Further Decisions

The Treasury

Air New Zealand Sell Down

Release Document

19 December 2013

www.treasury.govt.nz/publications/informationreleases/airnewzealand/selldown

Key to sections of the Official Information Act 1982 under which information has been withheld. Certain information in this document has been withheld under one or more of the following sections of the Official Information Act, as applicable:

[1] 9(2)(a) - to protect the privacy of natural persons, including deceased people

[2] 9(2)(b)(ii) - to protect the commercial position of the person who supplied the information or who is the subject of the information

[3] 9(2)(f)(iv) - to maintain the current constitutional conventions protecting the confidentiality of advice tendered by ministers and officials

[4] 9(2)(g)(i) - to maintain the effective conduct of public affairs through the free and frank expression of opinions

[5] 9(2)(h) – maintain legal professional privilege

[6] 9(2)(i) - to enable the Crown to carry out commercial activities without disadvantage or prejudice

[7] Information is outside the scope of the release or not relevant

Where information has been withheld, a numbered reference to the applicable section of the Official Information Act has been made, as listed above. For example, a [2] appearing where information has been withheld in a release document refers to section 9(2)(b)(ii). In preparing this Information Release, the Treasury has considered the public interest considerations in section 9(1) of the Official Information Act.

THE TREASURY Kaitohuwlm Kaupopa Rawo

Treasury Report: Government Share Offers - Further Decisions

[Date: J1 November 2013 ·-·---- } Report No: IT2013/2754

Action Sought

Action Sought Deadline Prime Minister Read this report. Friday, 8 November 2013 (Rt Hon John Key) Agree to proceed with the transaction. Minister of Finance Read this report. 8 am, Tuesday, 5 November 2013 (Hon Bill English) Sign the attached delegations. Tuesday, 5 November 2013 Agree to proceed with the Friday, 8 November 2013 transaction. - · - - I Associate Minister of Finance Read this report. Sam, Tuesday, 5 November 2013 (Hon Steven Joyce) Agree to proceed with the Friday, 8 November 2013 I transaction. Minister for State Owned Read this report. 8 am, Tuesday, 5 November 2013 Enterprises Sign the attached delegation. Tuesday, 5 November 2013 (Hon Tony Ryall) Agree to proceed with the Friday, 8 November 2013 transaction. ·-··------···

Contact for Telephone Discussion (if required)

Name Position Telephone 1st Contact

Simon Gilmore Senior Analyst, 04 917 6197 ~ -1' Commercial Transactions - Group Chris White Director, Government 04 890 7256 ~ Share Offers Programme -- -·

Actions for the Minister's Office Staff (if required)

Return the signed r~-po_rt_t~-T~easury. ~ Return the signed delegations to Treasury. ---- 2 5 NOV 2013 ' '

Enclosure: Yes

(Delegation- MOF and MSOE-Odyssey-Secretary to the Treasury-Delegation:2774972) (Delegation-Minister of Finance-Secretary to the Treasury-Project Odyssey:2774544) (CDDWG Draft Report 31-10-13:2775053) (CDDPM draft 5:2775996) (Derek Johnson - Draft Opinion to Ministers (draft 311013):2775054)

" 1 November 2013 SE-1 -3-6

Treasury Report: Government Share Offers -Further Decisions

Executive Summary

Background

On 2 September Cabinet agreed that the preferred method for the Air New Zealand sell down would be via block trade using a book build and involving retail investors. Cabinet further authorised joint Ministers, comprising the Prime Minister, the Minister of Finance, the Associate Minister of Finance (Hon Steven Joyce), and the Minister for State Owned Enterprises to determine the final timing of the transaction and to make other decisions necessary to complete the sell down [Cab Min (13) 30/08 refers].

Timing

Treasury recommends that Ministers proceed with the transaction from Friday 8 November Tuesday 12 November 2013 with Friday 15 November- Tuesday 19 November 2013 being reserved as backup dates if final due diligence and an outstanding legal issue related to an ASX cleansing notice cannot be resolved. Treasury believes that November is a good time to proceed with the trahsaction as:

• The Meridian IPO is complete and the Genesis IPO is yet to get underway.

