"In the national interest"

What a novel idea: Let's have more of it

- Murray Horton

How ironic that while the Labour/Alliance government is falling over itself to join the American crusade to fight Islamic fundamentalism in a galaxy far far away (well, Afghanistan actually), at home it is having to reluctantly clean up a small part of the mess caused by its capitalist fundamentalist predecessors of the 1980s. Rogernauts and the Taliban – brothers under the skin, each convinced of the rightness of their anachronistic, obscurantist world view. And each pigheadedly oblivious to the damage they’ve done to their own people. Never mind the facts, full steam ahead with the theory.

Which brings us to the point. Air New Zealand. I humbly suggest that the koru on its aircraft tails be replaced by a brick, because that’s about as well as it has been flying since it was flogged off by the Douglas/Prebble regime of the 1980s. The narrowly averted total collapse of our national airline this year was a disaster waiting to happen. It was a perfect illustration of what happens when an asset established as a public service is captured by those intent on milking it for private profit. The most encouraging thing to come out of the whole fiasco was that the Government, however reluctantly and temporarily, has renationalised the airline. "Renationalisation". Now there’s a word to make the ideologues choke. It’s a word they thought they had banished forever from the economic and political lexicon of this country. Rather like the phrase "in the national interest", which they never expected to hear uttered again.

The Government has precedents for what it did. One of the very few promises it made before the 1999 election was that it would reverse National’s decision which allowed the insurance transnational corporations (TNCs) into the highly lucrative field of accident compensation. The Government followed through with this promise and duly renationalised the Accident Compensation Corporation in 2000, re-establishing its monopoly in the field and shutting out its private competitors. Also in 2000, the Government refused to allow any of the bidding fishing TNCs to buy Brierley’s stake in Sealord, because this was deemed not to be "in the national interest" (see Watchdog 95, December 2000, for a detailed account of this). But this decision was later reversed and Brierley’s stake in Sealord was sold to one of the bidders, a Japanese fishing TNC, in January 2001 (see Watchdog 97, August 2001).

(Of course, our old friend, the Overseas Investment Commission (OIC), is obliged by law to consider the "national interest", when making its decisions. But the OIC sees virtually everything as being in the national interest, citing it as grounds for refusal in only a tiny handful of cases over all the years that we have been monitoring it. Indeed, see the Watchdog 95 article for a very detailed account of how the OIC fought the Government tooth and nail to have every single bidder for Brierley’s stake in Sealord approved, despite the Government declaring that sale as not being "in the national interest". And, for a more recent example, see Bill Rosenberg’s analysis of the OIC’s April 2001 Decisions, in this issue, to see how an academic study concluded that the OIC failed to meet its own criteria for evaluating the "national interest").

There is an even greater irony in all this, of course. Both the Prime Minister, Helen Clark, and Minister of Finance, Michael Cullen, were Ministers in that 1984-90 Labour government (better known as Roger Douglas and the 40 Thieves) which flogged off so much of the family silver, including Air New Zealand. They have now become highly paid pooper scoopers, cleaning up the mess left by that disastrous regime. On the other hand, Deputy PM, Jim Anderton, was a lowly and lonely Labour backbencher then, one who voted against the sale of Air New Zealand (it was the last straw for him) and, deserted by the rest of Labour’s gutless "Left" MPs, he walked out of the party and began the process that led to him being leader of the Alliance in today’s Coalition. Jim, who’s never had any difficulty gloating, could quite justifiably say "I told you so" to his hapless former Labour colleagues.

