They have currently assigned ACC to play the market and they do it with quite a lot of success. How many companies on the NZX has ACC not taken a stake in at one time or another.
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Heres the article i extracted from. hard to criticise it.
The Crown's Investment in Air New Zealand
Published 16 May 2016
Part 1 of 3 of a Treasury Staff Insights: Rangitaki article by Juston Anderson
On 18 January 2002 the New Zealand Government invested $892 million in Air New Zealand, giving the Crown an 82% ownership stake in the company. A further $149 million was invested in Air New Zealand in a rights issue in December 2004, taking the total invested by the Crown to $1,042 million.
So what financial returns has the Crown received for this investment?
Using an internal rate of return (IRR) calculation, I estimate that the Crown has received a return of 8.4% per year[1] from its shareholding in Air New Zealand, as at 9 May 2016.
Below, I explain how I arrived at that figure.
Two subsequent blog posts will look at some implications of this analysis:
- how movements in Air New Zealand's share price affect the IRR calculation
- separating the IRR into realised and unrealised returns, and why this matters
- the impact on the IRR of the Crown's sale of some of its shares in Air New Zealand in November 2013
Is 8.4% a "good" return?
An internal rate of return can be used to compare two or more investments to each other; it doesn't tell you whether an investment was "good". And "good" is not really a term that an investment advisor would use, as it is a value judgement.
You could argue that 8.4% is greater than the Crown's cost of borrowing over the period from 2002 to today, and on that basis the investment was "good". This would not be a sound argument, for a number of reasons - for example, it ignores risk.
A better benchmark than the cost of borrowing would be to consider market estimates of Air New Zealand's cost of equity. This is the return that market analysts think that shareholders in a company would need to receive, to compensate them for the risks of investing in that company. A few years ago, market estimates of the cost of equity for Air New Zealand were between 12% and 16%, somewhat higher than the calculated IRR.
But of course the Crown is not a market investor, and the Crown's motivations for investing in Air New Zealand were not purely financial. The Crown had other reasons for investing[2]. And the Crown did not invest on the expectation that it would sell the shares later and make a profit, as a private investor buying shares would.
Calculating the internal rate of return
To work out an internal rate of return on an investment, you need to know four things:
- how much was initially invested
- any cash returns you have received from the investment
- the current market value of the investment, and
- the dates when all of the above happened.
Returns from Air New Zealand
Since January 2002, the Crown has received around $869 million[3] in dividends from Air New Zealand. The dividends are shown in the graph below.
Chart 1: Dividends to the Crown from Air New Zealandhttp://www.treasury.govt.nz/publicat...anz-pt1-01.pngSource: Own calculationsThe blue bars are ordinary dividends, while the red bars show special dividends. The green bars are dividends paid on Air New Zealand's redeemable preference shares, which were issued to the Crown as part of its investment in Air New Zealand in 2002. They converted to ordinary shares in January 2005.
In November 2013, the Crown reduced its shareholding in Air New Zealand by selling around 221 million shares (reducing the Crown's shareholding in the company to around 53%) for which it received $365 million of cash.
So the total cash that the Crown has received is $1,234 million[4].
The market value of the investment
The Crown's shareholding in Air New Zealand had a theoretical[5] value as at 9 May 2016 of around $1,341 million[6].
The dates when this happened
We need to know when all of this happened so that we can take account of the time value of money. This is the principle that a dollar today is worth more than a dollar at some point in the future. You could invest that dollar now, and with the income from the investment, you would (hopefully) have more than a dollar in the future. For the same reason, a dollar that you received in the past is also worth more than a dollar received today.
Ignoring the time value of money, the Crown invested $1,042 million in Air New Zealand, has received $1,234 million of cash, and currently holds an investment in the company worth $1,341 million.
That might sound like a significant return, but it was over a fourteen year period. To put that into perspective, if you invested $1,000 in a bank term deposit that paid (say) 5% interest (after tax), and reinvested all of the interest payments, then after fourteen years you would have almost $2,000 in the bank.
The attached spreadsheet shows the details of the IRR calculation which, taking account of the time value of money, tells us the Crown's return on its investment in Air New Zealand was 8.4% a year.
Well yes and no.
If the ACC are investing then the return goes to the ACC - not hip replacements.
If the Cullen fund does it then the returns will be used some time in the future for people retirement.
It could be said that it means the govt then has money available for hip operations since they don't have to supply the money to ACC etc themselves.
Seeing as its repeat day, where people seem to be litigating their perspective again for some reason...I have no problem whatsoever with Treasury's strict financial return on investment calculations but there are serious dividends that the government will miss out on in the share of PAYE, approx. $300m every year, income tax and social cost to Kiwi's as another airline would likely price gouge hapless Kiwi's.
The Government has received BILLIONS of dollars of tax revenue and PAYE revenue from AIR over the period of Treasury's analysis.
Our dear fiend Marilyn assures us the free market knows best and another airline would step in to provide the necessary competition to ensure domestic airfares were reasonable, yeah right, time for a Tui.
The put option Marilyn refers too is a necessary evil to ensure stability and reliability of transportation within the N.Z. economy which the N.Z. Govt also benefits from.
Hows the share price going today
what are flying conditions like at your place?
Stealing from its own citizens. The Govt is ripping us kiwis off (including this hypocrite:) with esp domestic fares ; unless you are on a main route and can pick up the cheap fares on their time frames which seldom fits.They sure are looking after us; yeah right hand me and Marylyn a Moet. Sell their share I reckon and have a few caveats in place re kiwi employees etc. Time to leave business to run businesss. And if this great current management (who reward themselves over handsomely) did stuff up again well then the Govt could do it all again. sorta of a virtuose möbius loop:t_up:
Zodiac vows a lavatory Revolution
Might be useful for this thread :).
Best Wishes
Paper Tiger
LOL had to book a last minute flight for my Mum to travel to Dunedin tomorrow for a funeral later this week...AKL to Dunedin tomorrow at 4.50 p.m. (business hours flight) $119 and back on Easter Tuesday $229 during peak Easter and school holiday time. Absolute theft...yeah right, definitely time for a Tui :) She's nearly 88 years old and really enjoys the superior service AIR offer...never too old to enjoy a good thing :t_up: She can't stand Jetstar either...must run in the blood..or maybe their service and aircraft really are third rate !
Was travelling from Auckland to Napier today. Had two failed landings in Napier and the flight diverted back to Auckland. We were in the AIR for three hours!!! We got offered to try fly again at 5pm on another floghr and my answer was no thank you so I took the flight credit.
Thats not a good enough reason to move to Auckland i never want to become a JAFA.
Drink your Tui JAFA, I'm having a nice Pinot Gris myself.:t_up: