History of Air New Zealand

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The history of Air New Zealand, the national carrier of New Zealand, began when the amalgamated East Coast Airways and Cook Strait Airways began operations in January 1936 as Union Airways of N.Z. Ltd, the country's first major airline. Union was the sole New Zealand aviation partner in Tasman Empire Airways Limited (TEAL), forerunner of Air New Zealand, which made its inaugural flight in 1940

Contents 1 Tasman Empire Airways Limited 2 Air New Zealand enters the jet age 3 Merger with NAC 3.1 Union Airways and NAC 3.2 Merger 4 Mount Erebus Disaster 5 Arrival of 747s 6 1989 onwards - privatisation 6.1 New ownership and stock exchange listing 6.2 Further expansion 6.3 Australia 7 Expansion 8 Over-expansion 9 Ansett Collapse 10 Rebirth 11 References

[edit] Tasman Empire Airways Limited

Main article: TEAL

The airline was established as TEAL (Tasman Empire Airways Limited) on 26 April 1940. Its first flight was on 30 April 1940, with Short Empire flying boat ZK-AMA Aotearoa carrying ten passengers from Auckland to Sydney. It took around 7 hours 30 minutes to travel the 1345 miles. TEAL's first annual report, dated 31 March 1941, revealed that 130 trans-Tasman flights had been completed, 174,200 miles flown and 1461 passengers carried, with a profit of £NZ31,479.^[1] During WW2 TEAL undertook several special charter and reconnaissance flights to New Caledonia, Fiji, Tonga, Samoa and Hawaii to assist the war effort. In June 1944 TEAL crossed the Tasman Sea for the 1000th time.

After World War II TEAL re-equipped, initially with Short Sandringham and later Short Solent flying boats with a former RNZAF PBY Catalina also being used for survey flights. TEAL's initial schedule of two weekly flights from Auckland to Sydney was soon expanded with departures from Wellington, and flights to Fiji were also added during the early years.

In 1953 the Australian Government bought 50% of TEAL, with the New Zealand Government buying the rest. In 1954 TEAL added Douglas DC-6s from the defunct British Commonwealth Pacific Airlines (BCPA) to its fleet, and these replaced the outdated flying boats on most international services. The flying boats operated their last services in 1960. TEAL operated services between Auckland and Fiji to replace BCPA's service. In 1955 TEAL made its 10,000th trans-Tasman crossing. In 1959 TEAL again changed its fleet, replacing the DC6s with Lockheed L-188 Electra IIs. The turboprop aircraft was capable of carrying 71 passengers at nearly 400 miles per hour, and reduced the Auckland to Sydney flying time to 3 hours 50 minutes.

In 1961 the New Zealand Government bought the Australian Government's half share, and on 1 April 1965 the airline was renamed Air New Zealand.^[2]

[edit] Air New Zealand enters the jet age

On 23 September 1963 Air New Zealand signed a contract with Douglas Aircraft, agreeing to purchase three of the latter's DC-8-52 jet airliners.^[3] The first DC-8 arrived at Auckland on 20 July 1965, coinciding with the official opening of Air New Zealand's jet base at the airport.^[1] The remaining two DC-8's arrived on 12 August and 22 September of that year and the inaugural jet service was a flight from Christchurch to Sydney on 3 October. The increased range of the jets enabled Air New Zealand to commence services to the United States and Asia for the first time — on 14 December the first Auckland to Los Angeles service took off, via Nadi and Honolulu. Services from Auckland to Hong Kong and Singapore followed in early 1966.

On 4 July 1966, one of the DC-8s was written off when it crashed during a routine training flight at Auckland Airport. While the aircraft was accelerating for takeoff, the number four (outer starboard) engine was throttled back to simulate an engine failure. However, the rapid movement of the throttle level needed to achieve this caused an inertia which resulted in the lever entering the reverse thrust setting. This meant that the airspeed necessary to gain control of the aircraft was never reached, and the starboard wing tip impacted the ground causing the DC-8 to cartwheel along the runway for several hundred yards. Two of the five crew on board died in the accident.^[3][4]

Early in 1968 a further two DC-8-52s were ordered, with the first arriving on 29 January and the second on 28 February; these two aircraft had the same seating configurations as the earlier planes but were powered by slightly more powerful engines.^[3] A sixth DC-8 was leased from United Airlines in November 1970, and later purchased in July 1971. A seventh and final DC-8 was also purchased from United Airlines, this one in October 1971.^[3]

Having initially considering purchasing either the DC-8 Super Sixties or the Lockheed L-1011, Air New Zealand ordered eight DC-10-30s, the first of which arrived on 27 January 1973.^[3] The DC-10s also introduced a new paint scheme, with a koru featuring on the tail instead of the previously displayed Southern Cross; this scheme was gradually introduced onto the DC-8s during 1973.

