The last time Air New Zealand got into serious trouble was through its investment in Ansett Australia during the late 1990s – an investment touted by one Air New Zealand executive at the time as offering “a unique opportunity to substantially enhance Air New Zealand’s strategic value.” Yet as business analyst Brian Gaynor subsequently pointed out, Ansett Holdings had been “a debt-ridden, poorly performing company that was rapidly losing market share to Qantas in Australia.” The Ansett investment all but destroyed Air New Zealand, which had to be bailed out by the taxpayer.
This week, as the government rams through its selldown of its stake in Air New Zealand, it feels somewhat disturbing to find that Air New Zealand will be simultaneously upping its investment in the loss-making Virgin Australia – which like Ansett of yore, has been coming off second best of late in its competition with Qantas.
Air New Zealand said last week it would spend up to $130 million maintaining its stake in Virgin as part of a planned A$350 million capital raising. Analysts said then the Air New Zealand investment was manageable given the health of its balance sheet, but tipping in any further funds would attract greater scrutiny. Qantas yesterday was scathing of the decision by the Virgin investors and in a statement said: “The decision of these shareholders to invest in Virgin Australia’s loss-making strategy highlights that these airlines aren’t subject to the same commercial realities as Qantas.” Virgin suffered an A$98 million loss in the past financial year and is having to spend heavily to hold on to inroads it made into Qantas’ stranglehold on corporate travel in Australia.
Let’s all hope that history will not repeat. Meanwhile, SOEs Minister Tony Ryall has been repeating the line that the government got a mandate to carry out its asset sales programme in 2011 and that’s that as far as he’s concerned when it comes to this democracy nonsense. Thus, we have the giant ‘screw you’ represented by the Air New Zealand selldown in the same week as the Citizens Initiated Referendum on asset sales kicks off.
In reality, this “we have a mandate” claim is complete bullshit. Yes, in 2011, the Key government was re-elected. It was re-elected despite the asset sales programme, not because of it. (All the opinion polling showed that the programme was widely unpopular.) The asset sales programme was never put to a referendum. Indeed, when such a referendum has finally been mounted, the government has opposed and ridiculed it. Surely, if the government is confident that it did receive a mandate for the asset sales programme in 2011, it should be welcoming a specific test of that alleged mandate, in the light of how swimmingly it believes the sales have gone so far. Ask yourself: if the government has nothing to fear from this referendum, why does it oppose it so stridently?
Second, we own these assets. We can revisit the right to sell them if and when subsequent information comes to light, or if the sales agent (i.e. the government) changes the terms of the deal. That is exactly what has happened here. Part of the reason for revisiting the asset sales programme is that the government has consistently failed to live up to the promises it made in 2011. It is, for example, failing to meet the $5-7 billion return it promised. Thus, there will be less of that promised infusion into schools, hospitals etc – which was the trade-off that was promised. To state the bleedingly obvious: the Key government did not get a “mandate” in 2011 to unload stakes in these valuable assets to institutional investors at whatever fire sale price it chooses to concoct. Moreover, the government had promised in 2011 to prioritise those mythical “Mum and Dad” investors – but “Mum and Dad” investors have not only been thin on the ground in the Mighty River and Meridian sales, they been excluded from the rushed and secretive Air New Zealand selldown. Which, as No Right Turn has pointed out, was unveiled with an astonishing level of deceit, even by this government’s usual standards. First, it whispered its intentions to its friends in the market, then denied to the public that anything was afoot, and then revealed a fait accompli.
So, no genuine “mandate” exists. Assuming that its investments in Australia are more prudent this time, Air New Zealand could well continue to be profitable. Ordinary New Zealanders however, will be denied the full benefits from the wealth of the asset that they own, little more than a decade after they paid to restore it to profitability. As Labour leader David Cunliffe says, the Air New Zealand selldown is a classic case of socialising the risk and privatising the profits. Voting in the asset sales referendum is the only way we have left to voice our opposition to this daylight robbery.