Air New Zealand

Beginnings as TEAL

Air New Zealand began flying in 1940 as Teal (Tasman Empire Airways Limited). It began its flights with flying boats. The first decade for Air New Zealand, or TEAL as it was known then, went by very slowly: World War II wasn't a good period for worldwide aviation in general.

In 1947, a competitor took on the New Zealand skies in the form of the National Airways Corporation (NAC), which was Government-owned. NAC also provided certain international services to some nearby South Pacific countries.

1953 brought a big step for TEAL when the Australian Government bought 50 percent of the company, with the New Zealand Government deciding to pick up the rest of the airline. This move enabled the company to keep on flying.

8 years went by, and in 1961, as the airline had become a successful company, the New Zealand Government bought out the Australian Government's half ownership, and in 1965 the airline was renamed Air New Zealand.

AIR NEW ZEALAND

Air New Zealand, with the arrival of the jet age, started opening routes to different parts of the world, including European and North American destinations during the 1970s. In 1978, NAC and Air New Zealand merged, the company retaining the name of Air New Zealand.

Near the end of the decade, on November 28 of 1979, tragedy touched the airline company. A DC-10 of Air New Zealand that had taken off from Auckland on a sightseeing trip with 257 people on board to Mount Erebus, Antarctica crashed while overflying the cold continent. The bodies of 213 passengers were recovered; the remaining 44 bodies were never found. A Royal Commission of Inquiry into the disaster found that the navigation computer's co-ordinates for the flight had been changed at the last minute and that the flight crew had not been advised. The new flight plan took the aircraft directly over the mountain, rather than along its flank. Due to whiteout conditions, the flight crew were unable to identify that they were flying directly at the mountain until the last moment. The subsequent cover-up, disposal of evidence and subterfuge by airline executives was described as an orchestrated litany of lies by High Court Judge Peter Mahon when giving his Verdict on Erebus. His verdict only confirmed what many polar fliers already knew, white snow covered mountains are invisible against a white overcast sky, even in clear air and although pilot error played a part the crash, the flight crew were not at fault as they had not been properly trained and were given wrong information.

The airline faced hardships after that accident, but the company kept growing despite the problems. In 1989, Air New Zealand became a privatised airline, and in that same year it started listing on the New Zealand Stock Exchange[?].

Denpasar[?] and Bangkok joined Air NZ's route network in 1990.

1991 saw a new organisational structure implemented, in which the company's managers decided it would be more prudent to concentrate efforts on international routes, with the domestic routes as a complement. Cargo, engineering, information services and catering services were also areas that would receive more attention.

That year, Taipei in Taiwan became an Air New Zealand city.

In 1992 Bangkok and Taipei each started receiving an additional Air NZ flight, in both cases the new flight coming from Brisbane, Australia. Australian government policy loomed large for Air New Zealand in this period. After the success of the deregulation of the Australian domestic air travel market in 1990, the Keating Government announced that it would allow New Zealand carriers unlimited access to the Australian market. However, this promise was only half kept, and although Air New Zealand was allocated an increased number of international departure slots from Australian cities, a festering resentment gradually took hold, which was eventually to have severe consequences for both nations.

By 1993 Seoul joined the airline's map, followed by the Japanese cities of Nagoya and Osaka and a new flight from Sydney to Los Angeles International Airport in 1994.

Expansion

In 1995, Air New Zealand added Fukuoka to its expanding list of Japanese destinations, and publicly announced its long-standing plan to buy 50 percent of Ansett Airlines[?], a significantly larger company than Air New Zealand itself. Owned 50% by TNT and 50% by News Limited, Ansett Airlines still held close to half of the large Australian domestic market but had been declining for some years. Market analysts reported that Ansett had under-performing major assets, an ageing fleet, and needed a capital injection of at least $A300 million to shore up its weak balance sheet. Despite its size, its total value was pegged at anywhere between $A300 million and zero.

For Air New Zealand, purchasing TNT's half of Ansett represented a way to buy into the rich Australian domestic market. The deal had been under discussion with both of Ansett's owners since October 1994, and required some complex manouvering to meet with regulatory requirements on both sides of the Tasman, including the sale of Ansett New Zealand[?], Air New Zealand's only home market competitor, to News Limited (to satisfy New Zealand Commerce Commission[?] requirements), and the sale of 51% of Ansett International to a consortium of Australian institutional investors (to satisfy Australian Foreign Investment Review Board[?] requirements that, if not met, would have meant the loss of Ansett International's bilateral air service agreement rights).

The terms of the agreement saw Air New Zealand pay a total of $A475 million for its half of Ansett, including a $A150 million capital injection, and the transaction finally took place on October 1st 1996.

A low-cost subsidiary, Freedom Air, began operations in 1996.

1997 saw the suspension of South Korean flights because of the Asian crisis, and a small partnership was formed with United Airlines.

In 1998, EVA Air[?] and Air New Zealand jointly start operating Boeing 767 services between Taipei and Auckland. In addition, Air New Zealand received 3 new Boeing 737s to operate on flights between New Zealand and Australia.

Selwyn Cushing[?] became the company's chairman after Bob Matthew[?] stepped down from that position, and Air New Zealand announced alliances with various airlines and the intent to become a member of the Star Alliance[?] in 1999 before 1998 was over.

1999 saw all five weekly services to Tokyo taken over by Boeing 747s and an additional 747 arrived in Auckland. At the end of the year, Air New Zealand and United filed for anti-trust immunity in the United States Department Of Transportation[?] because of the two companies' alliance agreements.

Over-expansion

1999 also saw the start of a long and confusing battle over ownership of Ansett. Ansett remained profitable, but was having increasing difficulty in finding a way to rationalise its cost structure, and badly needed a capital injection to replace its elderly fleet. Of the two half owners, News Ltd was more interested in selling out and investing the proceeds in other industries, while Air New Zealand simply didn't have the funds to spare: with 102 aircraft, nearly 15,000 staff and a turnover of $US2.3 billion (as compared with ANZ's 72 aircraft, 9,200 staff and $US1.8 billion turnover) Ansett's need for capital was greater than Air New Zealand's ability to provide it - particularly given the age of ANZ's own fleet.

Singapore Airlines (SIA) and Qantas both expressed an interest in buying Air New Zealand, Ansett employees planned a staff buy-out, and both Singapore Airlines and Air New Zealand looked at buying News' 50% share of Ansett. In March 1999, SIA made a formal offer of $A500 million for a half share. Given Singapore Airlines industry-leading status, ability to fund Ansett's re-equipment and expansion, and global marketing network, industry observers were enthusiastic about the move. Air New Zealand, however, as part of its original deal to buy TNT's half of Ansett, had a preemptive right to News' half, provided only that ANZ matched or bettered other offers.

The Air New Zealand board eventually approved the sale to SIA, but negotiations with SIA stalled when major ANZ shareholder Brierley Investments[?] began buying more ANZ shares and attempting to get SIA to buy Ansett through either ANZ or Brierly, rather than from News Limited. In June, News withdrew the offer to sell, citing "not yet resolved issues" between SIA and ANZ.

At this stage, Ansett announced an unexpectedly high profit for the year - $A149 million - and News took advantage of that to raise the asking price to $A1 billion. Industry analysts regarded this as far too optimistic in the notoriously boom and bust airline business, and put the true value of a half share at no more than $A700 million.

In February 2000 Air New Zealand finally announced its decision: it would buy the remaining half of Ansett for $A680 million. Industry observers were united in the belief that it was a bad decision: the price was probably too high, and ANZ would not be able to fund the badly needed re-equipment.

Former Qantas chief financial officer Gary Toomey[?] was appointed Chief Operating Officer of both Air New Zealand and Ansett Holdings in December 2000. Services to Frankfurt and Honolulu from Los Anglees were dropped, both of which were taken by Air New Zealand's Star Alliance partners Lufthansa and United instead.