Some history is necessary. In 1987, when a Labour government was re-elected for the first time since the 1930s, its election manifesto promised not to sell either Air New Zealand or Postbank. Both promises were outright lies (and both were duly sold). In 1988, the Government announced that it would sell 25% of Air New Zealand. This was suddenly replaced by an announcement that it would sell 100%, apparently because Sir Roger Douglas, Minister of Finance, wanted to achieve his $2 billion State assets sales target for the 1988/89 financial year. Treasury recommended selling it to British Airways (the present owner of Qantas), but Cabinet decided on a consortium. Brierley’s got 60%; Qantas 20%; Japan Airlines and American Airlines 7.5% each. The price was a bargain basement $660 million: "Less than three jumbos", as it was put by Jim Scott, the first chief executive of the new Air New Zealand (Listener, 6/10/01; "Crash Landing", Bruce Ansley). The sale was accompanied by sophistry. Recognising the reality (then and now) that only "national" airlines can take advantage of international bilateral landing rights, the Government pretended that it remained a New Zealand airline. As with the 1990 Telecom sale, the Government retained a Kiwi Share, which gave it some rights over which foreign airlines could buy into Air New Zealand and how much they could own; and Air New Zealand’s shares were split into A and B shares. Only New Zealanders could own the A shares; foreigners could own the B shares only. Officially, foreigners could only own 35% of the airline. And who was the dominant "New Zealand" owner of the A shares? Why, Brierley’s, of course. It’s nonsense now and it was nonsense then (see Watchdog 84, May 1997; "It’s Official: Brierley Investments Is An Overseas Company", Bill Rosenberg, for an excellent analysis of the shabby legal rigmarole undertaken by the National/New Zealand First Coalition government to maintain the fiction of Brierley’s being a "New Zealand" company and thus able to retain ownership of assets such as Air New Zealand).

The consortium of foreign airlines didn’t last long. Japan Airlines and American Airlines sold out quickly; in 1997, Qantas sold its 20% stake for a $120 million profit. That left Brierley’s holding the baby, along with its new partner, the very rich and powerful (and entirely State-owned) Singapore Airlines. Brierley’s, a noted wham bam thank you ma’am asset stripper, broke its own cardinal rule and held on to Air New Zealand for its whole time as a privatised airline.

How did this more than a decade of transnational ownership compare with what went before? In 1987/88, its last full year under State ownership, Air New Zealand produced a profit of $70.4 million and had $558 million in shareholders funds; for the 2000/01 year, its last under transnational ownership, it reported a loss of $1.4 billion and had only $158 million in shareholders’ funds. If it was a race horse, you’d sell it for cat food. On appearances, the Government paid too much to renationalise it, selling 100% of it for $660 million, and, in 2001, paying $885 million to buy back 83% of it. But appearances can be deceptive. Economist Brian Easton pointed out that if the Government had put that $660 million into the bank at 10%, 13 years later it would be worth an estimated $1.5 billion. But the Government renationalised Air New Zealand for just over half of that. He concluded: "Not a bad deal" (Listener, 20/10/01; "Buyback: The Government makes business its business again", Bruce Ansley).

Australia Proves Its Undoing

Airlines are a notoriously volatile industry. Several American ones have flown for years under the protection of US bankruptcy laws. In the wake of the crisis of confidence by the travelling public caused by the September 11 suicide hijackings, a couple of major European ones have gone belly up. The airfields that serve as the industry’s graveyards, in places such as the Mojave Desert, are doing a roaring trade. But Air New Zealand’s problems long pre-dated the current slump in global air travel or even the global recession that has been gathering force for the past few years. Air New Zealand’s problems can be summed up in one word – Australia.

The same 1980s Douglas/Prebble regime that flogged off Air New Zealand also opened New Zealand’s domestic skies to a foreign airline, namely Ansett. Allowing a foreign airline to fly domestically was virtually unprecedented anywhere in the world, but was merely one of a string of such illconsidered decisions by the Rogernauts (the evidence is all around us). There wasn’t ever the slightest hint of reciprocity from Australia. This suicidal ideology was very much one of "I’ll jump over the cliff first to show you it’s OK, as long as you promise to follow". Those cunning old Aussies are still admiring our wreckage, from the clifftop. So, while an Australian airline merrily flew unhindered throughout New Zealand (Ansett had its own problems here, which culminated in this year’s total collapse and disappearance of its successor, Qantas New Zealand, but that’s another story), Air New Zealand was told to get stuffed every time it raised the subject of flying Australian domestic routes.

