It has long been said that airlines only exist for the benefit of the aircraft manufacturers. This suggestion has been supported by an incessant flow of airline failures over the years. I include in that list those airlines that only survive on the basis of their Government shareholders covering their losses.
Many years ago I was lucky enough to attend an Institute of Directors seminar at which Jim Farmer QC spoke candidly about when he was Acting Chairman of Air New Zealand in 2001. That was when Air New Zealand was on its knees (financially) following its disastrous investment in Ansett.
The fascinating part of Jim’s recollection of events was how the directors dealt with the company’s solvency and then addressed the identification and selection of options.
If the company was a going concern, they had a reasonable argument that it was solvent. However, if it wasn’t a going concern it definitely wasn’t solvent as virtually all the aircraft and engine leases had termination and damages clauses. This predicament, and the board’s response to it, highlighted that it is only when the going gets tough that worthy directors are revealed.
The resolution came about with the Government shareholder injecting capital taking its shareholding to 76%. The company started recording profits almost immediately after the respite provided by the bailout and the Government has recently sold down its shareholding to 53%. One suspects the hands off approach adopted by the shareholder has played its part.
Air New Zealand has gone from strength to strength, recently earning airline of the year for the fifth consecutive year by Airline Ratings which followed prestigious travel magazine Condé Nast Traveller naming it top world airline.
Due to the courage and capability of that group of directors, ably lead by Jim Farmer QC, Air New Zealand has demonstrated that airlines aren’t always just there to prop up the aircraft manufacturing industry.
And this was done without the benefit of a ‘Safe Harbour’ regime.
David Blanchett
22 February 2018