Opinion: Having flown through considerable turbulence in recent years the national airline is now looking ripe for a Government sell-down

Opinion: Having flown through considerable turbulence in recent years the national airline is now looking ripe for a Government sell-down

Timing is everything - and the timing is looking exquisitely good right now.

Amidst all the toing and froing over the Government's asset sales programme, Air New Zealand has largely been forgotten.

But lest we forget, Air NZ, which the Government currently holds just under 73% of, is on the list for a sell-down to 51%.

Your writer struggled manfully to find any negatives in the latest Air NZ result and came up empty. It has been a good few years now since the national carrier was travelling so well.

While the airline is looking at its prospects for next year with reasonable enthusiasm, a lot can go wrong for the airline industry in short periods of time. The latest after-tax profit of $182 million would therefore appear to be an ideal platform for the Government to cash in on.

So far as this observer is aware, a sale of shares by the Government in Air NZ could be done at short notice. Obviously in the case of Mighty River Power earlier this year, Meridian Energy later in the year and Genesis Energy early next year, the Government's required to hold a formal share offer process.

Not so, of course with Air NZ, which is already sharemarket listed.

In theory all the Government would need to do is mandate an investment bank and/or brokers and - probably - sell the shares through an offer to institutional shareholders. More controversially, perhaps, the Government could offer up a chunk to a cornerstone investor - possibly another airline.

But the first option would likely be easier to arrange at short notice.

How much might the Government get?

Well, according to Air NZ's annual report we the taxpayers currently hold a touch over 804 million shares. Back of the envelope calculations suggest that selling this number down to 51% of the total 1.104 billion shares on issue would involve sale of around 241.2 million shares.

Given Air NZ's price at time of writing, this makes the 'for-sale' portion of our holding worth about $345 million.

If, however, an institutional sale was the preferred method of offloading the shares, it would be presumed that this would need doing at a discount to market price - say maybe 10% to 15%.

Even after this, it should be possible to get around $300 million, which would be a bit of a help towards the Government's target of $5 billion to $7 billion from all of the asset sales.

Maybe too, the Air NZ share price might run up somewhat over the next few weeks, having already gained about 40% in the last 12 months.

So, while everybody's a bit distracted by the forthcoming Meridian float, don't be very surprised at all if within the next month or so the Government acts on Air NZ.

A sale of the Air NZ shares for around $300 million would see us still holding shares valued at about $800 million - meaning that we would be "up" on the $1 billion or so we were kind enough to invest in Air NZ when it crashed and burned in the early 2000s.

But in case anybody's feeling too chipper about that, it is worth pointing out that the last time Air NZ was flying high in the giddy pre-GFC days of mid-2007 its share price was north of $3 and the then Labour Government - had it not been philosophically offended by the idea - could have cashed in to the tune of $700 million-plus, meaning we would now still have 51% control of an airline for which we had paid virtually nothing.

Now that would have been a deal.

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35 Comments

For the record, selling part of Air New Zealand causes me far less stress than selling the power companies. If the worst happened again, and they found themselves seriously struggling (not a scenario I'm remotely trying to talk up in terms of likelihood), their assets are now actually relatively easily replaceable.
Plane leases, airline systems, and airport access are relative commodities, and easily enough bought or leased off the shelf, especially in the event that a good number become available in the event of a failing incumbent; refer Ansett's demise, and the very ready vultures then.
And I can see the chances of political interference in their current ownership that may not exist in a more commercial arrangement- they seem to be fairly commercial now for all that. 
 

No as then the poor who cant afford it, subsidize the ones who can [almost] afford it...
regards
 
 

Agreed , the state has no business in airlines, unless its a monopoly .
They are a pain in the neck ,the return on equity is terrible , the Politicians dont understand the complexities of owning an airline , they lose money often , and  always needs more capital.