That unlamented Labour government was duly voted out in a 1990 landslide, and was replaced by another bunch of liars promising to stop the rot. Instead National gave us more of the same and worse. In the early 1990s world of aviation, "open skies with Australia" was the repeatedly chanted mantra. The official name was the single aviation market, meaning that Air New Zealand would be able to fly Australian domestic routes. It was all set to happen in 1994, and was going to be one of the greatest achievements of the Bolger government, a trans-Tasman feat to rank alongside the 1980s’ Muldoon government’s signing up to Closer Economic Relations with Australia. And then, literally days before it was due to start, it was blown out of the sky by the "Brereton Fax" (from Laurie Brereton, Minister of Transport, in the Australian Labor government) telling Maurice Williamson, his New Zealand counterpart, that the deal was off. And it’s never been on, ever since. It coincided with a crucial Qantas share float and Australia has aggressively pursued Qantas’ interests as its top priority ever since.

The privatised Air New Zealand developed a fixation on Australia as the key to its future as a ranking world airline. It was stunned by Australia pulling the plug on the single aviation market (as was the New Zealand government) and was determined to get into Australia at any cost (which, eventually, nearly came to mean its actual existence). It tried to buy into Qantas, but failed. The Aussies had other ideas – they told Air New Zealand that the only way it could get into Australia was to buy into Ansett, which was then owned by News Ltd and TNT, both huge TNCs headed, respectively by Rupert Murdoch and the late Sir Peter Abeles. "The airline reflected the peculiarities of TNT’s boss, Sir Peter Abeles, a classic rags-to-riches Hungarian immigrant who became former Prime Minister Bob Hawke’s closest mate. Abeles treated Ansett as his private airline. ‘He liked shiny, new aircraft’, says Professor Keith Trace, an aviation economist at Monash University in Melbourne. ‘He liked going to air shows and buying new planes, irrespective of where they fitted in’’. Among his airline adventures: he spent millions turning Hayman Island into a ritzy resort that Ansett sold at a loss; he bought companies for Ansett that made lecterns and golf buggies; he put gold-plated ashtrays in his planes; he demanded that Ansett’s Boeing 737s, designed for 140 passengers, carry only 110; under union pressure, he made Boeing fit an extra seat in the cockpits of its new 767-200 aircraft delivered to Ansett, becoming the only airline in the world flying the planes with three flight crew" (Listener, 6/10/01; "Crash Landing", Bruce Ansley).

Despite all the warning signs, Air New Zealand paid top dollar ($A540 million) to buy a 50% stake in Ansett, in 1996 (but with management control and most of the board remaining in the hands of News Corp). This was fine, as long as Ansett operated a protected duopoly within Australia, along with Qantas. Between them, they accounted for nearly 90% of all passenger air traffic. But, in 2000, Air New Zealand made its illfated purchase of the remaining 50% in Ansett (once again for top dollar - $744 million). It had to act swiftly, to fight off a rival bid from Singapore Airlines (which was only offering $500m). Incredibly, it later claimed that, because of this haste, it had not had time to undertake proper due diligence on Ansett and was therefore unaware just what a basket case it was. Professor Trace says: "They wanted to be a survivor and feared that if Singapore came in they’d have a diminished role. But by taking it on, they ensured that their own airline was in terrible danger. That was a dreadful mistake. They were taken for a ride" (ibid).

The Australian government, having allowed Ansett to leave Australian ownership, then relaxed its protectionist aviation policies and allowed in various cutprice competitors. One of them, Virgin Blue (owned by egomaniac British billionaire, Sir Richard Branson) proceeded to decimate Ansett. The latter was not helped by, firstly a partial grounding of its fleet and than a total grounding, both times for safety reasons. These disastrous groundings took place just before the peak air travel periods, in both cases – Christmas (2000) and Easter (2001). The previous owners had allowed Ansett’s planes to deteriorate to the point where they were unsafe to fly.

