This is the third in a series of articles marking the 10th anniversary of the collapse of Ansett Airlines on 14 September 2001
Article one is The twin disasters of September 2001
Articles two is Extracts from the Ansett files, before the towers fell
5 September 2001, the morning after the cheque ripping incident, is a day of contradictions and further glimpses into the affairs of the Air New Zealand/Ansett camp.
The acting chairman of Air New Zealand, Jim Farmer goes on the media trail saying ‘everything is all right.’ The New Zealand finance minister, Michael Cullen, says ‘everything is worse than he imagined.’
Since Cullen was in constant touch with Farmer in the aftermath of the cheque stunt, the news is widely interpreted as being seriously bad, whatever it might prove to be when it finally makes it into daylight.
On 4 September, shortly after the cheque ripping up, Singapore Airlines declines an offer by Jim Farmer to buy all of Ansett Airlines for $A 1.
On 5 September, Qantas is offered all of Ansett Airlines for $A 1.
Included in your dollar is a business with huge upside and certain obligations and liabilities that Air New Zealand would rather not continue to hold, and an Ansett that has been gutted to a shell.
Qantas sends a team to go through the Air NZ books, with a deadline of 12 September for a decision, the day before the much delayed annual results announcement had to be made to the New Zealand Stock Exchange.
By Friday 7 September 2001 Dixon (Qantas CEO) knew from his auditing team in Auckland what was in the Air New Zealand accounts in relation to the offer to sell Ansett for $1.
He is told that Ansett is stuffed, irretrievably stuffed, and will almost certainly be abandoned by the New Zealand airline in order to save its own skin.
The joint balance sheet has debts of at least $NZ 3 billion and insignificant assets.
Dixon also learns that Qantas had seriously underestimated the situation at Ansett when it began assessing its losses earlier in the year.
The recent admission by Air New Zealand that the merged carriers were loosing over $ 1.3 million a day was right, except that the ‘over’ bit was a shabby understatement.
In its death throes Ansett is bleeding up to $7 million a day, well and truly over the $1.3 million Qantas previously estimated, or somewhere between $35-$50 million a week and its closure had become an urgent priority if it was not to take Air New Zealand with it.
There is a sudden recognition in the Australian government and in Qantas that the board of Air New Zealand had been incapable over a period of months of telling the whole story in relation to Ansett and its effect on the parent company.
But the government and opposition had been equally incapable of listening. Singapore Airlines had told the truth, in so far as it caught up with it by early June 2001, months later than would have been prudent, and was ignored.
Even as the previous week closed Singapore Airlines was briefing the hard core aviation media that it may be ‘necessary’ in the interests of the survival of Air New Zealand to let Ansett ‘go.’
The hint gets only passing mention at the time…it was all so unbelievable, and beside, John Anderson’s office was saying everything was all right.
The spokesman for the Transport Minister tells the media on a daily basis up to and including the night of 11 September in the hours before the World Trade Center towers were attacked, that the government will not let Ansett go out of business, the same night most reporters are told by Qantas officials that it has been working over the weekend on special fares and planning emergency flight arrangements for the hundreds of thousands of Ansett passengers who most likely would be without an airline in the very near future.
Shortly after being offered Ansett for $1 on 5 September the Qantas media machine was telling reporters that the deal wasn’t going to happen, which wasn’t a surprise.
You would have had to pay Qantas about $5 billion to even think about taking Ansett on, a sum that would have made it marginally interesting given the costs of fixing it.
However Qantas kept its team at work in Auckland partly through the value of the insight given by their examinations of the accounts, and also to carry out a request by John Anderson, the Howard Government’s Transport Minister, for Qantas to explore the means by which it might keep Ansett in the air.
The media relations manager at Qantas, Michael Sharp, confesses that he had kept a white board on which all of the inconsistencies in public statements about Singapore Airlines, Ansett and Air New Zealand had been noted in the expectation that the media might trip over at least one of them. This didn’t happen. No-one in the media was connecting any of the dots.
All the while Virgin Blue is kept in the dark about the true state of Air New Zealand’s affairs, but as a mini airline still smoking from near obliteration earlier in the year during the March and April fare cutting four way between itself, Impulse, Ansett and Qantas, it starts looking harder at the big picture and realises that Ansett can’t possibly stay in the frame much longer.
Its management team goes into a scheduled four day internal auditing course at a modest motel on the Sunshine Coast.
There is no Plan B, they are going broke
Over lunch that Saturday, 8 September, Godfrey, Sherrard and Huttner tried to make sense of the puzzle.
“We had been trying to guess what Air New Zealand’s Plan B was,” Huttner says.
“Plan B would give us our basis for responsive action.
“Suddenly we realised the truth. I forget who blurted it out but someone said ‘There is no f*cking Plan B. They’re going to go broke’.”
By Monday 10 September 2001 the original agenda had been abandoned. The replacement agenda was coping with the pressure of more rapidly expanding Virgin Blue ‘if Ansett is forced to drop or cut services.’
All the strategies for dealing with a ‘competitive vacuum’ caused by the marginalisation of Ansett were to be workshopped.
In his opening comments to his colleagues Godfrey says “This is not an opportunity for us but an onerous responsibility.
“We have a commitment to low cost travel. We can’t sit back and contemplate a situation where all of Ansett’s market share goes to Qantas.
“Our preference to be small and profitable and grow sensibly to a fleet of more than 20 jets doesn’t allow us to sit back and be comfortable in our niche.
“It will be very damaging to our brand to be seen to be standing still when we are needed.”
However at that moment Virgin Blue had only 9 of its planned initial fleet of 20 jets in service.
Its share of capacity or number of seats offered on main line and secondary domestic routes is 7 per cent compared to the 93% that would be the Qantas share in the absence of Ansett and even if Virgin Blue’s jets flew completely full.
The Virgin Blue meeting was unaware that on Sunday morning 9 September the acting chairman of Air New Zealand, Jim Farmer had called Anderson to disclose the true state of the airline group’s affairs.
This call makes it onto the public record three days later, when the minister volunteered his account of the conversation, in an ABC television interview.
Anderson says he was advised that Singapore Airlines had completed due diligence for the recapitalisation of Ansett and withdrawn all support for the option, and that without the support of Singapore Airlines, Ansett was virtually insolvent.
Anderson says that up until late on Thursday of the previous week,[September 6] the Air NZ board had believed it had a back-up plan to save Ansett.
“But sometime between [that] Thursday night and Saturday that situation changed dramatically and Air NZ suddenly realised they were on their own, that there was no Singapore Airlines to recapitalise Ansett, and no deal with Virgin,” Anderson says.
“Air NZ then went into panic mode, a board meeting was called for Saturday night [September 8], the true financial position was realised, and at that point the decision was made to cut off Ansett. I was not advised of the true extent of the financial losses until that Sunday morning call.
“There can be no suggestion I knew Ansett was headed for insolvency when not even Singapore Airlines which sits on the very board of Air NZ did not itself know until sometime after Thursday night.”
Anderson’s claim that he didn’t know had already been contradicted by earlier newspaper reports detailing how he and other key figures in Cabinet and the opposition had been told over several months and in exquisite detail by Singapore Airlines, which had $500 million of its funds in peril, that Ansett could go broke if they continued to prevaricate over its proposed investment in the merged carrier.
It had been screaming headlines, yet the Minister for Transport ‘had no idea.’
That Sunday morning as Jim Palmer was ringing John Anderson to let him in on the astonishing discoveries he had made about his own company, the Virgin Blue meeting was absorbed in how it might rapidly add capacity.
Some of wilder thoughts include the short to medium term leasing of at least two Boeing 757s, the long, thin and supremely uncomfortable Boeing that had only ever appeared on domestic routes during the pilot strike of 1989.
You’ll never guess who just called
That morning around 8.30 am, Huttner receives a text message on his ‘phone to ‘please call Geoff Dixon on (this number)’
“I was trying to work out which of my friends is being clever with me,” Huttner says. The number is that of Anna Quarrel, Dixon’s personal assistant.
‘Oh Mr Huttner are you with Mr Godfrey? Mr Dixon would like to speak with him’.
‘Well, I’m not, but he’s nearby…’
“I said ‘Brett….how much do you want to bet you’ll never guess who just called’.”
