Saturday, May 27, 2006

Air NZ troubles caused by an accounting loss

I'm guessing this is not really a revelation for most people who tracked the development closely - but I for one did not realise that the $600 million dollar loss that Air NZ suffered (causing its shareprice tailspin and subsequent Government bailout) was actually primarily caused by a change in accounting policies.

Air NZ changed their recognition of taxation liabilities from a partial basis to a complete basis (optionally) which increased their deferred tax liability by $786 million (compare that figure again to the total loss above...) and increased the debt to assets ratio from 34% to 66% - causing issues in a number of their debt covenants.  Now while one would have to question the internal decision to optionally cause themselves so much pain - it also casts into start relief the decision of the Government to spend taxpayers money "bailing" them out.  This is a company that effectively chose to make a loss, and subsequently gained millions of dollars in taxpayer funded capital injections as a result.  Hardly indicative of an efficient markets hypothesis...

However more interestingly is that NZ is currently changing / has changed its accounting standards.  One change (by moving from SSAP-12 to NZ IAS 12) will make the complete basis compulsory  (That's right Air NZ would now no longer have the choice and those losses would at least have been forced on them...).  The question in my mind is how many other companies are about to have a big shock as a similar treatment occurs to their balance sheets.  Or without the Government hyperbole will we even notice as it does?
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Beware the undeclared remainder

The current AADirections magazine has an interesting article on crime and crime reduction policies, however one quote from Rick McKee (strategic Advisor on Crime reduction with the Policing Development Group) caught my eye:

"About 10% of offenders are responsible for half of all crime, so if a road patrol turns over a known offender in a hot location, then 'alarm bells' go off. Even if we can't legally search the car, we have on record that this person was in this location at this time and, if it turns out later that crimes have been committed in the area we know who to start looking at"

While I applaud the efforts gone to for this type of approach, and also believe the logic behind it, what can be dangerous is the use of the above statistic to justify it. Mainly because the statistic probably is not for "all crime" as Rick probably believes, but more likely "all solved crimes". Which means that it can become both a self-fulfilling statistic, and an impediment to catching new offenders. While initially this will lead to more crimes being solved; it will lead to more crimes being solved where the offender is already known (and flagged as one of the "high risk" 10/20%) - meaning the 10% responsible for 50% of crime will trend upwards. If the statistic is watched and continued to be a justification in the use of these techniques then the mind set can increasingly move towards only concentrating on known offenders - which then means the statistic continues to trend upwards as less crimes with new offenders are caught... My main point here is actually nothing to do with crime - it is a warning against taking any statistic at face value.

The above stat has probably had no spin of any kind applied to it, and the person delivering it believes in what he is saying. However in interpreting a stat we must always ask what is the undeclared remainder of the original set - in this case the unsolved crimes - and how can that affect the interpretation and movement of the statistic. What makes this more difficult is that it needs to be realised that the undeclared remainder is frequently not known by the reporter of a statistic, and is as likely to be through a genuine simplification - rather than deliberate obfuscation.
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Tuesday, May 23, 2006

Origin shows what the Air New Zealand bailout should have been

Hattip: NZ Herald
What are the key differences between the Air New Zealand bailout and Origin's "success story"?
Origin was actually in far greater financial strife than AirNZ ever was - in Origin's case bankruptcy had been filed for - and yet they have been able to use the private financial markets to fund their turn around.  There was no need for the Government to get involved and (yet again) spend the publics money in the bail out of a troubled business.

Origin Pacific has demonstrated that where there is a business which at its heart is competitive and able to make money, the markets will value this and keep it afloat.  If the business is not viable; then it is not worth private or public finance to keep it afloat.

Of course if the Government was not so antagonistic towards high wealth individuals, the creation of wealth or the individual investment of wealth then Air New Zealand may have been able to find the financing it sought locally far earlier and avoid the later strife that it encountered.
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A good sporting weekend

Well the results of the teams I support all seemed to swing the right way this weekend:
Warriors finally play some real football and dismembered the Tigers (found somewhere to download the game after missing it on Prime... yay for Bigpond)
Hurricanes finally make me proud and make it into a final - now they've just got to wipe the smug smiles off the Crusaders faces.  Damn - was kind of hoping the Bulls were going to line up Daniel a bit better, they didn't even give him a touch up!

And most importantly we won our soccer 6-0, not a bad performance if I do say so myself ;-)
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