Government Control at Air New Zealand

Written By: - Date published: 7:12 am, April 14th, 2021 - 67 comments
Categories: capitalism, Economy, treasury, uncategorized - Tags:

The New Zealand government has just increased its loan to Air New Zealand to a $1.5 billion total, and there’s a catch.

Air New Zealand are of course our face-to-face lifeline to the world in so many ways; they carry families, refugees, friends, vaccines, tourists, freight, and pet dogs. They connect the New Zealand realm of Pacific islands together. You can walk through all the now-dying towns in Otago and Bay of Plenty and see this simple fact: other than tax itself, Air New Zealand is our single largest economic instrument.

Air New Zealand is one of our strongest single CO2 producers, and also one of the longest and clearest in expressing the extra you should pay in carbon credits to offset every flight.

Air New Zealand is also a further $185 million in the hole, so with that loan comes the payback.

The new Ministerial Letter of Expectation is very clear that the government has had your back, so they now expect Air New Zealand:

  • To be a ‘national airline’ continuing in operation to support economic development, including access to international markets for our exporters and international tourism linkages, once international borders re-open;
  • To maintain a comprehensive domestic route network that allows people and goods to move across New Zealand in a timely fashion at a reasonable cost;
  • To demonstrate its commitment to environmental sustainability, including engaging with the development of new aviation fuels for New Zealand;
  • To enhance its role as a leader for best practice workplace relations given that it is one of New Zealand’s largest employers;
  • To continue acting as a responsible corporate citizen; and
  • To achieve these objectives while operating as a commercially sustainable and capital efficient business.

National, and Fran O’Sullivan in the NZ Herald of course, hate this degree of specificity in a Letter of Expectation.

The degree of specificity in the LoE will relate to both the vulnerability of a massive part of our economy to our airline, but also to union expectation to ‘build back better” after making multiple hundreds of people redundant, and also that Air New Zealand is about to be a standout feature in the Government’s carbon reporting.

Air New Zealand is certainly a glaring omission in Minister Shaw’s list of little projects designed for carbon neutrality.

I am sure there is more to come once the Government finally makes its whole-of-government response to the Climate Commission’s recommendations on May 31st, but right now this is one of the very few times they have really stepped beyond the strict New Public Management divisions of Management, up to Board, and only annually up to the Shareholder.

It would have been great, midway through its second term, for this government to take other public entities to take to task the corporate nasties such as Ports of Auckland – who is run by a genuine anti-union shit.

Or the electricity generators over which it has majority control. Or … well there’s a long list isn’t there.

In fact the degree of control Minister Robertson is exercising is in stark contrast to the dangerously ineffective governance exercised by Auckland’s Phil Goff in transport, water, stormwater, or indeed much else.

We could also complain reasonably that there just isn’t the experience within this Cabinet to take on the oligopolies that actually control this country. Love him or loathe him but Shane Jones made major corporates quake as he roasted them (Air NZ et al), or purr as he fed them (Kiwirail, construction companies, provincial corporate iwi). This 2020 government are content with slightly stronger cartel legislation – and a few meaningless reports into petrol and electricity that will go utterly nowhere. And this same degree of Ministerial control is particularly lacking in both Ministry of Transport and NZTA.

But we’ve got what we’ve got, there’s few votes to gain in governance, so there’s no point getting all carried away with what other companies the government could exercise strong influence over.

But Air New Zealand and Auckland Airport are a binary star system that pulls in and controls our largest economic sector: tourism.

So that is reason enough to really hold as tight a rein as possible over the Air New Zealand board.

Minister, keep going.

67 comments on “Government Control at Air New Zealand ”

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  1. Sabine 1
    14 April 2021 at 7:39 am

    Well we can nationalise it under Labour and sell it off again under National.

    rinse repeat, cause that is the only business in NZ that needs a bail out every Labour government to make some cash for the rich and connected under National.

