Air New Zealand under review over controversial engine MRO work for Saudi Arabia

Company also confirms government will participate in equity raise

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Use this oneAir New Zealand said it is now reviewing the company’s controversial participation in doing engine work for a Saudi Arabian naval vessel. An Air New Zealand unit that specialises in gas turbine repairs did the work for a third-party and Air New Zealand says it didn’t know the work was being done for Saudi Arabia.

Air New Zealand Chairman Therese Walsh says as well as commissioning a review by independent external advisers PwC, the airline has appointed a QC to the review team. “Both our internal review and the external independent review being undertaken by PwC to determine what happened and what needs to be changed are underway. We have now appointed QC Mike Heron to review the licensing requirements for exporting these specific types of engines with the Ministry of Foreign Affairs and Trade. We expect to hear the outcome of that review in the next week. The full audit will likely take at least two weeks because we will be going over all the files – in some cases manually kept or paper records – even more deeply to ensure we haven’t missed anything. This timeframe will also ensure our external advisors PwC have time to review the findings before the final report is reviewed by the Board at the end of February. Our board will then provide an update on the findings after it has met.”

Air New Zealand Chief Executive Officer Greg Foran says further progress has been made on identifying which country or territory militaries the Gas Turbines business has previously carried out engine repair work for, and that ensuring this is accurate has been critical. “Over the past decade, engine repair work has been completed for navies in Australia, Canada, New Zealand, Norway, Taiwan, Turkey, the United States and the recent one-off piece of work for the Royal Saudi Navy. The type of work undertaken for these customers includes the overhaul and repair of gas turbines, the major components of these being gas generators or power turbines for navy ships. At this time Gas Turbines has engine repair work underway in its Auckland workshop for the Australian, Canadian, Taiwanese, Turkish and United States navies and this work is under review. We are continuing to move forward with the thorough assessment of our past records to ensure we have examined all of the data, but at this stage in the process these are the navies we are aware of having carried out engine overhaul or repair work for.”

New Zealand Prime minister Jacinda Ardern has asked for the Ministry of Foreign Affairs and Trade to investigate the issue as well. Ardern said the contract arrangement was “completely wrong” and “it just doesn’t pass New Zealand’s sniff test”.

Meanwhile, Air New Zealand also announced that the government will retain its majority stake in Air New Zealand by participating in a capital raise this year, Finance Minister Grant Robertson said. At present, the government owns 52 percent of the airline and has made available a NZ$900 million loan that could be converted to equity. The airline is burning through between NZ$65 million and NZ$85 million in cash a month and has said it wants to minimise its reliance on the taxpayer loan – with interest rates of up to 9 percent – by going to the market to raise capital. By the end of last September, the airline had drawn down NZ$110 million of the government loan.

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