Ansett fate still up in the air

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

By CNN's Grant Holloway

CANBERRA, Australia (CNN) -- The fate of Australia's second-largest airline Ansett remains undecided after its parent company Air New Zealand appeared to cut it loose from any rescue deal being negotiated with the New Zealand Government.

Air NZ executives have been locked in discussions with both the Australian and New Zealand governments Monday to try and thrash out a deal which will keep the struggling carrier in the air.

Australia's biggest airline and Ansett's domestic rival Qantas Airways said late Monday it had responded to a request by the Australian Government and Air New Zealand to "look at the businesses of Ansett Australia Airlines and Ansett International."

"Qantas is also in discussions with Virgin Blue about the Ansett businesses," Qantas chief executive Geoff Dixon said.

Virgin Blue is Richard Branson's discount airline that competes in Australia.

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Shares in Air NZ recovered slightly Monday on sentiment of a likely rescue.

On the NZ Stock Exchange the NZ-resident only A shares were NZ2c firmer at NZ72c while the international B shares gained NZ8c to NZ88c. In Australia, the shares gained A1c to A73c.

While the New Zealand Government has clearly indicated it will not allow its flag carrier to go to the wall, the Australian-based subsidiary Ansett is on less stable ground with Australian government officials failing to make a similar commitment.

Ansett, which employs 16,000 people, is losing A$1.3 million ($690,000) a day, after fleet troubles and fierce competition in the Australian marketplace savaged its customer base and profit margins.

Air NZ Chief Executive Gary Toomey said Monday he would be talking to the Australian Government to develop a solution that was in the best interest of Australian travellers, Ansett staff and shareholders.

Australia's ruling coalition government can ill afford the political fallout a collapse of Ansett would create ahead of a likely knife-edge national election later this year.

The Acting Chairman of Air NZ Jim Farmer told the NZ Stock Exchange Monday that the airline and its major shareholders, Brierley Investments and Singapore Airlines were developing with the NZ Government a proposal to ensure on-going financial support for the company's international and domestic operations.

Issue for Australian Government

"The Air New Zealand Board expects to be able to make a further announcement on or before, Thursday, 13 September, when it is due to present the company's annual results," he said.

But Farmer indicated any rescue of Ansett specifically would be an issue for the Australian Government.

"If you accept that it's proper for the New Zealand government to say yes, we have some kind of responsibility for a New Zealand airline, then I suppose one night argue that the Australian government could express a similar responsibility for what is essentially an Australian airline although it happens to be owned by a foreign airline," Dr Farmer told the Australian Broadcasting Corporation.

Australia's Treasurer Peter Costello however holds a contrary view, telling media he believed any difficulties Air NZ has with Ansett are their own problems.

"Air NZ is responsible for sorting out its troubled subsidiary," Costello's told journalists at an Asia-Pacific Economic Cooperation ministers' meeting in Shanghai.

Australia's Opposition leader Kim Beazley told the Australian Broadcasting Corporation the Government must explore the options of Qantas or an overseas airline taking over Ansett.

Jobs more important

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

Beazley said jobs and regional services were more important than competition policy.

Australia's key union group, the ACTU, is also pressing for an Australian Government rescue package for Ansett.

ACTU secretary Greg Combet told a Melbourne rally of hundreds of Ansett staff today that unions would meet again Tuesday to drive a campaign to keep Ansett flying.

Employees have already begun their own action, bombarding Australian Prime Minister John Howard with postcards, petitions and e-mails urging him to help rescue the embattled airline, Australian Associated Press reports.

The latest crisis was sparked by Singapore Airlines walking away from a deal to pump much-needed capital into struggling carrier Air New Zealand.

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

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.

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.