The airline industry is a competitive industry with many winners and losers over the years. Air New Zealand has had to be rescued twice by the government and effectively nationalised.
The government established Air NZ as a national airline in 1965 and it was privatised by the Labour Government in 1989. Greed and ambition led to a failed merger attempt with Ansett Australia in 2001 and the government had to rescue the company by taking majority government ownership. Under the law, however, it simply operated as a profit-seeking airline with no consideration for the impact of its growth on New Zealand’s overall climate change emissions. It also helped enrich the shareholders, by share buyback schemes like many private companies were doing without regard to longer-term considerations, like what to do when a major recession or pandemic or both were to happen.
The government is also obliged to treat it the same way. That is why this time when it had to give the company a $900 million loan it charged an extortionate 8% interest like any commercial lender. In all likelihood, this loan will have to be transferred into new equity which will give the government a 100% shareholding again.
Air New Zealand, meanwhile, is acting like any other capitalist business when the going gets tough and is sacking as much of the workforce as it can in as short a period as it can. Like Rob Campbell, the SkyCity board chairperson, they will no doubt say it is their “fiduciary duty” to do so.
There is the possibility of an alternative way of doing things. Air NZ could become a state-owned enterprise and the laws changed so that profit seeking was not the only imperative. New Zealand needs a national airline, but longer-term maybe only half its current size. It will also need to have a clear plan to transition to electric-powered craft. The oldest and least efficient plans would be mothballed or sold.
The company could look at repurposing their workshops to produce materials for the health sector or solar power industry or whatever the creativity and imagination of the workers could devise. Workers would also be given the chance to retrain for different jobs at Air NZ or for other sectors where growth will be needed.
A new board with 50% representation of the workers on it would be established to come up with a plan to give to the government that maximised jobs and protected the accumulated skills and expertise in the company for a radically different future than what was being planned for under the old for-profit regime.
Burger King is another company that has failed because the private-equity-owned model always fails when the going gets tough because it is based on debt leverage.
Burger King NZ was bought in 2011 by companies belonging to the Blackstone Group – a massive US-based private-equity group whose chief executive is the highest-paid one on the globe – earning $500 to $700 million a year in recent years.
The company was bought almost entirely with debt. So debt equalled assets. Some of this will be bank loans, and the rest will most likely be loans from associated entities of the private-equity group.
This means the company spends a lot of its money servicing the debt. This also means it usually “loses” money so it never has to pay tax. Some years Burger King received a tax credit from the government. That is correct. We paid them to rip us off.
In this sort of setup, it needs a bit of digging to find out exactly how the owners enriched themselves over the years since 2011. This is a job a good financial journalist should be doing. Instead, there are almost no reports on the financial position of the company. One report, however, noted that in 2016 the company claimed net debt went from $149 million to $79 million. That would be worth looking at.
What we know is that Burger King was among the worst of the fast food companies in resisting any form of wage above the minimum wage. Almost no one was permitted to train for a higher rate. Managers were almost all migrants on visas and often earned less than the minimum wage.
The current crisis will have meant that the Blackstone Group had ensured there were no reserves to service current debt obligations and a four-week suspension of sales pushed the company into insolvency after taking the wage subsidy from the government. A receiver has been appointed.
Unite hope the company finds a buyer so the 2600 workers can keep their jobs. That may be possible. In 2008, for whatever reason, sales from fast food outlets increased during the recession. Who knows what will happen this time.
The receiver has to talk to Unite Union as one of the interested parties. We will try and use this process to find out the truth behind these corporate thieves to at least expose their criminal behaviour.