    We might as well allow a foreign carrier in and simply have an excellent airport.

    • Ad 1.1
      14 April 2021 at 7:55 am

      Clearly debt is the more politically sustainable control mechanism.

      • Pat 1.1.1
        14 April 2021 at 7:56 am

        historically (recent)

      • Sabine 1.1.2
        14 April 2021 at 8:05 am

        honestly i don't care at this point.

        this air company has been living of the tit of government since pretty much for ever, almost no one can actually afford to fly it, and we have needs in this country.

        So biff it in the dust bin of companies that did not prepare adequitly for a pandemic and let it die and allow other companies to fly in. And hey, surely the market will regulate the rise of the next Air NZ. Maybe a company that actually serves NZ'lers.

        • Ad 1.1.2.1
          14 April 2021 at 8:37 am

          We are all – all – living off that massive mammary. Some citizens and companies more than others.

          Not the moment to stride across the economy bayonetting the wounded.

          • Sabine 1.1.2.1.1
            14 April 2021 at 11:15 am

            Tell that to all those that have been told that repeatedly by peers and politians alike.

            Not to beat a dead horse, but that company needs to be properly restructered, and should be nationalised.

            But we shall discuss this again, either when they need another injection to stay afloat or when National is happy to sell it of to the highest bidder. 🙂

    • Patricia Bremner 1.2
      14 April 2021 at 12:50 pm

      Sabine, then the foreign airline drop the flights, so what do you expect would happen then? Orchids, strawberries left high and dry, not to mention medicines vaccines and needles not coming in. The Government is supporting supply lines.

  2. Muttonbird 2
    14 April 2021 at 7:57 am

    Perhaps Air New Zealand could consider Kiwiair instead of marrying itself to high end inflight service.

    Jetstar Airways Pty Ltd, operating as Jetstar, is an Australian low-cost airline headquartered in Melbourne. It is a wholly owned subsidiary of Qantas, created in response to the threat posed by airline Virgin Australia.

    The bit that concerns me most about government inaction on utilities is the inability for power generators to build capacity, and the complete failure of the spot market model which has contributed to that.

    The energy sector in NZ shows how free market capitalism and a hands off government approach is a complete fail all round.

    • Ad 2.1
      14 April 2021 at 8:03 am

      The only major generation in the last 7 years is Mercury Energy's windfarm above Palmerston North which is under construction.

      Minister Parker has killed off the idea of dams for good.

      • Pat 2.1.1
        14 April 2021 at 8:06 am

        Has he?….and would that include pumped hydro storage a la Onslow?

        • Ad 2.1.1.1
          14 April 2021 at 8:33 am

          The only 2 people in the industry who think Onslow will happen are Minister Woods and Dr Turner. It has 0% chance of happening.

          • Pat 2.1.1.1.1
            14 April 2021 at 8:38 am

            Someone should tell the NZ Battery Project…and ask for the 30 million back then.

            https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resources/low-emissions-economy/nz-battery/

            • Ad 2.1.1.1.1.1
              14 April 2021 at 9:39 am

              Its just another report.

              This government currently constructs motorway subgrade out of reports

            • ghostwhowalksnz 2.1.1.1.1.2
              14 April 2021 at 12:28 pm

              We already have the perfect hydro powered back up generation system

              Its called Manpouri. Even better you dont have use more electricity than it generates to provide the potential energy 'just when you need it'

              850MW and its on demand too. Currently produces 5000GWh or so per year

              It will happily run for weeks, maybe even months without pumping a thing. When not used the water flows down the river like it always did.

              The government should buy it off the generator when Tiwai closes and dedicate it for times of high power costs. That may be once a week over winter , or like now when prices are high because of both the planned natural gas production station upgrade/maintenance and the dry weather in central north island

              • Pat …
                14 April 2021 at 12:35 pm

                That power will be needed in addition.

                • ghostwhowalksnz …
                  14 April 2021 at 3:53 pm

                  "That power will be needed in addition."

