State owned companies must act in the national interest

In the wake of the foolish decision of Air New Zealand to operate a charter flight to ferry Australian troops on their way to the war in Iraq, Fran O'Sullivan has questioned whether a publicly listed company can be expected to uphold 'national interest' considerations.

Given the status of Air New Zealand as 'national flag carrier' the actions of the airline are more likely to reflect on New Zealand than other companies. Aviation can be a boom and bust business, but it is in New Zealand's interest to ensure we always have an airline. While I do not want to see any State Owned Enterprises (SOEs) sold, it could be said that there are stronger reasons for turning Air New Zealand into an SOE, than would be the case for many existing SOEs.

The Companies Act requires directors to act in the interests of all shareholders, not just the majority owner. In the case of Air New Zealand, some would argue that, in effect, the airline has been acting more in the interests of its minority shareholders for some time. If the Government is unable to ensure that the actions of entities that it owns do no contradict with public policy objectives, the value of public ownership is diluted.

In fact the company board have been diluting the Government's shareholding for some time, by issuing more shares to be bought up by private owners on the stock exchange. The proportion of Government ownership has dropped by 82% in October 2001 to 76% now. This is nothing but privatisation by stealth.

The current issues surrounding Air New Zealand are also relevant to more open privatisation threats. Since 2005 the National party have made noises about selling partial stakes in state assets such as Solid Energy. Under such a policy it is likely that some SOEs would be turned into companies with a similar structure to Air New Zealand. The current situation with Air New Zealand, where the Companies Act places restrictions on its ability to act in the national interest is a very good demonstration of why partial privatisation is a really dumb policy.

Of course the Nats may well have designed the policy to fail in this way, in an attempt to create a situation where they can push the case for full privatisation. Its a policy that could be compared to a Trojan horse - made of wood and full of borer.