In 2001, Air New Zealand announced plans to buy 16 new Beech 1900D[?] aircraft to replace its Bainderantes[?] flying to New Zealand airports without jet capability. Also, Air New Zealand began code sharing flights with Singapore Airlines that year.

Collapse

Air New Zealand's new wholly-owned Australian subsidiary, however, was in dreadful shape. Lack of proper maintanence to its 767 fleet - some of which were almost 20 years old - had seen the Australian Civil Aviation Safety Authority (CASA) ground seven aircraft two days before Christmas 2000 while inspections were carried out. Then in April 2001, one day before the busy Easter holiday period, all 10 Ansett 767s were grounded again when a series of other safety problems came to light, and Ansett was threatened with withdrawal of its Air Operators Certificate.

To cover the loss of one third of Ansett's capacity, Air New Zealand provided Ansett with a 767 and a 747 from its own fleet on a charter basis, and additional aircraft were chartered from Singapore Airlines, Air Canada, and Emirates. SIA - 25% owner of Air New Zealand and thus in turn Ansett - agreed to provide technical assistance to get the 767s back into the air.

Despite the great loss of public confidence in the airline, the news was not all bad. Chief executive Gary Toomey announced that the total cost of the groundings was only $NZ5.2 million, and that, finally, the seven oldest Ansett 767s would be sold, along with three of ANZ's own 767s, and newer aircraft leased in their place. Toomey said:

What it really highlights though is that nothing has really changed in our strategy and that is that we need to re-equip, we need to grow our capacity, we need to have new products, so I think it just brings these objectives into focus more ad more by having a high profile about what's happened.

The reality was rather different. In revenue terms, Air New Zealand was the 39th largest airline in the world, Ansett the 32nd. Both airlines, however, were only marginally profitable and needed a substantial capital injection that neither one was able to provide. Larger, very successful, airlines in Qantas and SIA both made offers to buy the Air New Zealand group but needed regulatory approval to lift the 25% foreign ownership rule. The Clarke government refused to make a decision. Deputy Prime Minister Jim Anderton said "the idea of selling our national airline to anyone would be an anathema". No explanation was forthcoming for the odd notion that it was apparently perfectly OK for New Zealand shareholders to own an Australian airline, but not the reverse.

Adding to the bizarre nature of the situation, Air New Zealand was at that time already 54.9% foreign owned: 25% by Singapore Airlines, and 24.9% by Brierley Investments, which was originally a New Zealand based concern but which had relocated to Singapore in 2000, and circumvented the foreign ownership restrictions by using a New Zealand-based trust to hold its ANZ shares.

The inconsistencies of national pride were not confined to the eastern side of the Tasman: public opinion polls showed that while New Zealanders were strongly opposed to Qantas buying into Air New Zealand, and moderately opposed to Singapore Airlines increasing its stake, Australians were in favour of a Qantas buy-out of ANZ but objected to any further Singapore Airlines ownership of ANZ (and thus Ansett) on the grounds that it would mean foreign ownership of Ansett - completely forgetting that Ansett was already 100% foreign owned!

Meanwhile, Air New Zealand's financial position was quietly deterioriating, and the Ansett subsidiary was losing market share to both Qantas and new entrant on the Australian domestic market, Virgin Blue[?]. The ANZ board decided that the answer was to spend still more money, and buy Virgin Blue as well as Ansett. On condition that that deal went through, Singapore Airlines was prepared to fund the purchase of 32 new aircraft for the Air New Zealand group. Virgin Blue, however, was growing fast, largely at the expense of Ansett; the initial $A120 million offer was deemed insufficient and in August Virgin Blue owner Sir Richard Branson, with his customary gift for publicity, put an end to negotiations when he tore up what he claimed was a $A250 million Air New Zealand cheque on television.

On 10 September 2001, in desperation, Air New Zealand offered to sell Ansett to Qantas for one dollar. After two days consideration, Qantas declined, and Air New Zealand suspended trading in its shares (which had already dropped enormously) and placed Ansett into voluntary administration. Ansett was bankrupt, and Air New Zealand was in barely better shape. On the following day, Air New Zealand announced a staggering $NZ 1,425 million loss: a $NZ 1,321 million write-off of Ansett, and another $104 million lost by Air New Zealand itself.