                  When Tiwai closes in 2-3 years its surplus. Its a once in 50 years chance to get back up generation that saves the cost of a $5 bill 'stored energy' plant in the near future.

                  The extra power for demand growth can come from the existing power companies – if we retain that method of operation.

                  Think of it as 'The Reserve Bank of Generation' – publically owned and dedicated to stability of prices and supply, and one that can 'inject supply' into the system when needed

                  • Pat …
                    14 April 2021 at 6:45 pm

                    And we are replacing industrial heat with electricity, are powering our transport with electricity and we have population growth (anticipated)….we will need Manapouri and then some….plus we need the flexibility of battery storage…Onslow provides that and will take years to come online.

              • greywarshark …
                14 April 2021 at 2:03 pm

                That's a thought – Manapouri :

                The government should buy it off the generator when Tiwai closes and dedicate it for times of high power costs.

      • joe90 2.1.2
        14 April 2021 at 9:57 am

        The only major generation in the last 7 years

        133MW up and running this year.

        https://en.wikipedia.org/wiki/Waipipi_Wind_Farm

  3. Incognito 3
    14 April 2021 at 8:23 am

    With the corporate welfare announcements done the run way is cleared for the feel-good pre-Budget PR campaign to take off.

    • Tiger Mountain 3.1
      14 April 2021 at 3:08 pm

      Like other neo liberals before her–this PM “is not for turning”. So really the 2021 Budget will likely signal the start of the 2023 General Election campaign. A, gasp, MMP majority Labour Govt. both too timid tactically, and too hooked up strategically to the monetarist machine to deliver substantially for the 50% that own 2% of the wealth, (down from around 6% in 2015).

      It is the last chance for meaningful moves on implementing the WEAG Report in full, and signalling a social housing mega build.

  4. Stuart Munro 4
    14 April 2021 at 9:47 am

    This is probably the bare minimum of rigour that ministers should exercise when they appoint quasi-corporate entities to serve the public interest – small wonder most are delinquent in their duties.

    A shame though, to be subsidizing a twilight industry like this. AirNZ should be cut back to the consistently profitable part – domestic flights (which should in turn be giving way to high speed rail) – and a carbon tenable alternative developed based around upteched shipping or lighter than air freight.

    The subsidy probably has to do the union that best survived the wanton wrecking of the Rogergnomic era – but high spec engineers can prosper supporting other things than conventional aircraft.

    • Jenny how to get there 4.1
      14 April 2021 at 8:55 pm

      Healing the sick, raising the dead*

      In the wake of the pandemic, the government are making heroic efforts to rejuvenate the ailing airline industry.

      There are now calls to resuscitate the dead cruise ship industry.

      * killing the climate.

      Miracles never cease

  5. Graeme 5
    14 April 2021 at 10:38 am

    The company that needs to be brought to heel to reform New Zealand tourism isn’t Air New Zealand but Auckland Airport. Anything ANZ does to meet the minister’s expectations will be countered by AIA as they seek to preserve their profits.

    ANZ tries to be ‘responsible’, AIA will encourage a competitor to undercut, and clip the ticket handsomely.

    The thing should never have been privatised.

    • Ad 5.1
      14 April 2021 at 5:52 pm

      That would be excellent. The airlines association last too AIAL to the Commerce Commission in 2016 re landing charges. They've never been successful.

      Beggars belief that Auckland Council are just a passive shareholder and don't use their leverage to drive growth outcomes and transport network design.

      AIAL are currently beholden to no-one. Definitely the other part of the binary gravitational system.

  6. Tricledrown 6
    14 April 2021 at 11:03 am

    Banks have been given $billions at very low interest rates to keep our economy afloat.Air New Zealand is only getting a small loan by comparison .if Air NZ went bankrupt our economy would be damaged far worse than any of the negative commentators would have you believe.

