Editorials on Air New Zealand sell down

The NZ Herald and Dompost editorials put a few things into perspective regarding the government sell down of Air New Zealand.

First up the Herald editorial:

According to the Labour Party leader, David Cunliffe, the timing of the Government’s selldown of shares in Air New Zealand is arrogant. Describing it as astute would have been far closer to the mark. Shares in the airline have been trading at a five-year high and investment advisers have voiced their enthusiasm for them. What better time could there be for the Government to reduce its holding in the national carrier from 73 per cent to 53 per cent?

The selldown has been criticised because it is being done just before a referendum on the part-sale of state assets. That complaint is misplaced. The focus of the Government’s mixed-ownership model strategy and, therefore, the referendum has always been the part-sale of the state’s three power companies, not an airline that the government acquired essentially by accident. Air New Zealand is very much an ancillary part of that strategy. After the disappointments of the Mighty River and Meridian part-floats, it may, however, produce the best result. The $350 million to $400 million that the Government will gain from Air New Zealand will go some way to alleviating the power companies’ shortfalls.?

The Dompost editorial says:

Operating a commercial airline is a risky business. The potential profits are huge; so are the potential losses.

The airline industry is characterised by high fixed costs, thin margins and wild fluctuations in demand. Hence, Virgin Airlines boss Sir Richard Branson’s advice on how to become a millionaire: ”Start with a billion dollars and launch a new airline.”

In this country, Air New Zealand has experienced the same ups and downs as its international competitors. Last year it reported a $182 million profit; over the past decade it has paid more than half a billion dollars in dividends to its majority owner, the government. By all accounts it is now a lean, innovative business that is benefiting from strategic alliances with other airlines, the cancellation of uneconomic routes and the purchase of fuel-efficient aircraft.

However, the public knows from bitter experience that what goes up can come down. It is only 12 years ago that a previous government had to invest $885m in the national carrier to prevent it going bust.

For that reason this Government’s decision to sell 220 million shares in the airline, reducing its total holding to 53 per cent, is very different from its sale of minority stakes in Mighty River Power and Meridian Energy and the planned sale of a 49 per cent stake in Genesis Energy.

Unlike the state power generators, which benefit from the vagaries of the weather, Air New Zealand does not enjoy monopoly power. There is a measure of competition on its domestic routes and, internationally, it faces fierce competition.

Airlines are risky, and the share price is at a 5 year high. The timing is perfect to sell down the government’s shareholding.