• Market conditions are positive with Air New Zealand currently trading at or just off a five year market high.

• There is currently positive sentiment about Air New Zealand in the market place with 5 out of the 6 major braking houses having buy ratings on Air New Zealand.

If Ministers agree with Treasury's recommendation, final logistical arrangements will be put in place to proceed with the transaction. A high level overview of how we expect the transaction to unfold is as follows (dates will move out a week if the reserve dates are used):

Date What happens Tuesday 5 November Treasury discusses this report with you at the regular GSO catch up. If you are supportive of proceeding, final logistical arrangements will be put in place. Delegations signed in preparation for the transaction Wednesday 6 November - Final briefing on the outstanding due diligence issue and Thursday 7 November ASX cleansing issue with advice on whether the transaction can proceed from 8 November or not. Friday 8 November Ministers to provide sign off to proceed with the transaction. 6pm (after market close)- RFP sent to members of the JLM panel [Initial media announcement made} Saturday 9 November Procurement of JLM(s} takes place in Auckland Sunday 10 November Planning for the transaction Monday 11 November Trading halt announced (9am) and book opens (10am) Tuesday 12 November Book closes (5pm). Briefing with Ministers on outcome (6.30 pm), pricing and allocation decisions made (8pm) and press announcements (from 9pm} Wednesday 13 November Trading halt lifted - trading resumes on delayed settlement basis.

T2013/2754 : Government Share Offers - Further Decisions Page 3 Offer Structure

Treasury recommends that the Crown should aim to sell around 20% of Air NZ in this transaction. However, Ministers should preserve the flexibility to sell less than 20% in case insufficient New Zealand demand emerges. Final decisions on the structure of the offer will need to be held off until the appointment of the JLM(s) and detailed design of the transaction with them on Sunday. Treasury's current view is that the transaction should be marketed as an offer of 1 0% of the company with option to extend the offer to 20% based on demand. In addition to providing flexibility, this could also help stimulate demand and favourable pricing tension by signalling a potential shortage of stock. If insufficient New Zealand demand emerges at this time, it may be possible to execute a second transaction in 2014 following a similar process to the one proposed here. Ministers will be presented with these options at the allocation discussion on Tuesday night.

New Zealand Ownership

As approximately 27% of Air New Zealand is already listed, achieving the 85% New Zealand ownership target is not as straight forward as it has been for the IPO processes. Because Treasury is unable to seek the assistance of Air New Zealand in this process, it is not possible to get a detailed, up-to-date understanding of the existing share register and the percentage of the company that is currently foreign owned.

In May 2013 Deutsche Bank in its capacity as Crown Advisor provided analysis on the then current ownership of Air New Zealand based on publicly available information. This analysis concluded that 9% of Air New Zealand was foreign owned at that point in time and that the ownership of a further 6.2% was not possible to establish. In the circumstances this is the best data available to the Crown, and on this basis Ministers have indicated that they are comfortable proceeding on the basis that a further 6% is therefore available for sale to foreigners while still complying with the government's 85% New Zealand ownership target. 6% of Air New Zealand represents 30% of the total shares being offered.

Due Diligence

Treasury has undertaken a targeted due diligence process in preparation for this transaction. At the date of this report, there is one outstanding issue 1 • ·

. _ . . _ . We will report to you midway through next week on the status of this issue and whether it prevents the Crown from proceeding with the transaction. If by then this issue is still not addressed it may be necessary to delay the transaction until the reserve dates of 15- 19 November.

A draft due diligence report, a draft due diligence process memorandum and a draft opinion from Derek Johnston are attached to this report for your information, which as~es there are no outstanding issues arising from the due diligence. A final version (if the ·ci: _ . 1 issue can be resolved) will be sent to you early next week ahead of any decision to proceed with the transaction on Friday.

