If Rupert Murdoch has any sense of fair play, he should hand over a $40 million cheque he is soon to receive from Air New Zealand and commit it to pay for some of the entitlements of Ansett workers. Rupert booked a cash profit of $240 million when he sold 50 per cent of Ansett to Air New Zealand in 2000 but, incredibly, he stand to collect an additional payment.
I almost fell off the chair when reading note 3 to the accounts which states:
UNUSUAL ITEMS (continued)
“The deferred settlement liability of $NZ47.85 million (30 June 2001 – $NZ82.42m) recognised within Other Non-Current Liabilities on the Statement of Financial Position (note 14) represents the outstanding obligation to News Corporation Ltd for final settlement in relation to the acquisition of shares in Ansett Holdings Ltd. The amount represents 10.5 per cent of the number of Air New Zealand shares on issue on 18 February 2000, adjusted for subsequent issues of shares, and valued as at 30 June 2002. The deferred settlement is revalued in accordance with share price fluctuations. Prior to June 30 2001, such revaluations were recognised as a movement within goodwill. Following the write-down of Ansett’s balances to nil value as at June 30 2001, the revaluations are recognised in the result for the year.”
In other words, not only did Rupert sell Air New Zealand the biggest pup going around and book a $340 million profit on the sale, he’s still going to collect on his profit share deal to be also paid 10.5 per cent of the market value of Air New Zealand measured at some point between June 2002 and June 2004.
The whole airline is presently capitalised at $1.6 billion so Rupert is clearly not going to be getting 10 per cent of this figure.
The government has done pretty well out of its investment as it stumped up $NZ885 million which gave it 74.11 per cent of the company plus a pile of preference shares.
But all the other shareholders such as Singapore Airlines and Brierley Investments get massively diluted their collective 100 per cent equity stake is cut to just 25.89 per cent now and faces further dilution when the government converts 1.29 billion preference shares into ordinary equity.
Based on the current share price of $A47c, the Kiwi taxpayers have done well because they only paid about $NZ26c a share.
Given that this 10 per cent clause meant to be a deal that reflected what the Ansett purchase did to the value of Air New Zealand, it is quite outrageous that News Corp could get another large cheque. The purchase sent Air New Zealand to the wall so if anything Rupert should give back some of that $580 million in cash his company received in 2000 and forgo the extra cream which is still to come in.
The figure of $NZ47 million cited by Air New Zealand appears to reflect 10 per cent of the 760 million residual Air New Zealand shares held by investors who watched the stock plunge from $3.50 in May 1999 to just 20c when the Kiwi government bailed it out late last year.
Presumably, this does not mean that if Qantas is issued with new shares as part of its proposed 25 per cent cornerstone shareholding, Rupert will not get a bigger slice of the pie again, but the cheque could be bigger if the investment sparks a further revival in the Air New Zealand share price.
I asked Rupert at last year’s AGM about Ansett and specifically whether shareholders stood to get anything from the “10 per cent of market cap” clause in the sale agreement with Air New Zealand.
This is what we wrote at the time:
ANSETT DISASTER – extract from Crikey’s 2001 News Corp AGM report
Rupert was showing no serious signs of question fatigue at this point so I got up again and asked this one about Ansett:
“Ansett was in our books at $340m and we announced the sale of our 50 per cent to Air New Zealand for $580m in cash and an expected additional $100m in June 2002 based on 10% of Air New Zealand’s then market capitalisation. How did we account for the proceeds at the time and what prospect is there of recovering any of the additional proceeds now that the NZ government has bailed it out? Also, News Corp has been widely criticised for allegedly starving Ansett of capital and leaving it with the second oldest fleet of any airline in the world. Is this a fair criticism?”
This one actually generated some news because few people had cottoned onto this receivable in the News Corp accounts which was originally booked at $100 million. Rupert conceded it has since been written down to $65 million but now said the residual value would plunge to about $10 million. The idea of Rupert getting any more cash out of Air New Zealand is really quite appalling given the disaster he foisted on Air New Zealand.
He seemed genuine in lamenting the demise of Ansett but absolved himself of blame by saying that after taking management control, News Corp hired current British Airways CEO Rod Eddington, who he described as the finest airline executive in the world. Eddington made plenty of changes but then Rupert launched an extraordinary attack on Air New Zealand claiming that they wanted to expand the airline but the Kiwis blocked them all the way.”
Given that Air New Zealand are clearly expecting to write a cheque out for $NZ47 million based on current prices, it will be interesting to hear what Rupert’s got to say about this at the upcoming News Corp AGM. He should be embarrassed about receiving any more money and the cash should be pledged to pay some of the worker entitlements.
The contrast with One.tel is quite amazing as when the telco collapsed News Ltd still owed it almost $50 million in advertising services which had been pre-paid. PBL was in the same boat and they fought tooth and nail not to pay this to creditors when they should have. So when they owe a collapsing business money or services News Corp refused to cough up but when a collapsing business owes it money, News Corp somehow still stands to get paid a bonus ahead of everyone else.
Given that Rupert really got out of jail scoring a huge profit on his Ansett hospital pass, it just seems outrageous that he’s got another big cheque coming his way when everyone else from the Ansett workers to New Zealand taxpayers, Australian taxpayers and Air New Zealand shareholders have taken a huge bath.
If this is true, Kiwis should be marching from Bondi Beach to News Ltd House in Surry Hills objecting.
Rupert is the past master of political pay-offs. It would be very interesting to examine the editorial coverage by his substanial media operations in New Zealand. Were they strongly behind Helen Clark? Did Helen Clark know that by bailing out Air New Zealand she was directly putting money straight into Rupert’s pocket? Surely it would have made sense for the New Zealand government to insist that New Corp void this clause in the contract before it agreed to the bail out.
This may sound a bit conspiratorial but I’m convinced that Rupert’s papers backed Bob Carr strongly in 1999, partly because of the sweetheat deals he did with News Corp over the sale of Sky Channel to the TAB and the peppercorn rental deal on Fox Studios.
Janet Albrechtsen vs Greg Combet
Mike Steketee is still steaming about being knocked off for that spot on The Australian’s opinion pages by Janet Albrechtsen and there are plenty of other people not happy with her columns.
ACTU President Greg Combet can’t have enjoyed being personally blamed for the collapse of Ansett in last Wednesday’s column. Er, didn’t News Corp contribute substantially to Ansett’s collapse by starving the business of capital for years.
And what about John “Minister for Qantas” Anderson who disgracefully lobbied the Kiwis to reject the Singapore bailout proposal. He contributed substantially to the Ansett collapse.
But Janet would not want to upset the Howard government too much as her husband John O’Sullivan is one of the Rodent’s millionaires.
O’Sullivan is a senior partner at Freehills who got the gig for both T1 and T2. This paid so much that he was able to take a 12 month sabbatical to spend his cash.
Sources at The Australian tell Crikey that Howard has given his nod of approval to Albrechtsen – puts her in the Miranda Devine category of approved women columnists.
This must delight her hubbie as he queues up for more millions in fees for T3 and given that the PM is so obsessive about not giving critics a hand, he will want to know who gets the gig. That’s what he did in T1 and T2 – John Fahey’s office weren’t allowed to appoint anyone without the Rodent having a say.
Mr Albrechtsen has also just advised on the sell-off of Sydney Airport. But it gets worse. We just discovered this in a legal profile on the web:
“John O’Sullivan is lead partner in the team advising the government on the sale of the Sydney Airports Corporation. He also acted for Air New Zealand in its two-stage acquisition of Ansett Airlines in 1996 and 2000.”
Oh dear. Janet’s hubby advised Air New Zealand to do something which cost the Kiwis more than $1 billion. Methinks she should have disclosed this connection before her blistering attack on Greg Combet last Wednesday.
Speaking of which, here it is:
It was the unions that killed Ansett airlines and 16,000 jobs a year ago
By Janet Albrechtsen
Oz columnist and wife of Air New Zealand legal adviser
TWELVE months ago, Ansett collapsed. The attempt to revive it is a stellar lesson in how union folly destroyed a company. Billed as a national icon, resuscitating Ansett II was fuelled by a deluded belief that big airlines are a source of national pride. If they fail, we fail. We almost believed the unions’ marketing ploy.