Who stuffed it up?

So who was to blame for this shambolic state of affairs? Business analyst Brian Gaynor has no doubt: "From 1995 the airline was run completely by Brierley’s…The airline industry is unbelievably complex and Brierley’s were completely out of their depth. This is the end of their influence. It’s their swansong…" (ibid). Gaynor expanded his thesis in one of his regular New Zealand Herald columns ("Icon businesses stripped by greed", 13-14/10/01), pointing out that wherever the leading figures of the Business Roundtable were found on boards of privatised companies, those companies have been plundered by what he calls the "’me first" philosophy (as opposed to the "company first"). He cites Air New Zealand, Tranz Rail and Telecom as perfect illustrations of this. The market savagely rounded on Brierley’s, previously one of its darlings.

The recent history of both Air New Zealand and Ansett has been the stuff of daily headlines and Government crisis meetings on both sides of the Tasman. Singapore Airlines had already been allowed to increase its stake to 35% of Air New Zealand, and now tried hard to pressure the Government to be allowed to take it up to 49%. Qantas got into the act, mobilised the Australian government to act as its mouthpiece, and offered to buy up Air New Zealand. There was a flurry of bids involving Virgin Blue trying to buy Ansett and Air New Zealand trying to buy Virgin Blue. This dragged on for months, while all the while Ansett was losing $1.5 million per day.

It was unsustainable and Air New Zealand duly pulled the plug on Ansett, shamefully washing its hands of any obligations to the 16,000 suddenly unemployed staff. Unions still have real muscle in Australia and they fought back hard (Helen Clark was one New Zealander to personally feel their wrath, winding up stranded and blockaded at Melbourne Airport, requiring the New Zealand Air Force to cross the Tasman to fly her home). Part of the deal to renationalise Air New Zealand involved the Government reaching a final settlement with the Ansett staff.

The Government renationalised because it had no other choice. Well, it did, according to Roger Kerr of the Business Roundtable. It could have let it go bust but his views no longer have the ears of slavish politicians. Even ACT Leader, the very same Richard Prebble who flogged off Air New Zealand in the 1980s, supported continued New Zealand ownership, otherwise Air New Zealand’s international landing rights would be imperilled. He called for Brierley’s to sell its stake because it is no longer a New Zealand company.

So the decision to renationalise was a pragmatic and reluctant one, definitely going against the grain for the likes of Clark and Cullen. It recognised that if New Zealand is going to have a national airline, then it will have to be (once again) a State one. The Tory media have also pragmatically accepted that reality. There has been a wholesale cleanout of the board and management. The Brierley's crew, led by the lugubrious Sir Selwyn Cushing, has gone; the scrum of former Qantas bosses, headed by former CEO, Gary Toomey, have also gone. His departure was softened by a $1.8 million "golden parachute" (not bad for nine months work). He is no hurry to return home, as the Ansett fiasco made him the most hated man in Australia. Job cuts have been promised but have yet to eventuate in large numbers; provincial air services remain intact. Fares will go up, which is as much a result of the post-September 11 slump in global aviation as it is of Air New Zealand’s problems.

Dr Cullen has made clear that the Government plans to quit its ownership of Air New Zealand once it has been got up and running again. We urge it to retain that ownership and build on it, as a first step in rolling back privatisation and reclaiming the whole treasure chest of public assets that were flogged off. We’re all supposed to be on the look out for would-be hijackers at present. Well, our national airline was hijacked more than a decade ago and is only now back where it belongs – in public ownership. Now let’s get rid of the rest of the hijackers of our country.

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Foreign Control Watchdog, P O Box 2258, Christchurch, New Zealand/Aotearoa. August 2001.

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