The crash of American Airlines Flight 191 led to a temporary grounding of DC-10s, stranding hundreds of passengers on both sides of Air New Zealand's Los Angeles–Auckland route. The airline chartered a Pan Am Boeing 747 to transport stranded passengers.^[1]

[edit] Merger with NAC

[edit] Union Airways and NAC

Main articles: Union Airways of N.Z. Ltd, National Airways Corporation, and Straits Air Freight Express

In 1947 a domestic competitor appeared in the form of the Government-owned National Airways Corporation (NAC), formed when the New Zealand government nationalised Union Airways and a number of other smaller operators. NAC was initially equipped with de Havilland Dragon Rapides, de Havilland Fox Moths, Douglas DC-3s, Lockheed Electras and Lockheed 14s. In the late 1940s NAC also provided international services to nearby South Pacific countries using converted ex-RNZAF Short Sunderlands. These were later supplemented by de Havilland Herons, Vickers Viscounts, Fokker Friendships and ultimately Boeing 737s. In 1972 NAC purchased a freight subsidiary, Straits Air Freight Express, which operated Bristol Freighters and Armstrong Whitworth Argosys.

[edit] Merger

On 1 April 1978 the domestic airline NAC was absorbed into Air New Zealand^[2], which used the NAC NZ prefix for domestic flight numbers and the Air New Zealand TE prefix for international flights until the late 1980s, when NZ became universal.

[edit] Mount Erebus Disaster

Main article: Air New Zealand Flight 901

On 28 November 1979 Air New Zealand flight 901, a scheduled sightseeing flight over Antarctica, crashed into Mount Erebus. The McDonnell Douglas DC-10-30 disintegrated on impact killing all 237 passengers aboard as well as the 20 crewmembers. This remains New Zealand's deadliest disaster.

[edit] Arrival of 747s

In 1981, Air New Zealand's first Boeing Boeing 747-200 was delivered, starting the replacement of the DC-10s. The airline retained Boeing's customer code of -19 assigned to NAC, so all Boeing aircraft built for the airline carry the -19 designation at the end of their model number - the 747-200s were 747-219s. In 1982 the first Air New Zealand flight to London (via Papeete and Los Angeles) took place. Air New Zealand was now a global airline. In 1985, the company's first Boeing 767-200 was delivered.

[edit] 1989 onwards - privatisation

[edit] New ownership and stock exchange listing

In October 1989 Air New Zealand was privatised with its sale to a consortium headed by Brierley Investments Ltd. Brierleys retained 65%, with 30% to be sold to the New Zealand public, staff, and institutional investors — Qantas with 19.9%, Japan Airlines 7.5%, American Airlines 7.5%, and a New Zealand Government "Kiwi share" made up the balance. The Kiwi share has special powers to ensure that the majority shareholding is held by New Zealanders. In the same year Air New Zealand listed on the New Zealand Stock Exchange.

[edit] Further expansion

In 1989 its first Boeing 747-400 was delivered, and in 1991 it received its first Boeing 767-300, supplementing the seven 767-200s then in service. The early 1990s saw new routes added:

• 1990: Kuala Lumpur, Denpasar, Bangkok
• 1991: Nagoya, Taipei
• 1993: Seoul
• 1994: Sydney – Los Angeles, Osaka
• 1995: Fukuoka

[edit] Australia

After the success of the deregulation of the Australian domestic air market in 1990, the Keating government announced that it would allow New Zealand carriers unlimited access to the Australian market. Air New Zealand immediately planned to operate frequent services between the major Australian cities. However, at the last minute the Australian Transport Minister backed out of the deal, and although Air New Zealand was allocated an increased number of international departure slots from Australian cities, it was not permitted to operate domestically within Australia. This had far-reaching implications, as Air New Zealand was forced to look at other ways of increasing its market in Australia, which resulted in the acquisition of Ansett Australia.

[edit] Expansion

In 1995 Air New Zealand added Fukuoka to its Japanese destinations, and announced its long-standing plan to buy 50% of Ansett Airlines, a significantly larger company than Air New Zealand itself. Owned 50% by TNT and 50% by News Limited, Ansett held close to half of the large Australian domestic market but had been declining for some years. Market analysts reported that Ansett had under-performing major assets and an ageing fleet, and needed a capital injection of at least A$300 million to shore up its weak balance sheet.

