Air New Zealand (ANZ) inched closer to an equity deal with Qantas last week when chairman John Palmer said there was "a general recognition within the company that its current form is not a long-term option".

The carrier reported an operating profit after tax and before unusual items of NZ$39 million ($18 million) from continuing operations - but a net loss of NZ$319 million for the year, mostly due to the NZ$389 million costs of its separation from Ansett, which collapsed last year.

The company's operating surplus before unusual items and tax rose 34% to NZ$33 million over last year. Revenues fell 9.5% to NZ$3.62 billion, with losses partially offset by an 11.3% cut in operating expenditure and by favourable foreign exchange rates and fuel prices.

With the Ansett costs now written out of ANZ's accounts, its second-half performance showed a significant upturn. However, Palmer said the carrier was still recovering from a major failure of previous strategy that left it with a weak balance sheet and poor profitability, and is operating in a volatile industry that is under intense pressure. "Under these circumstances, the board is compelled to make changes to strengthen the company, and would be foolhardy if it ignored any potentially valuable option. That is why we are seriously discussing the potential for a strategic partnership with and equity investment by Qantas," he said.

Chief executive Ralph Norris says that although negotiations with Qantas are continuing, "a range of other options" is also being considered. Norris is also preparing a "standalone strategy" if talks do not cement a Qantas equity deal.

Source: Flight International