    Govt's need to bail out strategic industries during economic crisis ,otherwise it takes to long to re establish that infrastructure making recoveries longer and deeper.

    The govt being a 50% investor would loose billions in value and tourism income nzers would loose connectivity to families local businesses would be damaged etc.

    It easy to kick a company when they are down but we need Air NZ to be ready to be up and running as our borders reopen.

    Every other major National airline is being bailed out by their govt's . They know the value to their respective economies.

    Corporate welfare is a fact of life in every economy otherwise we would have a free fall 1929 style.

    • Stuart Munro 6.1
      14 April 2021 at 12:20 pm

      $1.5 billion equates to $30k per head across the team of five million. It represents a much less effective stimulus, and it will never return a fraction of the stimulus value of a direct payment.

      But hey, rugged individualism for the poor and hot and cold running money for the corporate welfare queens. Neoliberal orthodoxy outweighs the public interest – always.

      • Drowsy M. Kram 6.1.1
        14 April 2021 at 12:50 pm

        Agree with the general thrust, but best to keep AirNZ flying in some form, imho.

        $1.5 billion equates to $30k $300 per head across the team of five million?

        • greywarshark 6.1.1.1
          14 April 2021 at 1:59 pm

          DMK Agree, lose our planes and we cut options to pipelines for people and influence and interaction with the far off world. We don't want to be dependent upon Australia as our major contact with the 'developed' world.

          Does anyone keep an eye on shipping and our relation-ship! with the rest of the world, use of cruise ships for alternative purposes, options for limited passages with container ships etc. also what growth in coastal shipping here? Usin wind and motor-assisted systems – new technology?

          • Gosman 6.1.1.1.1
            14 April 2021 at 3:16 pm

            Planes are not infrastructure. There is multiple suppliers of planes that can easily service NZ at a drop of a hat.

            • ghostwhowalksnz 6.1.1.1.1.1
              14 April 2021 at 3:56 pm

              Airlines and the planes they operate and maintain are done 'at the drop of a hat'

              Sure australian airlines like Qantas can pick up the very profitable routes and even buy more planes if their liquidity allows, but dont rely on it. THey wouldnt be interested in the competitive prices part

              • McFlock …
                14 April 2021 at 4:08 pm

                And allowing routes to atrophy becomes a self-fulfilling prophecy as airports lower capacity to service only the routes that operate.

                If we rely on QANTAS to keep our regional airports viable enterprises, there will be no regional air travel because the airports got subdivided due to lack of aircraft.

          • Jenny how to get there 6.1.1.1.2
            15 April 2021 at 4:34 am

            I agree grey, we need to keep our 'pipelines' (a rather unfortunate turn of phrase) and interactions and influence with the outside world.
            And we do have influence. Our world leading example with the pandemic shows this.

            I also agree with you that if we are going to invest this eye watering amount of money to keep this 'pipeline' open we should look to surface travel,, electrify and expand the passenger rail network, and yes invest it in coastal and trans Tasman passenger shipping service.

            But I don't think converting 'cruise ships' or modifying 'container ships' to carry passengers will cut it.

            A Tasmanian built high speed Incat vessel is cheaper, (and less polluting), than a new Dreamliner and can carry more people and freight.

            https://thedailyblog.co.nz/2021/04/11/guest-blog-patrick-john-odea-meet-the-bullet-trains-of-the-sea/#comment-550634

          • Jenny How to get there 6.1.1.1.3
            15 April 2021 at 5:44 am

            Disaster movies like, 'The Day After Tomorrow' take an accepted disaster scenario, like climate change and ramp it up for dramatic affect.
            The disaster movie '2012' does the same with an overly dramatic sea level rise.

            The main protagonists are saved from drowning along with the rest of the world, and you probably guessed it long before the end of the movie, by massive purpose built ships.

