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Air NZ deputy warns against Qantas cash

By Phil Boeyen, ShareChat Business News Editor

Wednesday 19th December 2001

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The government is being cautioned against any future investment by Qantas in Air New Zealand (NZSE: AIRVA).

Air NZ's deputy chairman, Dr Jim Farmer, issued the warning at the company's annual meeting on Wednesday as part of a lengthy speech to shareholders covering the airline's troubles over the past year.

In the speech Dr Farmer had some tough criticism of the part Qantas played in the demise of Ansett, reminding shareholders that he has publicly questioned whether Qantas' pricing and other strategies have gone beyond the bounds of legitimate, tough competition.

"Many others seem to be of the same mind, because the ACCC, Australia's competition regulator has currently received 10 or more serious complaints and it is conducting an inquiry into the industry."

"Apart from trading strategies, Mr Dixon has yet to justify some of Qantas' other actions. Here, I cite the inconsistency between Qantas' public complaints about Singaporean investment in Australia with Qantas' private promotion of the sale of Ansett to Singapore Airlines."

Dr Farmer cautioned again the government allowing Qantas to buy into Air NZ in the future, even if it is at prices that provide a healthy profit on its investment.

"Short-term gains from a Qantas buy-in will have a long-term cost that this country simply cannot afford and would make a mockery of the reasoning that compelled the government's decision to save Air New Zealand from statutory management or liquidation."

Dr Farmer also issued a broadside at British entrepreneur, Sir Richard Branson, for rejecting Air NZ's proposal to buy his Australian operation, Virgin Blue.

Shareholders were told that before the end of May, the Air New Zealand board initiated work on the possible acquisition of Virgin Blue as a means of countering the increased competition Ansett faced, particularly from Qantas.

"It is right you should know that the board was not unanimous on the matter of the price to be paid for Virgin Blue, or on the strategy that should be followed for negotiating its purchase - but it was not divided on the principle of acquisition," says Dr Farmer.

"It is fair to say that the differences of opinion may well have affected the ultimate outcome - Sir Richard Branson's rejection of the offer of a price he had initially and repeatedly indicated he would accept."

Dr Farmer says that, with the benefit of hindsight, it is possible to argue that an earlier offer at Branson's price would have been accepted and that events may then have taken a different course.

However he says the issue was debated vigorously and responsibly throughout. In his trademark style Branson eventually tore up a bogus cheque for $250 million in front of staff and media, saying that the airline had rejected a buyout offer from Air NZ.

"Our management's continuing contact with Virgin's CEO gave no reason for thinking that Branson would ultimately engage in an act of showmanship that history may yet judge to have been foolish," says Dr Farmer.

In Wednesday's speech Dr Farmer took shareholders on a chronological journey of the events which unfolded this year and culminated in the airline posting a record loss and once again returning to state control.

Although he agreed that the way events played out were "a matter of huge regret", Dr Farmer's speech was generally defensive and he says all of the board's decisions over the over the past few years were - in the circumstances which existed at the relevant time - reasonably made.

"The decision to move to Australia was right. The decision to complete the purchase of Ansett and to encourage Singapore on to our share register was right. The decisions to recapitalise, seek Government approval to lift its equity stake and to merge the A and B class shares were correct - and the only ones reasonably available to us."

"The decision to put Ansett into voluntary administration when all else had failed was the right one. The decision of the independent directors to insist that the New Zealand Government and the major shareholders adopt a solution that was entirely equity based and that would not burden the company with further debt was the right one.

"That decision, above all others, now allows Air New Zealand the opportunity to rise from the ashes and become once more the great New Zealand company that it has been."

Air NZ's new chairman, John Palmer, has only been in the hot seat for a few weeks and while he refused to comment on previous board decisions he did tell shareholders that nursing the company back to health is both "do-able and worth doing".

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