Saturday , July 24 2021

Provincial Fund plans to spend $ 30 million on airlines that receive chop



This story was originally published at Newsroom.co.nz and is reissued with permission.

The Provincial Growth Fund was about to invest $ 30 million to buy shares in two private airlines – including the one that did not even apply for funding – before the skeptical public officials and the ministry of transport advised ministers to end the plan.

Documents also show that an airline does not even know that the fund wants to invest in it. The provincial development unit administering the fund has designated an airline on the basis of a proposal from one of its competitors.

Documents published in the Newsroom under the Official Information Act show that a private airline has applied to the PGF for $ 20 million in exchange for Crown shares. The exact number of shares was edited in the documents.

The purchase will allow the airline to purchase two additional aircraft and aviation engineering business and allow it to pay off some debts. This will also allow the airline to fly new services.

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ROBBER STIVEN / STUF

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Applications between $ 1 and $ 20 million are needed to go to a meeting of Ministers of Regional Economic Development for signing. These ministers are Shane Jones, Grant Robertson, David Parker, and Phil Taylor. Ministers are informed by the IPU Provincial Development Unit (PDU) and the Independent Advisory Committee on Proposals

The PDU said the $ 20 million request would be downgraded to a $ 15 million investment but also recommended another $ 15 million investment in another airline. This is remarkable, as the second company has not yet applied for funding from the Provincial Growth Fund.

While the fund accepts applications only from people or organizations, the PDU can work with the candidates in the process.

The proposal went to a meeting of the Ministers of Regional Economic Development on August 13, 2018. The provincial development unit recommended ministers to invest up to 18 million dollars in convertible banknotes (which are a percentage of ordinary shares) in one airline . ,

Ministers seemed sufficiently interested in the proposal to ask for more information, even though they were worried about the precedent the proposal would put forward.

A briefing from the Department of Transport and Ministries of Transport, Ministries Robertson, Tifford and Jones, before the next meeting on December 6, marks some enthusiasm.

"Regular ministers indicated they wanted to consider the proposal in the context of the regional air link analysis and noted some high-level concerns about the precedent effects."

National Development Area spokesman Paul Goldsmith said the Air New Zealand government's shareholding should make a pause.

KEVIN STENT / COMPUTER

National Development Area spokesman Paul Goldsmith said the Air New Zealand government's shareholding should make a pause.

The proposal was overthrown at the ministerial meeting on regional economic development on 6 December 2018. Jones said that despite his desire to continue, his colleagues are less enthusiastic.

"Whistle I personally was very interested in avoiding a situation where aviation link would be weakened, at the end of the day these are decisions that are made in the context of the consensus. There was no consensus, so he died, "Jones said.

"Actually, I am a lousy spirit, I wanted the process to continue, but I live in the process of the four ministers," he said.

Jones has confirmed that the second airline has not been told that the PDU has identified it as a potential investment due to commercial sensitivity.

The Council notes significant concerns on the part of the Ministry of Finance and the Ministry of Transport. In particular, he notes skepticism about the application for funding from a company that has not yet sought funding from PGF.

"[The company] has not applied for funding from PGF, and we have not seen any analysis of what benefit would have provided $ 15 million in this company, "the briefing said.

The briefing also noted the satisfaction of the Ministry of Transport from the current regional connectivity.

"The Minister's recent work on aviation services and the development of this market has not identified strong candidates for routes with significant current or potential unsatisfied demand."

It says that most communities are within 80 kilometers of the airport and most have at least one service for a major airline.

The government may acquire shares in regional airlines

The Council notes significant concerns on the part of the Ministry of Finance and the Ministry of Transport

MAARTEN HOLL / STUFF

The Council notes significant concerns on the part of the Ministry of Finance and the Ministry of Transport

Although this special offer was not able to withdraw, Jones does not rule out the use of PGF funds to acquire units in other regional airlines. PGF funds can also be used to subsidize certain routes.

Jones said the Ministry of Transport was sent to complete the regional connectivity policy. This work will soon be presented to the ministers of regional economic development.

Jones did not exclude this, including proposals to acquire shares in regional airlines, although in view of the clear skepticism of the Ministry of Transport to acquire regional airlines, further purchases seem unlikely.

Ministry of Finance and Transport against the Provincial Development Unit

The documents also reveal some tension between the system of financing the SGI and the freer market of the Ministry of Transport and the Ministry of Transport. According to him, if the investment is viable, companies should be able to obtain funding from private creditors, not from the state.

"[W]We expect that if a second or third airline can identify the market opportunities that would allow them to use, they should be able to demonstrate this potential to creditors, "he said.

The briefing indicates that any funding should be tied to specific services and not to airlines as a whole.

"Any such subsidy basis will apply to certain routes and any subsidy should be targeted to ensure the provision of a particular service," he said.

"The Ministry of Finance and the Ministry of Transport do not agree with the position of the Provincial Development Department that subsidizing second-line airlines will necessarily build trust and investment in the regions so their economies will grow or it is the most effective approach to boosting growth, "he said.

The document also expressed concerns that the use of PGF financing for debt repayment would have no "direct benefit to the regions".

Ministries also expressed concern about the information provided to the airline in which the PDU wanted to invest. According to him, the company's rating "does not look reliable" and its forecasts are not "credible".

"This shows a predictable level of profitable substantially above historic levels without providing a basis for the increase," the report said.

He also noted that the PDU did not show any analysis of the other airline in which it wants to invest.

The government already owns a share of Air New Zealand's largest airline. This was acquired by Clark's government. Following an unsuccessful takeover of Ansett's now defunct airline, the government acquired a 82% stake in Air New Zealand for 885 million dollars. This shareholding was reduced to 52% under the key government.

National Regional Development Spokesman Paul Goldsmith said the government's shareholding in Air New Zealand should make a pause.

"It's strange for the government to consider going into a business to compete directly with the one it already has – Air New Zealand," Goldsmith said.

"I'm glad the Council of the Ministry of Finance was listening," he said.

Jones criticized Air New Zealand's commitment to regional connectivity in the past. Last year, he proposed President Tony Carter to withdraw after the airline shut down services on the coast of Capi. Jones also said Chief Executive Officer Christopher Lukson should stay out of politics.

This story was originally published at Newsroom.co.nz and is reissued with permission.


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