Ansett's trading loss for the year had been $NZ165 million (plus another $NZ23 million for Ansett International), or about $NZ8 million a month for most of the year, but with a sudden blow-out to around $NZ40 million a month for the last two months.

A storm of public criticism on both sides of the Tasman errupted, and bitter accusations were levelled. In particular, it was asked how such massive losses were possible when Ansett had a healthy 74% average load factor.

In an angry statement, Air New Zealand denied that there had been a program of last-minute asset-stripping; that it had put $200 million worth of ANZ fuel bills through Ansett; cleaned out Ansett's bank accounts; and taken Ansett engines and spare parts to New Zealand.

It was unable to deny that the directors had voted to pay senior staff, including themselves, a 30% performance bonus shortly before the collapse. According to acting chairman Dr Jim Farmer, the bonuses were awarded "in recognition not of the financial performance of the company, which of course had not been good, but in recognition of the quite extraordinary effort made by senious management to try and deal with the company's problems". Of the 15,000 Ansett workers laid off without payment payment of wages and accumulated benefits owed to them - often amounting to their life savings - Dr Farmer was less concerned, saying simply: "we don't have any obligation to those employees".

The trans-Tasman anger was enormous. At one stage, New Zealand Prime Minister Helen Clarke, on her way back to New Zealand from the Middle-East, found her aircraft blockaded on the Melbourne airport tarmac by laid-off Ansett workers who refused to allow the jet to take off. Eventually, an RNZAF Orion maritime reconnaissance aircraft had to be sent to fetch her.

The Australian Securities and Investment Commission (ASIC) began an investigation of whether Ansett had gone on trading while insolvent, which eventually determined in July 2002 that while ANZ had probably engaged in "misleading and deceptive" conduct, it would be too expensive and difficult to proceed with an action which would, in any case, need to be many separate actions on behalf of individual creditors rather than just one.

It later became clear from the release of documents under the New Zealand Official Information Act that the New Zealand government had pressured the Australian government not to support legal action against Air New Zealand, saying that this would "prejudice rather than progress the interests of those with financial claims against the company". The Australian government stated that the pressure had no effect on its decisions.

Laid off Ansett workers were eventually paid most of their entitlements, partly from an $A150 million compensation package offered by Air New Zealand in return for having the ASIC enquiry dropped, but mostly by a $10 per-seat levy imposed by John Howard's government on Australian airline passengers.

Rebirth

In October 2001, the New Zealand government announced that it would provide Air New Zealand with an $NZ885 million rescue package, and in return would take up 80% ownership.

In mid 2002, Air New Zealand announced it would reconfigure itself as a lower cost airline, doing away with business class and meals on most domestic flights, the longest of which was an hour and a half. The airline justified this change on the basis that few people travelled business class and that travellers would rather save the money on airline ticket costs than pay extra for a meal. Although the company had online bookings for several years, it also made internet sales its primary sales medium, abolished travel agents commissions - much to their disgust - and added fees for agents, telephone and counter sales. The approach appeared successful, with a huge increase in internet bookings being recorded once the new fare structure was introduced.

In late 2002 the New Zealand Government agreed in principle to Qantas taking a minority cornerstone shareholding; the purchase being subject to regulatory approval in both Australia and New Zealand.

In April 2002 Air New Zealand employee Mohammed Nour al-Din Saffi was briefly detained by United States authorities. The step-son of Saddam Hussein, Saffi was undertaking refresher training at a flight school in the United States on a tourist passport. Saffi was released when it became apparent that he had simply neglected to seek the proper visa when entering the US and was not involved in any nefarious activities.

Air New Zealand's current fleet includes:

• Beech 1900D: 16
• Saab 340: 10 plus 6 leased
• ATR-72: 9 leased
• Boeing 737-300: 5 plus 14 leased
• Airbus A320: 15 on order
• Boeing 767: 10 plus 21 leased
• Boeing 747-400: 4 plus 4 leased.

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