ASX Cleansing Issue

Air New Zealand is listed on both the NZX and the ASX. Treasury is working through an issue under Australian Securities Law that prevents Australian institutions from selling shares on the ASX to any Australian retail investor for a period of 12 months unless the Crown (as a major shareholder) and Air New Zealand issue a cleansing notice prior to the transaction. Before issuing such a cleansing notice, the Crown would need to seek assistance from Air New Zealand. If we wish to proceed with a block trade and avoid the need to produce an offer document, such assistance is prohibited under the New Zealand Securities Act.

T201312754 : Government Share Offers- Further Decisions Page4 Treasury is applying for an exemption to the requirement for a cleansing notice from the Australian Securities and Investment Commission (ASIC), but the timing and outcome of this is still uncertain and may require the transaction to be delayed.

Additional Decisions Required

This report also asks Ministers to:

• delegate authority to the Secretary to the Treasury to sign any documentation necessary to complete the sell down (Minister of Finance and Minister for SOEs only);

• delegate to the Secretary of the Treasury authority to grant an indemnity to the JLM(s) appointed to the transaction (Minister of Finance only); and

• sign an amended Confidentiality Deed between Air New Zealand and the Crown (Minister of Finance only).

Recommended Action

We recommend that you:

All Ministers a note that, on 2 September, Cabinet authorised joint Ministers (the Prime Minister, Minister of Finance, Associate Minister of Finance (Hon Steven Joyce) and Minister for State Owned Enterprises) to determine the final timing of the Air New Zealand transaction and make any other decisions necessary to complete the sell down. b note that Treasury has undertaken a targeted due diligence process in preparation for

this transaction and that there is one outstanding issue in this process 1 • •· ~ ~ c note the draft Crown due diligence process memorandum, draft Crown due diligence working group report and a draft opinion from Derek Johnston attached to this report. d note that Treasury is working through an issue under Australian Securities Law that prevents Australian institutions from selling their shares on the ASX to any Australian retail investor for a period of 12 months unless the Crown and Air New Zealand issue a cleansing notice prior to the transaction. e note that we will discuss this report with you at the Government Share Offers Catch up meeting on Tuesday 5 November. f note that Treasury will provide further briefings to you on due diligence and the ASX cleansing notice issue next week including recommended alternative dates for the transaction if these are necessary. g agree, subject to receiving a final clear due diligence report, a final opinion from Derek Johnston and resolution of the ASX cleansing notice issue prior to Friday 8 November 2013, to proceed with the Air New Zealand transaction between 8 November- 12 November 2013.

Agree/disagree. Agree/disagree. Prime Minister Minister of Finance

Agree/disagree. Agree/disagree. Associate Minister of Finance Minister for State Owned Enterprises

T201312754 : Government Share Offers- Further Decisions Page 5 Minister of Finance and Minister for SOEs h agree to the execution of the attached delegation to the Secretary to the Treasury authorising the Secretary to the Treasury to sign any documentation necessary to complete the sell down.

Agree/disagree. Agree/disagree. Associate Minister of Finance Minister for State Owned Enterprises

sign the attached delegation to the Secretary to the Treasury.

Minister of Finance j agree that the provision of the indemnity contained in the Mandate Letter is necessary or expedient in the public interest; ~rlisagree. ~of Finance k sign the attached delegation to the Secretary to the Treasury authorising the Secretary to the Treasury to exercise your power to provide the indemnity in the Mandate Letter on behalf of the Crown, or any amended version of the indemnity, subject to any changes being non-material changes

Agree/disagree. Minister of Finance

sign the attached Confidentiality Deed between Air New Zealand and the Crown.

