengthy process that would have lasted until November
whereby the board would have had to prepare a prospectus for a new rights issue. That would have required due diligence
and sign off by the directors. The directors would not have been able to sign off that with any degree of honesty given
the situation within Air New Zealand. In other words, exactly the same process would have unfolded, somewhat more slowly
but without direct government involvement.
*That is simply not a goer – it is not a credible explanation of events that have occurred.
So the government will end up being the majority shareholder. We may at some future time choose to sell down at least
part of that shareholding, and in particular we may well be looking for a cornerstone airline shareholding within Air
New Zealand because that is probably desirable from the long term perspective of the company and obviously a number of
airlines may be interested in that cornerstone shareholding.
I emphasise that [the package] is still subject to two major things. Firstly the approval by the Australian courts of
the voluntary administrator deal next week. Secondly, approval by the shareholders at the shareholder meeting.
Because therefore in a strict legal sense this is still a proposal, the government has agreed to indemnify the directors
from this point moving forward to the point of the shareholders’ meeting. We do not anticipate ever having to meet that
requirement. We are confident that the airline will move forward and prosper.
[Regarding the hold up at the end] It was due to a small technical issue…from the voluntary administrator and also some
attempt at relitigation by BIL. The government was in a position to sign up some time ago. It was not us that was
holding matters up.
Q…….. is the Alliance going to push to make sure the government continues to own the shares?
Jim Anderton [Alliance leader] I think what you heard Dr Cullen say is that the government wouldn’t necessarily hold on
to all the shares but I am quite sure that if you ask Dr Cullen, he will be very clear that the government will retain
control of this airline for some time to come. There are a number of issues that need to be cemented in and the
government control of the airline is important for those things to happen.
Cullen – Absolutely.
Q. Why is it so crucial to keep flag carrier?
Cullen – it’s only through our flag carrier that we guarantee our international flying rights and direct access to NZ
from a number of airports around the world. It would be disastrous for the NZ tourism industry if we had the vast bulk
travelling through Australia …[unclear] having direct access to US, Japan and other markets.
Secondly of course, having gone through the statutory management process, the government would have had no control over
the outcome of that process merely a weak and perhaps rather useless weapon in the controls over foreign airline
shareholding.
But if the choice was complete collapse or some other airline taking 100% control of Air New Zealand the government
would have had very little choice in that particular respect. And of
course in the interim there could have been very serious disruption, I think even at this stage it is fair to say there
has been some impact on Air New Zealand from some uncertainty about its future – in terms of forward bookings etc.
Putting some certainty into this is absolutely essential for the viability of the airline.
Jim Anderton – I don’t know of any country in the western world where the government isn’t assisting the airlines in
some way shape or form.
Q. How was this AU$150 million worked out?
Cullen – that was essentially an offer from the voluntary administrator. It would have been his estimate of what a
reasonable value of the settlement was, taking account of the various risks associated with the situation. In other
words – would they hold out to try to go Air New Zealand for the full amount and would they have got that had they done
so, versus seeking an earlier settlement. Essentially [its] a bird in the hand, two in the bush kind of argument perhaps
literally from an Australian perspective.
Q. Is this a final offer?
Cullen – there is a memorandum of understanding on that but that has to be finally confirmed by the Australian courts.
Q. …..does it mean they are really settling for $310 million?
Cullen – No not really. The fact that you had claims of $160 is rather like the claim of $400 million against Air New
Zealand, the claim is not what you expect to get at the end of the day. I think its fair to say that the AU$400 million
involved in the letter of comfort, after various calculations of the offset might have been some $330 million or so
against Air New Zealand, that perhaps is the amount the $150 is to be compared with once you take all those balancing
factors into account.
Q. A couple of weeks ago you seemed to rule out statutory management and then we had Prime Minister saying it was live
option…?
Cullen –I never ruled out statutory management and that is never ruled out as a possibility in these circumstances – it
cannot be.
Q. You said you found it an unattractive option because of the risks to the assets…[it seems, is the government singing
from same song book – appears not]
Cullen – when I look in the mirror, one can be unattractive and still viable.
Q. It does add to the perception that the government doesn’t know what its doing.
Cullen – No, I don’t think so at all. I think the Prime Minister quite properly tried to send the message that there are
a variety of ways in which we can try and make sure that an Air New Zealand emerged out of the other end of the process.
What people were really worried about was that we wouldn’t have an airline at all. Not just from the perspective of
those working for Air New Zealand but from the tourism sector, the business sector. I think it is very important for the
Prime Minister to send that message.
Q. Was that part of a threat to the major shareholders?
Cullen – I prefer not to talk in terms of threats to the major shareholders. I’m sure they are not feeling very happy
chappies this morning.
Q. Does the $150 million cover any of the Ansett workers’ entitlements?
Cullen – it is in relation to the voluntary administrator’s needs with respect to the level of comfort but Rob Cameron
may want to comment further on that.
Rob Cameron [government negotiator] There are four broad types of claims. There are claims between Ansett and Air New
Zealand. There are claims against the Ansett directors for which Air New Zealand would have offered indemnity. There are
claims by the liquidator or administrator against Air New Zealand. These are all potential claims that come through to
Air New Zealand. And finally there are third party claims which can involve creditors, unions and other third parties
that might have then [flowed] through Ansett to Air New Zealand.