Godfrey says it was the first time he had ever spoken to Dixon, who told him ‘Ansett is probably going to be dead by the end of the week, and we need to work through a plan to co-ordinate how we deal with all the passengers who will be stranded and how we are going to deal with crews that have to be moved and other issues.’
These other issues included security concerns over Ansett staff going berserk aboard Qantas or Virgin Blue flights or in a terminal.
About 20 minutes later Anderson calls Godfrey with a similar message. The clear inference from this is that Qantas and its minister were planning what to do about the approaching Ansett disaster while the minister’s office was telling the media John Anderson would never let Ansett go broke.
After the Dixon and then Anderson revelation the core management of Virgin Blue heads down the Bruce Highway to Brisbane to regroup in the board room at 11 am after dropping off families.
Anderson’s account of the Air New Zealand board’s discovery of the true situation only underlines his capacity over several crucial months to disregard some very straightforward and increasingly blunt assessments of the deteriorating situation at Ansett.
Even the opposition, which never seemed to doubt that Ansett would pull through, had been telling the media in patronising terms that Dr Cheong had told it that Ansett could go broke, but it wasn’t worried.
The response of the opposition to Dr Cheong was to thank him for his attendance and ignore everything he said.
Back early in June, Anderson was being told by the Singaporeans that Ansett could fail without urgent implementation of its plan to invest more in parent company Air New Zealand and recapitalise the domestic carrier in the process.
The minister said publicly on several occasions in August 2001 that he had dismissed these claims as ‘alarmist,’ which again contradicts his claim that not even the Singaporeans knew Ansett was headed for trouble.
In his interview broadcast on 12 September, Anderson also contradicts himself over the timing of the enlightenment of the Air New Zealand board over the true state of their company’s affairs.
Having insisted that Dr Farmer’s call on September 9 was the first he knew of the true extent of the financial losses at Ansett and Air New Zealand, Anderson volunteers later in the same interview that on 14 August the Prime Minister John Howard had received a hand delivered letter from the board of Air New Zealand ‘bluntly’ urging the Australian government to get behind the Singaporean plan to take 49 per cent of Air New Zealand and thus its wholly owned Ansett subsidiary.
The reporter wasn’t listening to the answers to his own questions, letting Anderson off the hook.
A child could work out whether to believe that the Air New Zealand board ‘discovered’ the truth around September 6, or some time before drafting the August 14 letter.
The earlier date for Anderson’s enlightenment coincides with the period in which the Singaporeans start hinting to the media that it might decide not to pursue its intended investment in the airline to the fullest extent.
Simultaneously Ansett was courting Virgin Blue for a deal, and as subsequent events were to show, the Air New Zealand chief executive Gary Toomey was within days of resigning all his Ansett related directorships, which happened on August 24, the clearest of indications that Air New Zealand’s directors had at last discovered the true state of affairs in the enterprise for which they were responsible.
However the opposition seemed no more willing than John Anderson to hear any suggestions that Ansett could actually fail. The notion was treated as preposterous and the opposition remained confused in its statements as to whether it was on the side of Qantas or the Singaporeans over the planned recapitalisation of the carrier.
Was it to be Pacific Star or Australian Star?
Unlike the concurrent HIH collapse, Federal cabinet and the opposition had been personally briefed and in painstaking detail in June and July as to the magnitude and timing of the Ansett calamity and did absolutely nothing about it.
On Monday 10 September the Minister’s office and Qantas and Virgin Blue work on the increasingly certain assumption that Air New Zealand will abandon Ansett to its fate on the Thursday when it announces it annual result in Auckland, and that Ansett will almost certainly be in a form of administration and order its jets back to their bases on the Thursday night.
On top of that, an Auckland advertising agency slips out that it has been engaged to work on a new campaign for the merged airline group which includes a new name for Ansett.
There is an ex Air Canada 767-300 inside a sealed hangar at Christchurch awaiting repainting. The stencils that are to be applied to its side are said to show that it is Something Star. Is it going to be Pacific Star or Australian Star?
The repainting is never undertaken, nor the art work revealed. At Air New Zealand the rush for the exits has started in earnest.
And on the far side of the world, as 11 September 2001 dawns over Manhattan Island, mass murder by aircraft is about to be committed.
Tomorrow: The towers fall, Ansett collapses, and Ansett isn’t for quick sale