            2012 (2009) ending scene – YouTube

        • Gosman 6.1.1.2
          14 April 2021 at 3:17 pm

          Why? Air travel is harmful to the environment as it is a leading cause of GHG emissions. Other companies can come in to the market at any time to take up the slack if Air NZ disappears tomorrow.

      • Tricledrown 6.1.2
        14 April 2021 at 3:30 pm

        This is a loan.Letting AirNZ go bust would cost more In the short term and long-term a overseas owned company say an Australian company is Jetstar would pay no taxes in NZ.

        Every country including the US where all airlines are privately owned have bailed out their airlines.It goes against free market theory which left wing commentators seem to suggest they should be allowed.

        Economic history has shown bailing out strategic companies during recessions and economic shocks keeps economies bouyant while selling off during times of economic growth helps sustain steadier economies .

        Leaving economies in a stronger position to weather future economic storms.

    • Gosman 6.2
      14 April 2021 at 3:14 pm

      Ummm… where is the infrastructure going if the businesses go broke?

      • Tricledrown 6.2.1
        14 April 2021 at 3:47 pm

        AirNZ has many different parts with huge knowledge all that knowledge and infrastructure even though some of it is mobile.would be damaging to the NZ economy if it went bust.

        Given virtually every other airline is getting bailed out by their respective govt's it would plain stupid to ruin a business which has taken decades to build up and deliver huge profits for NZ not only directly but for fresh food cut flowers etc that no other airline has the ability as was seen in the previous bailout.Since the previous bailout AirNZ has returned$100s of millions in profit and taxes to the govt and even under National's partial float it has been a big money spinner for NZ as a Whole.

        Gosman your purist ideological silo thinking prevents you seeing the facts.

        • Gosman 6.2.1.1
          14 April 2021 at 3:55 pm

          Knowledge is not infrastructure. You can easily replace knowledge especially in something like an airline.

          • Tiger Mountain 6.2.1.1.1
            14 April 2021 at 4:10 pm

            Have you discovered a “Chicago Boys” comment generator app, or something similar?

          • McFlock 6.2.1.1.2
            14 April 2021 at 4:40 pm

            …and that was a party political broadcast from the Philistines.

          • Tricledrown 6.2.1.1.3
            14 April 2021 at 11:01 pm

            Soft infrastructure Gosman in the early 2,000's when Labour bailed out AirNZ exporters of high value fish,fruit,cut flowers worth 100's of millions of dollars no other airlines had the infrastructure to deliver to markets fresh and on time.

            Thatcherite destroy everything that doesn't turn a profit in the short term is very short sighted other trading blocks made sure they kept strategic industries afloat during rough times it's virtually impossible to start from Zero again especially when every other country or trading block is protecting their industry .

            Putting your economy into an economic straight jacket is dumb as the silo thinkers who think everybody should play by their purist rules which none of your trading partners bother with.

        • Sacha 6.2.1.2
          15 April 2021 at 8:15 am

          Sovereignty also applies. Legal rights to overfly and land in other nations are held by each airline. If NZ does not have one of our own, we are subject to the vagaries of other countries' behaviour towards one another. And their priorities being aligned with ours.

  7. RP Mcmurphy 7
    14 April 2021 at 8:33 pm

    at 52 % they are the controlling shareholder.

  8. Jenny How to get there 8
    15 April 2021 at 5:13 am

    The world is changing.

    New Zealand can be at the forefront of change, or as John Key wanted New Zealand to be a "Fast Follower".

    Talking of John Key, his administration invested just over a quarter $billion in bailing out another failing sunset industry, Solid Energy.

    In the end, this massive public investment, loan, bailout, call it what you will, of Solid Energy had to be written off.

    The same I fear will happen with the bulk of this massive advance to Air New Zealand. Mass tourism does not look like it is going to bounce back to pre pandemic levels any time soon.

  9. Jenny How to get there 9
    15 April 2021 at 9:03 pm

    Fly to New Zealand subsidised by the NZ taxpayer.