The voluntary administrator memorandum of understanding really deals with the first three and in particular with the
first one – the Ansett direct, Ansett claims. The second one will influence the other ones….we have obviously made a
legal assessment of all those claims…
Q. Where does the government’s money come from?
Cullen – The advice that I have at the present time is that we probably do not need to vary our debt programme for this
year in order to cover the investment into Air New Zealand. We also have rather more cash on hand than anticipated
because of the better outturn of the last fiscal year than was forecast. So at this stage we are not anticipating having
to increase the debt programme this year in order to meet the obligation.
Q. So you don’t need to borrow money?
Cullen – we don’t need to borrow any additional money?
Q. How confident are you that this will be enough…given the international situation?
Cullen – This is the best estimate at the present time of what is required.
Q. Government dithering….?
Cullen – It’s crap to put it bluntly. I will put it as crudely and as bluntly as I can. The government has never
dithered through this process. I think it’s fair to say that for the government negotiators that Air New Zealand’s been
brought to realise its own position and brought to realise what the effective solutions are.
I repeat again, the dithering case depends on this argument that if we had agreed to the original Singapore Air New
Zealand approach – all would have been well.
That would have fallen apart. It could not hold. It would have required due diligence. It would have required director
sign off. It would have required a prospectus. That could not have been delivered. If they signed off then undoubtedly I
think they could have been charged with breaches to the Companies Act.
Q. What about the Qantas deal?
Cullen – [Qantas never held deal up] I think I met for slightly over an hour with Mr Dixon in July and it did not hold
matters up at all. I think Rob Cameron spent about two days in discussions with Qantas. It had no significant impact on
the process at all.
Q. In hindsight, what would you have done differently?
Cullen – In hindsight? If I had known what was going to happen between 1989 and 2001, I think in the Labour cabinet I
would have opposed the sale of Air New Zealand, particularly to BIL.
Q. How long would you anticipate [owning] Air New Zealand?
Cullen – at this stage for the foreseeable future.
Q. You were a senior member of the Labour Cabinet that sold Air New Zealand.
Cullen – In hindsight? If I had known what was going to happen between 1989 and 2001, I think in the Labour cabinet I
would have opposed the sale of Air New Zealand, particularly to BIL.
R. How long would you anticipate [owning] Air New Zealand?
Cullen – at this stage for the foreseeable future.
R. You were a senior member of the Labour Cabinet that sold Air New Zealand.
Cullen- Now I’m an even more senior member of the Labour Cabinet that is buying it back. But I don’t think you
should take that as a precedent for Telecom.
Q. What will the cash injection be spent on?
Cullen – that’s up to the board of Air New Zealand. It is not for me to run the airline. Let me make this very, very
clear. Even when we take majority ownership of the airline, the board will run the airline, not the shareholding
minister. This is not going to be a sticky hands-on effort by the minister of finance.
Q. You have no idea what the money will be spent on?
Cullen – If you read the documentation in terms of Air New Zealand’s capital, you see that the affected capital is now
down to a maximum of $150 million. They clearly need a higher level of working capital than that.
Q. Will the airline look different?
Cullen – It will still have a koru on the tail. That is a matter for the board. The government becoming a majority
shareholder does not mean it will be trying to run the airline in terms of staff, salaries, routes etc.
We will be responsible for appointing directors but obviously we will be choosing people who are competent to run an
airline…
Q. Sitting directors….
Cullen – obviously there will be an immediate reduction in the number of directors. I think the four existing
independent directors who will stay on in the interim through to the shareholders meeting are, I think: Dr Farmer, Ralph
Norris, Sir Ron Carter and Liz Couts. SIA and BIL will be notifying their directors later in the day, and Mr France, I
think, has been co-opted and I think we will co-opt one more.
But that is not to say, in the least, who is going to be on the board subsequent to the government taking majority
control.
Q. Chairman?
Cullen – He intends to chair the board to the shareholders meeting. I think it is up to Dr Farmer to respond on what he
sees as his longer term plans. Again I want to emphasise that Dr Farmer has contributed enormously over the last few
weeks in a very difficult position.
Q. Expecting BIL to exit…?
Cullen – that’s a matter for them to decide.
Q. Mr Cameron, is it correct that it was your enquiries that alerted the board as to how serious the situation was?
Rob Cameron – We began to identify some of the issues in the proposal that they were putting forward for approval.
Effectively there had been agreement with Ministers, in concept, as to how that would be achieved quite quickly. The
issue that we discussed with the board is that the proposal they were putting forward didn’t look as if it had a large
probability of succeeding and the alternatives needed to be addressed.
At the time we started we had a recapitalisation proposal which started around 850, moved to a billion, moved to 1.1 and
as it moved up it became clear that the requirements were likely to change. At one stage the proposal for government
underwriting…as the Minister has said, would have required as prospectus, and it also became clear to us that that
proposal did not have a high probability of success.
Q. Why was it [the state of Air New Zealand] clear to you and not the company?
Rob Cameron –Sometimes its easier to deal with it from the outside. I can’t really answer that. I think it had a lot to
do with issues around the board and the types of business issues they were addressing at the time.
I think we had a much clearer focus because we knew that we had to put a proposal for the government that was capable of
being [approved].
Q. Did it surprise you that they were not aware of the situation.
Rob Cameron – it was something that developed over the time. I think it was something that we brought to their attention
and asked them to address and as we got them to focus on it, it became clear that there were some significant issues.
ENDS