Air New Zealand 2011 Annual Report Download - page 49

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25. CONTINGENT LIABILITIES
GROUP
2011
$M
GROUP
2010
$M
COMPANY
2011
$M
COMPANY
2010
$M
Uncalled capital of subsidiaries - - 12 12
Guarantee of subsidiary operating lease commitments - - 876 1,398
Guarantee of subsidiary indebtedness and performance - - 1,262 1,090
Letters of credit and performance bonds 34 49 28 40
34 49 2,178 2,540
All significant legal disputes involving probable loss that can be reliably estimated have been provided for in the financial statements.
There are no contingent liabilities for which it is practicable to estimate the financial effect.
Air New Zealand has been named in five class actions. One, in Australia, claims travel agents commission on fuel surcharges and two
(one in Australia and the other in the United States) make allegations against more than 30 airlines, of anti competitive conduct in
relation to pricing in the air cargo business. The other two class actions (in the United States and in Canada) allege that
Air New Zealand together with many other airlines conspired in respect of fares and surcharges on trans-Pacific routes.
All class actions are being defended.
The allegations made in relation to the air cargo business are (and in the case of the European Union and United States were) also
the subject of investigations or proceedings by regulators in New Zealand, Australia, the United States and the European Union. On 15
December 2008 the New Zealand Commerce Commission filed proceedings against 13 airlines including Air New Zealand alleging
breaches of the Commerce Act 1986. On 17 May 2010 the Australian Competition and Consumer Commission filed proceedings
alleging breaches of the (Australian) Trade Practices Act 1974.
A formal Statement of Objections relating to alleged conduct in the air cargo business was issued by the European Commission in
2007 to 25 airlines including Air New Zealand. Air New Zealand responded to this Statement of Objections and on 9 November 2010
the European Commission advised that it had closed its file in relation to Air New Zealand, following consideration of the responses.
The Company has not paid a fine nor incurred any penalty in relation to the European Commission investigation.
On 6 July 2011 Air New Zealand received a letter from the US Department of Justice confirming, in relation to the Air Cargo
Investigation, that “Air New Zealand is no longer a subject or target of the ongoing grand jury investigation”. Air New Zealand has paid
no fine nor incurred any penalty in relation to the US Department of Justice Air Cargo Investigation.
Air New Zealand is defending the remaining proceedings. In the event that a court determined, or it was agreed with a regulator, that
Air New Zealand had breached relevant laws, the Company would have potential liability for pecuniary penalties and to third party
damages under the laws of the relevant jurisdictions. No other significant contingent liability claims are outstanding at balance date.
There is some uncertainty regarding the tax outcomes associated with the Company’s contracts to purchase aircraft. The treatment
adopted in the financial statements is consistent with advice received from the Inland Revenue Department to date. If the Inland
Revenue Department was to modify its position, the potential impact would be a temporary difference giving rise to a deferred tax asset
and current tax liability estimated to be in the region of $100 million. In the unlikely event this temporary difference arose it is expected
to reverse in the short to medium term.
The Group has a partnership agreement with Pratt and Whitney in relation to the CEC in which it holds a 49 percent interest (Note 13).
By the nature of the agreement, joint and several liability exists between the two parties. Total liabilities of the CEC are $77 million (30
June 2010: $70 million).
The Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group.
Air New Zealand treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be
required to make a payment under the guarantee.
The Company guarantees aircraft end of lease obligations of Air New Zealand Aircraft Holdings Limited and New Zealand International
Airlines Limited.
AIR NEW ZEALAND ANNUAL FINANCIAL RESULTS 2011