    Burn a ton of jet fuel.

    Get to see some amazing shrinking glaciers.

  10. Jenny How to get there 10
    16 April 2021 at 4:25 am

    Simply put;
    This huge act of corporate welfare;
    Is a monstrous betrayal of future generations

  11. Jenny How to get there 11
    16 April 2021 at 4:54 am

    If there ever is a Nuremburg type trial held for crimes against the climate, this will one of those crimes recounted in the dock.

  12. Jenny How to get there 12
    16 April 2021 at 5:19 am

    Evil succeeds when good people do nothing.

  13. Jenny How to get there 13
    16 April 2021 at 6:01 am

    The cost of BAU

    “World’s corals will be wiped out”.

    Great Barrier Reef has lost half of its corals since 1995 – BBC News

    “we will be lucky for seas to rise only; 8ft by 2100”

    Sea levels are going to rise by at least 20ft. We can do something about it | Climate change | The Guardian

    (two feet by 2040, three feet by 2050),

    Some of these outcomes occur early enough, that the politicians responsible for making these decisions and the bureaucrats responsible for implementing \decisions made, like the one in this post, may find themselves in the dock facing retrospective charges of crimes against the climate.

    Such criminal charges are not on the statute books yet. But as things get much worse they could well be.

    I can well imagine a time, in the not too distant future, where the representatives of the Pacific Island nations take our nation to the international criminal court for decisions we are making now.

    https://www.voanews.com/archive/rising-sea-levels-threaten-island-nations

  14. Weasel 14
    16 April 2021 at 11:24 am

    I don't understand why the government has been so soft on Air NZ's minority shareholders. If the airline needs propping up, and all shareholders are not prepared to come to the party, then the minorities should take was is known in business as a "haircut", The $1.5b should not be a loan but quasi equity — ie convertible notes. These notes should issued at a heavy discount to the current price. The company is currently capitalised at $2b but the extra $1.5b should give the government far more than 75% of the re-capitalised airline.

    • Jenny how to get there 14.1
      18 April 2021 at 10:02 am

      Good point.

      Wealthy private investors and investment funds are getting baled out again by the taxpayers.

      There are no consequences for bad or unlucky investments by these private shareholders in Air NZ, their financial losses are covered by us, and in return we still let them keep their controlling share of Air New Zealand?

      Really?

      No haircuts or even loss of control for them.

      Total haircut and total loss of control for the public.

      The worst thing is that to get any return at all for the taxpayer, we will have to lock in this environmentally damaging sunset industry, way into a climate ravaged future.

      • Pat 14.1.1
        18 April 2021 at 10:06 am

        There is only one rule…the bubble must not be burst!

        • Jenny how to get there 14.1.1.1
          18 April 2021 at 3:42 pm

          Unfortunately for the airline industry the bubble has burst.

          The government are trying to reinflate and unburst this burst bubble, with a $1.5 billion cash advance.

          This is not a wise investment of tax payer funds.

          ….Flying for business meetings burns up time and money, as well as our climate,” said Alethea Warrington, campaigner at climate action charity Possible, when speaking to Reuters. “This polling shows that after a year of quick and easy virtual meetings, travellers aren’t planning to go back to business as usual.”

          The UK’s aviation sector has been decimated by the pandemic, with Heathrow – the UK’s largest airport – seeing its passenger numbers slide by 72.2 per cent in 2020 from the year before.

          International Air Transport Association analysts have forecasted that despite the Covid-19 vaccines and testing procedures rolling out worldwide, the recovery of demand for air travel may not reach pre-crisis levels until 2024.

          While this estimate would imply that the aviation sector just needs to hold on for a few years until it can return to growth, the attitudes presented in the latest survey suggests a full recovery could take longer.

          https://eandt.theiet.org/content/articles/2021/04/business-flyers-could-stick-to-video-calls-even-after-covid-19-pandemic-survey-suggests/