For Air New Zealand, purchasing TNT's half of Ansett represented a way to buy into the rich Australian domestic market. The deal had been under discussion with both of Ansett's owners since October 1994, and required some complex manoeuvring to meet regulatory requirements on both sides of the Tasman, including the sale of Ansett New Zealand, Air New Zealand's only significant home market competitor (to News Limited) to satisfy New Zealand Commerce Commission requirements, and the sale of 51% of Ansett International (to a consortium of Australian institutional investors) to satisfy Australian Foreign Investment Review Board requirements that, if not met, would have meant the loss of Ansett International's bilateral air service agreement rights. The terms of the agreement saw Air New Zealand pay A$475 million for half of Ansett, including a $A150 million capital injection, and the transaction was completed on 1 October 1996.

A low-cost subsidiary, Freedom Air, began operations in 1996. In 1997 South Korean flights were suspended because of the Asian financial crisis, and a small partnership was formed with United Airlines. In 1998 EVA Air and Air New Zealand jointly started operating Boeing 767 services between Taipei and Auckland. In addition, Air New Zealand received three new Boeing Boeing 737-300s to operate on flights between New Zealand and Australia.

During 1998 the company started selling all five of its 747-200 aircraft to Virgin Atlantic, with these being disposed of during 1999 and 2000. Sir Selwyn Cushing became the company's chairman after Bob Matthew stepped down, and also in 1998 Air New Zealand announced alliances with various airlines and the intent to become a member of the Star Alliance in 1999.

1999 saw all five weekly services to Tokyo operated by 747-400s and an additional 747 arrived in Auckland. At the end of the year, Air New Zealand and United filed for anti-trust immunity with the United States Department of Transportation because of the two companies' alliance agreements.

[edit] Over-expansion

In March 1999 Ansett and Air New Zealand became full Star Alliance members. 1999 also saw the start of a long and confusing battle over ownership of Ansett. Ansett remained profitable but was having increasing difficulty in finding a way to rationalise its cost structure, and badly needed a capital injection to replace its elderly fleet. Of the two half owners, News Limited was more interested in selling out and investing the proceeds in other industries, while Air New Zealand did not have the funds to spare: with 102 aircraft, nearly 15,000 staff and a turnover of $US2.3 billion (compared with Air New Zealand's 72 aircraft, 9,200 staff and $US1.8 billion turnover) Ansett's need for capital was greater than Air New Zealand's ability to provide it—particularly given the age of Air New Zealand's own fleet.

Singapore Airlines (SIA) and Qantas expressed an interest in buying Air New Zealand, Ansett employees planned a staff buy-out, and both SIA and Air New Zealand looked at buying News Limited's 50% share of Ansett. In March 1999 SIA made a formal offer of $A500 million for a half share. Given SIA's industry-leading status, ability to fund Ansett's re-equipment and expansion and global marketing network, industry observers were enthusiastic about the move. However as part of its original deal to buy TNT's half of Ansett, Air New Zealand had a pre-emptive right to News Limited's half, provided only that it matched or bettered other offers.

The Air New Zealand board eventually approved the sale to SIA, but negotiations stalled when major Air New Zealand shareholder Brierley Investments began buying more Air New Zealand shares and attempting to get SIA to buy Ansett through either Air New Zealand or Brierley, rather than from News Limited. In June, News Limited withdrew the offer to sell, citing "not yet resolved issues" between SIA and Air New Zealand.

At this stage, Ansett announced an unexpectedly high profit for the year—$A149 million—and News Limited took advantage of that to raise the asking price to $A1 billion. Industry analysts regarded this as far too optimistic in the notoriously boom and bust airline business, and put the true value of a half share at no more than $A700 million.

In February 2000 Air New Zealand announced its decision: it would buy the remaining half of Ansett for $A680 million. Industry observers were united in the belief that it was a bad decision: the price was probably too high, and Air New Zealand would not be able to fund the badly needed re-equipment.

Former Qantas chief financial officer Gary Toomey was appointed Chief Executive Officer of both Air New Zealand and Ansett Holdings in December 2000. Services to Frankfurt and Honolulu from Los Angeles were dropped, and were taken on by Star Alliance partners Lufthansa and United.

In 2001 Air New Zealand announced plans to buy 16 new Raytheon Beechcraft 1900D aircraft to replace its Bandeirantes and Metroliners, which had served faithfully for 20 years, servicing airports without jet capability.