Reality soon unravelled the spin. The “new” Ansett II failed because unions failed. With management ousted, unions pursued a path which guaranteed what they sought to avoid: the destruction of an airline and the loss of 16,000 jobs.
Patrick Corp’s Chris Corrigan was also interested in Ansett II’s assets. But unions saw him as the unacceptable face of capitalism. After all, he threatened to do to the airline industry what he did to the waterfront — dismantle a nearly 100 per cent unionised crown jewel.
So ACTU boss Greg Combet continued his stubborn pursuit of restoring Ansett to its former highly unionised glory. No jobs was better than Virgin jobs. And stupidity trumped history lessons.
Remember the hubris when Combet’s loyal lieutenants, administrators Mark Korda and Mark Mentha, announced they “didn’t need a Virgin to come in and show them how to do the job”. Unionists lapped it up. Yet Virgin discipline was exactly what Ansett needed.
Instead, a chapter of errors saw unions winked at by compliant administrators and political point-scoring. Their revived Ansett II was like a dead cat bounce: it was a delusion. There was no place for an airline without Qantas’s economies of scale or Virgin’s low-cost structure. In the driver’s seat early on, Combet ignored the market and played politics. The loss of 16,000 jobs three months before the November 2001 election was a loaded gun in union hands. Wherever John Howard went, the Ansett picket followed. Sure enough, the Government played into union hands with a taxpayer-funded package guaranteeing workers’ entitlements.
That bailout simply encouraged requests for more corporate welfare. Lindsay Fox and Solomon Lew sought huge taxpayer-funded subsidies as part of their $3.5 million Tesna bid, including a guarantee that government would pick up the tab for 65 per cent of seats. Fortunately the Government said no, killing off their opportunistic bid. Mercifully, we avoided the hammering Kim Beazley promised us if he won that election and pumped even more taxpayer money into a dying airline.
After September 11, airlines in the US clamoured for government bailouts. But many were in dire straits before September 11. As one US consultant said recently, if airlines cannot qualify for commercial loans, propping them up simply skews the field. The Government “runs the risk of playing God in shaping the future of what the industry looks like”.
Similarly Ansett faced tough decisions long before September 11. But Combet marched on. Combet believes Virgin killed Ansett II by refusing to merge with Tesna in its dying days. In fact, the unions killed Ansett when they refused to marry the Virgin back in 2001. That was the killer blow to Ansett II. After that, Ansett’s workforce was a white elephant: no one knew what to do with it.
When the Tesna bid collapsed, even Virgin declined to buy Ansett II. The unyielding union culture among its highly paid, highly unionised, relatively inefficient employees promised a serious clash with Virgin’s 1300 staff.
Ansett employees and their powerful union were their own worst enemy. A year later, what do former Ansett workers think about the union snub of Virgin? And Combet’s legacy leaves a stronger Qantas facing off against weaker union power. As Qantas says, why should it pay higher wages if its only competitor pays less?
Ansett II was a litmus test on how Big Labour would balance workers’ interests with those of a financially crippled company. Big Labour flunked and its Ansett II deserved to die. The market is better for it: two efficient airlines, one full service, one cut price.
As the Centre for Asia Pacific Aviation warned in April: “There is no example of a country of Australia’s market size supporting more than one — let alone two — viable major airlines.”
Japan has six times our population yet its two major airlines are set to merge. Canada, with a domestic market twice Australia’s size, has lost two airlines and is left with Air Canada. Unions ignore the market at their peril. By allowing Ansett II to limp on with twice the staff of Virgin but flying less than half the customers, it lost $1.5 million a day. Finally the market said enough. Workers lost their jobs and a chunk of their entitlements, taxpayers lost out, the Government lost face and the unions lost all street cred.
Combet is intelligent. As the new face of the ACTU, he could have embraced a new style of unionism. Instead he stuck to the old script and declared the doomed union campaign “the right thing” to do. Unions need to fight smart: modernise their outdated them-and-us mentality, ditch sneaky appeals to icons and national pride and get with the cut and thrust of market forces. If they don’t, the market will get them.
