If you want to blame someone for the Ansett collapse then please read on.
And what about the way John Howard claimed it would cost taxpayers $1 billion to support Ansett for a couple of weeks. Even the administrator Peter Hedge (who looks very young to have such a huge responsibility) failed to back that one up when asked on Business Sunday yesterday.
Let’s just go through and calmly apportion the blame and answer some of the key questions here:
Did Rupert milk Ansett dry?
News Ltd claim that whilst controlling Ansett from 1993 to 1999 they took out only $15m in dividends and the business had operating cash flow of $3.6 billion which paid for $1.6 billion in capital expenditure and reduced debt from $2.27 billion to $817 million. It looks like the business was insolvent after the pilots dispute and recession in the early 1990s when it had been milked by debt-laden News and TNT. At least News did spend the last few years reducing the debt but they still should be condemned for failing to provide the capital injection to upgrade the fleet.
Does Dick Smith make any sense?
Former CASA chairman Dick Smith is looking pretty stupid, especially his comment on 2UE that “Air New Zealand might have been stupid to buy it without due diligence, but the problems existed when News Ltd was operating it and basically milking it and running it into bankruptcy.” His claim that Qantas will also go broke is also quite breath-taking and Qantas chief predatory pricer Geoff Dixon took the time on Business Sunday yesterday to specially say that Qantas made a $300,000 profit on the Coffs Harbour route last year, not the $1 million loss that Dick claimed.
How responsible is Sir Selwyn Cushing?
The Brierley Investments chairman is worth $30 million and must hold the bulk of the responsibility. Brierley controlled Air New Zealand and with Sir Selwyn as chairman they gazumped the $500m offer from Singapore Airlines to buy New Ltd’s 50 per cent stake and offered $680 million including $580 million in cash up front. Then when Rod Eddington defected to BA, Sir Selwyn ran the business for 5 months until Qantas finance director Gary Toomey was signed up and the business bled badly over this time.
Can we still blame Sir Peter Abeles role?
The biggest mistake was Abeles’s Noah’s Ark approach of buying two of every different aircraft, meaning Ansett could never run an efficient maintenance and engineering operation until it bought a new fleet – but it never did. Abeles used his political connections with Bob Hawke to keep competition out for many years and then Ansett and Qantas ganged up like vicious monopolists to send the two Compass efforts to the wall pretty quickly. Abeles also secured vice like leases for Ansett and Qantas over the government-owned airports which gave the airlines more airport power and profit than any other airlines in the world. All of this helped cover up the inefficient union practices that were allowed to flourish at Ansett.
Did the government regulator CASA cause this?
CASA definitely contributed to the collapse because the Christmas and Easter shut-downs cost Ansett lots of cash, severely damaged the brand and sent many large and valuable business customers to Qantas such that the Ansett market share spiralled down. However, it also heightened the need for Singapore to come and still you had the Australian and New Zealand governments objecting to this. I reckon that CASA wouldn’t have done the same thing to Ansett if News was still a 50 per cent shareholder because News Corp director Rod Eddington was running Ansett at the time and had lobbied hard to get Mick Toller the job. They were old mates from Cathay Pacific days.
Can we blame Singapore?
Singapore has been consistently gazumped over the years. In 1993 BA just pipped them to the 25% cornerstone shareholding in Qantas. They had the $500 million deal with News Ltd but then Air New Zealand exercised the pre-emptive rights in 2000. Singapore has a direct 25 per cent stake in Air New Zealand also also have a large holding in Brierley Investments, which is the second largest Air New Zealand shareholder. With Ansett cut adrift, Brierley and Singapore Airlines have each agreed to stump up $NZ100m and the government has lent $NZ550 million but Air New Zealand shares have gone into free-fall and they will probably be sued to cover the staff entitlements. I’d be surprised if Brierley and Singapore actually do go through with their capital raising as it looks like they’re throwing good money after bad with Air New Zealand shares plunging 19c to 32c on Monday morning.
Helen Clark’s share of the blame?
