Singapore plays hardball with Air NZ

The collapse in Air NZ's share price has stalled Singapore's rescue plan

By CNN's Grant Holloway

WELLINGTON, New Zealand (CNN) -- Singapore Airlines has walked away from a deal to pump much-needed capital into struggling carrier Air New Zealand.

In a statement to the New Zealand Stock Exchange released Friday evening, Air NZ said Singapore Airlines was not prepared to increase its investment in the company at a price of NZ$1.31 (US56c) a share.

At close of trading on the New Zealand Stock Exchange Air NZ's resident-only A shares had fallen more than 10 percent to fresh lows of NZ 70c while the unrestricted B shares lost 10 percent to a new low of NZ81c.

The pattern was repeated on the Australian Stock Exchange where the shares plunged to A67c in afternoon trading before recovering to be A3c weaker at A73c.

Air NZ said it had now asked its advisers to submit a commercial refinancing package and that Singapore Airlines was "looking forward to a business plan and a commercial proposal for the company that would form a sound basis for Singapore Airlines to provide support".

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However the equity price at which Singapore would be ready to provide that support "remains to be resolved".

The statement also revealed the depth of the financial crisis facing the airline, with the company revealing its embattled Australian subsidiary Ansett is losing A$1.3 million ($690,000) a day.

Air NZ blamed intense competition in the Australian domestic market for the losses.

The bad news comes as suggestions emerged Friday that the governments of Australia and New Zealand would have to intervene financially to prop up Ansett with Australia's Deputy Prime Minister John Anderson not ruling out the possibility.

"It would be an unusual thing to do. But obviously a formal approach from the New Zealand Government, in particular, would be treated with respect and looked at on its merits by the Australian Government," Anderson told the Sydney Morning Herald.

But New Zealand Finance Minister Michael Cullen told CNN he could "neither confirm nor deny" the speculation of a bailout.

Cullen had earlier said the situation at Air NZ was "worse than anybody had anticipated".

Situation unusually complex

He said a decision from his Government on the future ownership structure of Air NZ was expected by September 14, but stressed resolving the situation was unusually complex.

"We essentially have four airlines and three governments involved in this tango. That does make for a somewhat complicated dancefloor," he said.

Cullen said it was ultimately up to the Air NZ board to find a solution to its business problems and that any decision by the NZ Government to lift the cap on foreign investment and ownership in the airline was a "non-issue".

Singapore Airlines currently owns 25 percent of Air NZ and wanted permission to lift that holding.

Australia's largest airline Qantas Airways is also keen on a slice of Air New Zealand but would need to hive-off Ansett in order to comply with competition restrictions in Australia.

Singapore 'won't walk away'

Subsidiary Ansett is draining Air New Zealand's coffers at an alarming rate

Richard Branson's Australian-based budget carrier Virgin Blue has also thrown its hat into the ring, having earlier this week knocked back an offer from Air NZ to buy it out.

Chief executive of Virgin Blue Brett Godfrey said Friday his company had put a proposal to the New Zealand Government to buy Singapore Airlines' stake in Air NZ, the Australian Broadcasting Corporation reports.

But Cullen told CNN he did not think Singapore Airlines was willing to walk away from lifting its investment in Air NZ.

Cullen said he had "no information" about Virgin Blue and whether they would get involved.

It is estimated Air NZ needs more than $2 billion (NZ$ 5 billion) to refurbish or replace Ansett's ageing and trouble-prone fleet.

Air NZ is tipped to announce losses of around $80 million (NZ$200 million) on September 13, much of this stemming from the Ansett operation.