[edit] Ansett Collapse

For further information, see Ansett Australia Demise

Ansett was in poor shape^[5]. Lack of proper maintenance to its 767 fleet—some of which were almost 20 years old—had seen the Australian Civil Aviation Safety Authority (CASA) ground seven aircraft two days before Christmas 2000 while inspections were carried out.^[6]. In April 2001, one day before the busy Easter holiday period, all 10 Ansett 767s were grounded again when a series of other safety problems came to light, and Ansett was threatened with withdrawal of its Air Operator's Certificate^[6][7].

To cover the loss of one third of Ansett's capacity, Air New Zealand chartered Ansett a 767 and a 747 from its own fleet, and additional aircraft were chartered from SIA, Air Canada, and Emirates Airline. SIA—25% owner of Air New Zealand and thus indirectly of Ansett—agreed to provide technical assistance to get the 767s back into the air^[8]

Despite the great loss of public confidence in the airline, the news was not all bad. Chief executive Gary Toomey announced that the total cost of the groundings was only $NZ5.2 million, and that the seven oldest Ansett 767s would be sold, along with three of Air New Zealand's 767s, and newer aircraft leased in their place. Toomey said:

What it really highlights though is that nothing has really changed in our strategy and that is that we need to re-equip, we need to grow our capacity, we need to have new products, so I think it just brings these objectives into focus more and more by having a high profile about what's happened.^{[citation needed]}

The reality was rather different. In revenue terms, Air New Zealand was the 39th largest airline in the world, Ansett 32nd. However, both airlines were only marginally profitable and needed a substantial capital injection that neither was able to provide^{[citation needed]}. The larger very successful airlines Qantas and SIA both made offers to buy the Air New Zealand group but needed regulatory approval to lift the 25% foreign ownership rule. The Clark government refused to make a decision. Deputy Prime Minister Jim Anderton said "the idea of selling our national airline to anyone would be an anathema", even though Air New Zealand was at that time already 49.9% foreign-owned: 25% by Singapore Airlines, and 24.9% by Brierley Investments, which was originally a New Zealand-based concern but had relocated to Singapore in 2000, and circumvented the foreign ownership restrictions by using a New Zealand-based trust to hold its Air New Zealand shares.

The inconsistencies of national pride were not confined to the eastern side of the Tasman: public opinion polls showed that while New Zealanders were strongly opposed to Qantas buying into Air New Zealand, and moderately opposed to SIA increasing its stake, Australians were in favour of a Qantas buy-out of Air New Zealand but objected to any further SIA ownership of Air New Zealand (and thus Ansett) on the grounds that it would mean foreign ownership of Ansett—forgetting that Ansett was already 100% foreign-owned^{[citation needed]}.

Meanwhile, Air New Zealand's financial position was deteriorating, and Ansett was losing market share to both Qantas and a new entrant on the Australian domestic market^{[citation needed]}, Virgin Blue. The Air New Zealand board decided that the answer was to spend still more money, and buy Virgin Blue as well as Ansett. On condition that that deal went through, SIA was prepared to fund the purchase of 32 new aircraft for the Air New Zealand group. Virgin Blue, however, was growing fast, largely at the expense of Ansett; the initial $A120 million offer was deemed insufficient and in August Virgin Blue owner Sir Richard Branson, with his customary gift for publicity, put an end to negotiations when he tore up on television what he claimed was a $A250 million Air New Zealand cheque.^[9]

On 10 September 2001, in desperation Air New Zealand offered to sell Ansett to Qantas for $1^[10]. After two days' consideration Qantas declined, and Air New Zealand suspended trading in its shares (which had already dropped enormously) and placed Ansett in voluntary administration. Ansett was bankrupt, and Air New Zealand was in barely better shape. The following day Air New Zealand announced a staggering $NZ1,425 million loss: a $NZ1,321 million write-off of Ansett, and another $NZ104 million lost by Air New Zealand itself.

Ansett's trading loss for the year had been $NZ165 million (plus another $NZ23 million for Ansett International), or about $NZ8 million a month for most of the year, but with a sudden blow-out to around $NZ40 million a month for the last two months.^[11].

A storm of public criticism on both sides of the Tasman erupted, and bitter accusations were levelled. In particular, it was asked how such massive losses were possible when Ansett had a healthy 74% average load factor.