Tell that to Singapore, Dubai you know those ones. Yes airlines are a pain in the neck but countries often need them to be there no matter what. NZ needs an airline- I can't see a way round us controlling/owning one that can be controlled at a political level

They wont survive jet fuel getting ever more expensive. 
Need and can afford are 2 different things.
regards

I disagree , we can punch way over our weight in many areas , but  Air NZ  is more like a flying club when compared with those you have cited  and there are some not-too- subtle differences between AIR NZ , Emirates , Etihad , and Singapore Airlines .
The two Arab airlines  are funded with Gulf Oil revenues,( which we dont have because the Greens wont allow more gas fields).
Singapore is a massive airline with a strategic hub slap on the equator in the middle of South East Asia .
Singapore has a target market of literally tens of millions of people in Asia .
Air NZ , while very good has a tiny target market consisting of you and I, some well heeled  tourists  and a few other Kiwis , and we are located 1000 miles South of nowhere  and we have ... Auckland aerodrome , Windy Wellington ( too short) and Queenstown (cant land after dark) .
 

Why do we need an airline?  We don't own a shipping line and manage quite well.

.... sssssssssssssssssshhhhhhhh ! .... you mad fool , you .... don't give Cunliffe any ideas like that .... soon enough the gumnut will nationalise the shipping lines again !

Not only did Clark & Cullen fail to capitalise on the resurgence Air NZ share price , but they cost Auckland Airport shareholders a massive windfall too , being ideologically opposed to selling " key assets " to foreigners . ..... .
 
... that's all gone out the window , now that they're John Key assets ....
 
But if Labour win in 2014 ..... expect them to buy back those Air NZ shares ..... at a much higher price than the Gnats would've sold them for , somewhere within 5 to 10 % of the top of the market ....

Many very successful economies are ideologically opposed to selling key assets to foreigners Even less sucessfull places like the US, Try buying a US International airport.
People who invest in shares put capital at risk. One of the risks is changes in government/government policy.
For instance a New Zealand government may one day decide that there should be a real competitive market in supermarkets  and break the indutry up and in a moment a whole bunch of super profits will simply disappear.
 
 

I would vote for that government. Which box do I tick?

ACT ! .... ha haaaaaaaaaa ... go Banksy , go you good battler from Struggle Street ...

Boo I say GBH,... Boo ! and not in a ghostly way....Banks is the definition of a repulsive individual, who despite  proving himself to be a liar by way of in/ -convenient memory loss without shame then has the gaul to remain in the seat National placed him in......further the audacity to announce his intention to contest the seat again in 2014.
Now I know you don't have to be smart to live in Epsom....but at least have some self respect....................... wannabes
 friggin cling on's gotta go
Kirk out.

Epsom's not your definition of " Struggle Street " , Count .....
 
... I've got this feeling in me bones , call it a bear's intuition if you will , that you're not 100 % Purely enamoured with the Honourable John Banks ( M.P. ) .....

Just one guy I'd particularly like to have a small struggle with GBH.......oh he'd struggle alright, flail , thrash, buldge in the eye sockets, until he found Nirvana is not in all we see before us.....chortle .snicker...inhale nasally, long and slow.....rest.

He can't get any policy published Zanyz.....just won't pass the media polygraph test.
 All you need to know about Banks is he casts his vote for himself as the sitting candidate while voting National with his party vote......and the remnants of ACT are too stupid to figure it out....duh..! 

Sell it now.....its a doo doo....get it sold!!!
 
 

" doo doo " ? .... our national carrier .... tsk tsk , steven ....
 
Air NZ is profiting off the comparatively low oil prices , because ( ahem ! ) there is no " peak oil " .... and we may have passed the point for peak demand of fossil fuels ...
 
Go Rob Fyfe , go you good thing !

Go Rob Fyfe , go you good thing !
 
I guess you have no skin in the game - just another enthusiastic paper trader?

...... oooooops , my bad , the Fyfester retired at the end of last year , didn't he ...
 
But hey , c'mon Hulmey , buy some Air NZ shares from Jolly Kid .... you know you want to !

I inherited some from the previous government selloff - still below issue price.