Greg Combet sent a reply to The Australian the following day but it got whittled down to a letter to the editor which ran in the Weekend Australian as follows:
Unions didn’t kill Ansett
By Greg Combet
TWELVE months ago, Ansett collapsed. This much Janet Albrechtsen (Opinion, 11/9) has right. But the main thrust of her argument that unions “killed” Ansett because they wouldn’t let Virgin take over, is flawed from start to finish.
Her theory presumes that Virgin was a genuine bidder. The ACTU, Ansett workers, the federal Government and creditors would have been delighted if that had been the case. Unfortunately Virgin did not offer to buy Ansett. Virgin’s bid was for selected assets only and it came in late and low. Albrechtsen doesn’t explain how these terms would have saved 16,000 jobs.
She also holds up Patrick Corp’s Chris Corrigan as a potential saviour, allegedly spurned by Ansett workers because of his union-busting. Again, she’s got it wrong. I specifically welcomed Mr Corrigan’s involvement. However, his interest was not in running an airline, but shopping for assets at fire-sale prices.
The only viable bid to keep the airline intact and functioning came from the Tesna consortium.
Albrechtsen implies Ansett II foundered because its inefficient employees bled the company dry.
This is nonsense. The unions and employees negotiated radical changes to pay and conditions to ensure the viability of the relaunched airline.
A balanced analysis of the demise of Ansett would at least refer to some of these facts. Instead, Albrechtsen has written an ill-informed and prejudiced account of events.
Government conditions on Ansett sale
Finally, it is worth going back and considering all the conditions that the Federal Government placed on Air New Zealand when they bought the other 50 per cent of Ansett from News Corp. It made it pretty tough for the Kiwis to act stop the red ink flowing when the unions refused to move, the government let two knew entrants cherry pick the best routes, Qantas was permitted to run riot abusing its market power and the Howard government imposed the following conditions. This is straight from the Costello-Anderson press release on June 13, 2000:
“The Government’s decision in relation to this proposal is subject to conditions requiring that:
* Ansett and Ansett International Limited (Ansett International) will remain incorporated in Australia.
* Ansett will retain substantial headquarters in Australia and will also maintain its operations headquarters in Australia.
* To the extent consistent with its level of ownership in Ansett International, Air New Zealand will support:
1. Growth opportunities for the Ansett/Air New Zealand Group into and out of Australia being primarily exercised by Ansett International; and
2. Ansett International growing its international capacity consistent with commercial opportunities available to it as an Australian designated international airline.
* There will be no significant reduction in employment in Australia in highly skilled Ansett airline functions as a result of deliberate management strategies.
* There will be no significant reduction in regional airline employment resulting from changes to Ansett’s regional network or as a result of deliberate management strategies during the next three years.
* No regional destinations currently served by Ansett or its subsidiaries will lose service although service changes within the current Ansett network will be acceptable. The Minister for Transport and Regional Services will be fully consulted prior to the implementation of any changes.
* Australian citizens should comprise at least one quarter of the Ansett/Air New Zealand Board.
* Air New Zealand include in its annual reports during each of the next three years a statement outlining compliance with the conditions set out above. The need for this statement will be reviewed at the end of that period.
In addition, the following conditions attached to the Treasurer’s approval of 18 September 1996 for the acquisition by Air New Zealand of a 50 per cent interest in Ansett will continue to apply:
* Ansett International will remain substantially owned and effectively controlled by Australian nationals;
* Ansett International’s head office and operations headquarters will remain in Australia; and
* At least two thirds of Ansett International’s Board, including the chair, will be Australian citizens.
These conditions are designed to ensure that Ansett’s activities remain centred in Australia and contribute to strong competition in Australia’s airline carrier market. The conditions will ensure that there is no reduction in Ansett network services in regional Australia as a result of the transaction. They will also ensure that significant benefits will accrue to Australia as a consequence of Air New Zealand’s commitment to pursue growth opportunities for the Ansett/Air New Zealand Group into and out of Australia primarily through Ansett International Limited.