In an angry statement, Air New Zealand denied that there had been a programme of last-minute asset-stripping, that it had put $A200 million of Air New Zealand fuel bills through Ansett, cleaned out Ansett's bank accounts, or taken Ansett engines and spare parts to New Zealand^[12]. Ansett's administrators subsequently verified there had been no last-minute asset-stripping, but many refused to let facts get in the way, as Air New Zealand workers in Australia were abused and spat on.

The trans-Tasman anger was enormous. At one stage, New Zealand Prime Minister Helen Clark, on her way back to New Zealand from the Middle East, found her aircraft blockaded on the Melbourne airport tarmac by laid-off Ansett workers, who refused to allow the jet to take off. Eventually, an RNZAF Orion maritime reconnaissance aircraft had to be sent to fetch her^[13].

The Australian Securities and Investment Commission (ASIC) began an investigation of whether Ansett had gone on trading while insolvent, and eventually determined in July 2002 that it would be too expensive and difficult to proceed with an action which would, in any case, need to be many separate actions on behalf of individual creditors rather than just one.

It later became clear from the release of documents under the New Zealand Official Information Act that the New Zealand Government had pressured the Australian Government not to support legal action against Air New Zealand, saying that this would "prejudice rather than progress the interests of those with financial claims against the company". The Australian government stated that the pressure had no effect on its decisions.

New Zealand media criticised Australian media for "Kiwi bashing", contrasting poor coverage of instances of Australian protectionism and criticising pressure for New Zealand taxpayers to prop up the uncompetitive Australian business.

Laid-off Ansett workers were eventually paid most of their entitlements, partly from an $A150 million compensation package offered by Air New Zealand in return for having the ASIC enquiry dropped, but mostly by an $A10-per-seat levy imposed by John Howard's government on Australian airline passengers.

[edit] Rebirth

In October 2001 the New Zealand Government announced that it would provide Air New Zealand with an $NZ885 million rescue package, and in return would take up 80% ownership. Gary Toomey resigned as CEO the same month.

In early 2002 Ralph Norris, formerly head of ASB Bank, one of New Zealand's main banks, was announced as the new CEO of Air New Zealand, and commenced the difficult task of pulling the airline back from near-death.

In mid 2002 Air New Zealand announced it would reconfigure its domestic operations as a lower-cost airline, doing away with business class and meals on most domestic flights, the longest of which was 1 hour 50 minutes. The airline justified this new style of service (known as Express Class) on the basis that few people traveled business class and that travellers would rather save the money on airline ticket costs than pay extra for a meal. Although the company had had online bookings for several years, it made internet sales its primary sales medium, abolished travel agents' commissions and added fees for agent, telephone and counter sales. The approach was an outstanding success, with a huge increase in internet bookings being recorded once the new fare structure was introduced, and domestic bookings eventually increasing by 23% on average. During July 2002, the airline announced an order for 15 Airbus Airbus A320-200 aircraft, to replace Boeing 737-300 and Boeing 767-200 aircraft then in use on the Tasman. Five of these would be purchased by the airline, whilst the other ten were to be leased.

In late 2002 the New Zealand Government agreed in principle to allow Qantas to purchase a 22.5% shareholding at a cost of NZ$550 million; the purchase being subject to regulatory approval in both Australia and New Zealand. However, this proposal was met with resistance from the regulatory bodies in both countries — despite industry experts such as IATA head Giovanni Bisignani calling their opposition "misguided" and suggesting that the proposed alliance was a model example of the only possible method of survival for smaller airlines. In late 2003 the Australian and New Zealand regulatory bodies both rejected the alliance as being anti-competitive, despite a worldwide trend for airlines to consolidate (such as the 2003 acquisition of KLM by Air France). Air New Zealand and Qantas both announced they would appeal the decisions.

In November 2003 Air New Zealand extended the successful low-cost domestic Express concept to trans-Tasman routes. Early indications are that this move has also proved successful, with an estimated 10% increase of bookings in the first few months of operation. On 30 June 2004 the airline commenced non-stop services from Auckland to San Francisco, the first new international destination for eight years. In September 2004 Air New Zealand was named Best Long Haul Airline in the seventh annual Conde Nast Traveller UK Readers' Awards.

On 20 September 2004 the New Zealand High Court blocked Qantas' plan to buy 22% of Air New Zealand. Qantas and Air New Zealand decided not to lodge an appeal. However, both Ralph Norris and his counterpart at Qantas, Geoff Dixon, have stated that the airlines will continue to assess other forms of cooperation that will not conflict with competition regulations. In October 2004 SIA sold its remaining stake in Air New Zealand.

[edit] References