There are a wide range of redundances being actioned before it's blocked GBH, in order to be selling a very tight  ship  ( lean) making forecasts look handsome.
 If I'm not wrong , knowing several of the High end nav .IT. specialists who are currently up for redundancy after cleaning out the next tear down themselves......it is possible that Air N.Z.'s safety record could come under threat....
 and yes Rob Fyfe long gone, you know full well to lay off the vino till she gets home..!

..it is possible that Air N.Z.'s safety record could come under threat....
 
And all else once Team NZ arrive back with the hardware from San Francisco - while we burden ourselves with the next round of local costs, Emirates (read Abu Dhabi) will blow Air NZ out of the water with negative return airfare deals to enhance their sponsorship arrangement. Another bottom of the cliff economic exercise undertaken by National? Did we not give Team NZ ~$36 million and allow an inside competitor to trade away Air NZ's float advantage? - nonsense if ever I saw it.

Fair call..Stephen H..... l'll  pop in some of the insider stuff as the next week unfurls....some very long serving, very very unhappy campers....and so it goes.

Low oil prices? hogwash.  So you invest on a BAU outlook....but dont do much research on things that might impact you and want to ignore because of your politcal viewpoint, wise investing strategy eh.
Oil prices comparitively low?  to what?  historically oil has been more like $20USD, certainly below $40USD.
http://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_...
The two times since WW2 it went above, the developed countries economies ended up in dire straights.
The developed world may well have gone past peak demand, because its not a low oil price, its simply to expensive for our economy to thrive in.  This means what for shares do you think?
The developing world however shows no such demand peak...
Then there is the fact that peak crude oil refers to output and not demand.
So wrong on many counts in just a few lines, Im sure India will be glad it wont follow your advice....
Air NZ doo doo, yes.  Never mind Im sure you will as a tax payer be happy to pay ever increasing amounts into it to keep it from going bankrupt. That dreded peak oil thing....jet fuel >$180USD.  
If of course it was up for sale, well you could snap up a bargin couldnt you.
 
 
 
 
 

Sadly , all the Gummster's munny is tied up already , tobacco companies , fracking contractors , casinos , hedge funds , and a labour hire firm in China which sends hundreds of these cute little black monkeys up industrial chimneys to clean them ....
 
.... at least they swore blind that they were monkeys ....

Excellent....all sound sure things. 
regards
 

Tobacco...? can you get me discount...? I just picked the wrong day to give up huffing..!

... and I thought the Huffington Post was a place to light up your cigars with kindred spirits ...
 
D'yer want a cute little black monkey instead  ..... going cheap ..... must be the soot stuck in their throats , " cheap cheap " ....

I'll take two...please, Ya can't have a Sooty without a Sweep 
 Albatross...! Albatrossssss for crissakes....!

Baker Young Stockbrokers ( Australia ) have commented " Air New Zealand Delivers Strong Profit Growth and Cash Flow Generation " this morning ...
 
... whilst they only issue a " Hold " rating on the company , they still predict Air NZ's net profit after tax to increase by 20 % over the next two years ( year end 2015 ) , for the dividend pay-out to increase to 8.20 % on the current share price , and for the price to earnings ratio to slip below 8 !
 
They add that revenue should grow 3 % p.a. over each of the next 5 years ....
 
Not too shabby , all toted up ...

This "HOLD " is being softened to become a "BUY" which will see the price increase at first by the dividend , (in cents) and then it will increase in anticipation of sustained growth
At that point , the Government may well SELL, SELL , SELL

... and sometime in 2015 , after winning the 2014 election , Cunliffe will buy back those shares , within cooee of the market's all time high ....

I cannot believe the disaster of buying Ansett is still not tatooed on at least one executive's forehead - corporate memory loss is expensive. 
 
I can only surmise those earning the big bucks suffer from anxiety complexes over their receipt and have to play them out by indulging themselves with extinguishing cash to alleviate the stress. As I have said before, it's cheaper to pay those who think they are in charge to stay at home.