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A Report on Certain Statements made in Respect of Air New Zealand Limited in September 2001

B OVERVIEW OF EVENTS

5 EVENTS PRIOR TO SEPTEMBER 2001

5.1 Air NZ is one of New Zealand's largest companies. In June 2000 (the last full year reporting date before the events in question) it had assets of almost $8.8 billion and shareholders' equity of $1.4 billion. Before restructuring in October 2001 it employed over 9200 staff based in New Zealand, and almost 700 staff overseas. It is estimated that the employment of 26,000 other New Zealanders was indirectly dependent upon Air NZ. Air NZ provides a comprehensive network of air services to urban and provincial New Zealand, and maintains links with key offshore cities and regions in Australia, Asia, the United States, Europe and the Pacific Islands.

5.2 Air NZ was privatised in 1989. Under the company's constitution the New Zealand Government holds a single convertible preference share known as the "Kiwi share". This confers special rights, including a right of veto over changes in the capital structure of the company and certain alterations to the constitution. Air NZ's ordinary share capital, during the period relevant to this report, was divided between A and B shares. The A shares could only be held by "New Zealand Nationals" as defined in Air NZ's constitution. Both classes were listed on the NZSE and the B shares were listed on the ASX. As at September 2001, BIL and SIA held 30% and 25% of the total shareholding respectively. For completeness, in December 2001 Air NZ's shareholders approved a capital restructuring resulting in a substantial issue of new ordinary shares and convertible preference shares to the Crown. In the restructure A and B shares were consolidated into a single class of ordinary shares, 2,923 million of which are on issue and are listed on both the NZSE and the ASX. The Crown now holds approximately 74% of the ordinary shares. In addition it owns 100% of the 1,280 convertible preference shares, which are not listed on either stock exchange.

5.3 In 1996 Air NZ acquired 50% of Ansett, the parent of Ansett Australia Ltd and holder of 49% of the shares in Ansett International Ltd. In 2000 Air NZ acquired the balance of the shares in Ansett.

5.4 By the beginning of 2001 the trading performances of both airlines, but especially Ansett, had deteriorated. The Board of Air NZ recognised that Air NZ required significant capital expenditure (up to NZ$8 billion) over the next five to seven years. There followed discussions with various interested parties, including Qantas (following an approach to Air NZ from Qantas) and SIA (which was a 25% shareholder at the time). Air NZ told the Commission that in the meantime Ansett continued to incur heavy trading losses which impacted the Group's financial outlook and this was signalled to the market by Air NZ on several occasions, including February 2001 and the end of March 2001.

5.5 By the beginning of September 2001 the board had made an offer to acquire the low-cost Australian domestic airline, Virgin Blue, as part of a strategy for restoring Ansett's profitability. But the Ansett losses were taking a toll on Air NZ itself. Although liquidity was not an immediate concern, the sustainability of the Ansett losses was. Further, 13 September 2001 was the latest date for Air NZ to report its financial position to 30 June. There was a possibility of a revaluation of Ansett in the Air NZ accounts, with possible breaches of banking covenants resulting, if Ansett were revalued below A$400 million.

6 SEPTEMBER 2001 - A CHRONOLOGY

6.1 We set out here a broad outline of events in September 2001. We refer to some of these events in more detail below.

4 September Air NZ bid for Virgin Blue rejected.

9 September Agreement in principle for BIL and SIA each to contribute $150 million in equity and New Zealand Government to lend $550 million as lender of last resort.

12 September Terrorist attacks on New York (11 September New York time).
Qantas announce they will not purchase Ansett.
Air NZ notified.
Ansett placed in voluntary administration.

13 September NZSE suspends trading in shares in Air NZ at Air NZ's request.
Air NZ announces annual results to 30 June 2001.
Announcement of rescue package. Subject to conditions, BIL and SIA are to contribute $150 million each in equity, Government is to lend $550 million.
Trading in Air NZ shares resumes.

21 September Independent directors advise the Crown negotiating team that they cannot continue without a new urgent Government-supported recapitalisation plan.

23 September Settlement with Ansett administrators negotiated in principle.

23-24 September Cameron & Co, advisers to the Crown, formulate a proposal that the Government take an equity stake in Air NZ.

24 September Air NZ writes to the Crown, by way of a letter addressed to Mr Cameron, requesting that the Government underwrite equity of $850 million. The contents of this letter were reported to the Minister of Finance.
Prime Minister reported a number of times in the media as saying that statutory management is a viable option. There had been media speculation and comment from others about the prospects of statutory management for some time.

25 September Ad Hoc Ministerial Committee agrees negotiating parameters for the crown negotiating team to see if a proposal that the Government provide convertible debt and take an equity stake in Air NZ could be developed and gain acceptance.
The Prime Minister answers questions on Air NZ in what was described by her Office as a "stand up" interview.
Responses by the Prime Minister to questions from reporters about Air NZ shareholders reported on TV One News approximately 5 � hours later.

26 September Media reports of the Prime Minister's responses. Media reports that Office of Prime Minister has approached leading broking houses. The New Zealand Herald reports both the alleged approaches to broking houses and the Prime Minister's answers to the questions put to her on 25 September.
NZSE halts trading in Air NZ shares as a result of the reported comments of the Prime Minister.
NZSE lifts trading halt after explanation of Prime Minister's comments by Air NZ.

27 September Mr Terry responds to questions about Air NZ from journalists at a media conference in Singapore following the announcement of the financial results of BIL.

28 September Mr Terry's comments in Singapore reported in New Zealand
NZSE halts trading in Air NZ shares, and then suspends at the request of Air NZ (in place until 4 October).

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