Hillary is certainly giving it to Helen Cluck big time and she must carry a degree of responsibility for refusing to allow Singapore to move to 49 per cent. However, it should be pointed out that Air New Zealand’s constitution and the government’s Kiwi share both require that the board and share register be majority NZ. Once Air New Zealand bought a foreign airline in Ansett they should have been opened up to foreign buyers themselves if for no other reason than to ease its stretched balance sheet. But Qantas ran a very vigorous campaign against letting Singapore in and then all the dithering lead to the collapse.
Does the Administrator have conflict of interest?
Administrator Peter Hedge from PriceWaterhouseCoopers has a potential conflict given that PWC has been a long-standing advisor to Air New Zealand. PWC has also done lots of consulting work for Singapore Airlines. The administrator claimed on Sunday he was in negotiation with buyer of the whole business and it would be very disturbing if this was Singapore Airlines trying to pick up the business without the debts. Arthur Anderson were the alternative administrators and they should have been appointed as there was no conflict of interest.
Which banks will take a hit?
Ansett has about 30 banks owed more than $1 billion but with a combined Treasury it is very difficult to unscramble the egg with Air New Zealand. NAB has largest exposure with $100m plus all the credit card bookings exposure and this is why its share price dived last week.
Could Branson have avoided this?
None of this would have happened if Richard Branson had accepted the $250 million cheque from Air New Zealand – Singapore in reality – and cleared the way for the recapitalisation by returning to the cosy duopoly. But with Ansett gone, Virgin Blue is now probably worth much more than $250m and can crawl over the carcass.
Should we blame Qantas?
Crikey was on Terry Lane’s Radio National program with competition watchdog Allan Fels on Sunday and resisted the temptation to say that he’d let Qantas get away with too much. But the truth of the matter is that it was Qantas who led the discounting and threw huge licks of capacity at the market to blow away the competition. They also helped stymie the proposed Singapore bailout through vigorous lobbying of transport minister John Anderson who quickly fell into line. Qantas have now got what they wanted and in Crikey’s view they should have been clobbered for predatory pricing.
Should we blame the unions?
Ansett is one of the least efficient airlines in the world and the engineering/maintenance costs are enormous, especially thanks to Abeles’s Noah’s Ark approach of buying two of a different type of aircraft every time he went to lunch. The PM has pointed out that the unions had negotiated some fabulous redundancy deals with Ansett so Air New Zealand simply couldn’t afford to pursue the staff cuts necessary to get the costs down. Ansett should have been operating with about 13,000 rather than 17,000 staff and that is about how many of the workers will get jobs with those that replace Ansett.
How outrageous are these performance bonuses?
The performance bonuses to Air New Zealand CEO Gary Toomey and his management team are pretty outrageous on the surface but you also have to consider whether some of them were going to walk out the door. Rupert did the same with his executives when the flames were licking at the side of debt-laden News Corp ship in 1990. Sometimes you have to pay a bit more to get people to put themselves through hell.
Should we boycott Air New Zealand
Air New Zealand will undoubtedly suffer a consumer backlash but you must remember that they have announced the biggest loss in Kiwi corporate history of $NZ1.3 billion. Lion Nathan has already fled the country and relocated to Australia so they haven’t got much left of their own. Peter Beattie this morning called on all Australians to boycott Air New Zealand which is a pretty big call for a politician. They have behaved disgracefully but if Air New Zealand also goes under that will only leave United and Qantas flying to the US so prices would ultimately rise. You must remember that the global aviation industry is in crisis worldwide and several are going to go broke. This will mean less competition so we shouldn’t have reckless unions adding to the disaster.
What could the federal government have done?
The Federal government should not have listened to Qantas and contributed to the dithering over the Singapore Airlines bailout. They were clearly distracted by the Tampa crisis when a big focus on Ansett was needed. The ideal situation would have been a scheme of arrangement to keep Ansett flying but that saw Air New Zealand shareholders and lenders take a big haircut as new owners took over.
There will be many other factors to consider such as surging oil prices, the Olympics and the diving currency and we’d be keen to publish your contributions so send in the emails to [email protected]
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