Agree/disagree. Minister of Finance

Chris White Director, Government Share Offers Programme

Rt Hon John Key Hon Bill English Prime Minister Minister of Finance

Hon Steven Joyce Hon Tony Ryall Associate Minister of Finance Minister for State Owned Enterprises

T2013/2754 : Government Share Offers - Further Decisions Page6 Treasury Report: Government Share Offers- Further Decisions

Purpose of Report

1. This report seeks your approval to proceed with the Air New Zealand sell down via a block trade involving retail investors as agreed by Cabinet on 2 September [CAB Min 30/8]. Treasury's advice is that, subject to a clear due diligence report, the provision of Derek Johnston's final opinion, resolution of an outstanding legal issue relating to an ASX cleansing notice, and market conditions remaining favourable, this transaction occurs between Friday 8 November- Tuesday 12 November 2013, with 15-19 November 2013 being a back up if more time is required to resolve those issues.

Background

2. Cabinet approved the use of a block trade as the preferred method for the sell down on 2 September 2013 [Cab Min (13) 30/8]. Cabinet also delegated the timing and final details of this transaction to Joint Ministers consisting of the Prime Minister, Minister of Finance, Associate Minister of Finance (Hon Steven Joyce) and the Minister for State Owned Enterprises. Minsters were to take into account market considerations and programme considerations in making this decision.

3. A block trade involves selling shares off market over a short period of time without the production of a prospectus. Unlike the Government share offer initial public offerings (IPOs), this method does not involve direct marketing to the public but instead relies on brokers to distribute shares to retail investors (similar to the broker firm process in the Meridian offer). Therefore to participate in the offer an individual must have a broker relationship. This will limit the participation of some members of the public, [4J --

. . The institutional component of the process is similar to that of an IPO and involves a bookbuild.

4. As a result of choosing this method, the Crown has been unable to seek the assistance of Air New Zealand in preparing for the transaction due to restrictions in the Securities Act. These restrictions prevent companies actively assisting with the transaction if a full prospectus is not prepared. Air New Zealand therefore has not been consulted and is unaware of the likely timing or details of the transaction.

Market Conditions

5. Air New Zealand has had strong support on the market, especially over the last two weeks. The closing price of the stock on Thursday 31 October was $1.61, just off the five year high of $1.69 reached on Friday 25 October.

6. A graph and table displaying the recent trading price of Air NZ stock is displayed below:

T2013/2754 : Government Share Offers- Further Decisions Page 7 Air New zealand Limited (NS) Or .AIR.NZ m o:~21w 1.70 I 5-day MA 120-dayMA 1.ffi

1.00

1.56

1.00

1.46

1.40

1.3>

1.25

1.20 Nov-12 Jan-1 3 Mar-13 May-13 Sep.13 10.0 I Volume

~.0 ~

,,IJ,, ,IJ uill.lll,,.,,l . 11 .. ... ~1 1 1 1,, .. ,1 ,,1, l .1.II , ,,,1, !ll.. lm1.. .Lilli, l,J lt,l., ,1 11Ji l .~,, 1li.ilt ...1 1, h,,, .... ,Ji...... 1..1," , 1.. "', ,. l,l llll l l ll ,l ful h LI I II ~ I , ,, o.o

Date (2013) Cl osing Price 5 day average Thursday 31 October 1.61 1.64 Wednesday 30 October 1.63 1.64 Tuesday 29 October 1.62 1.64 Friday 25 October 1.69 1.62 Thursday 24 October 1.64 1.59 Wednesday 23 October 1.64 1.57

7. If the Crown could sell down the full 20% stake without a discount it would receive proceeds of $354 million based on the 31 October closing price. This compares favourably to the forecast proceeds from the Air NZ sale of $266 million at the outset of the programme.

8. However, usually block trades are priced at a discount to the final trading price. The table below details recent block trade transactions of NZX listed stocks and the discount to closing price that they have been sold at:

Date Stock Discount to final closing price 18 June 2012 Trade Me 2.8% 18 December 2012 Trade Me 6% 5 March 2013 Sky Network 7.2% 18 March 2013 Summerset Group 6.2% 17 May2013 Summerset Group 3.3% 25 October 2013 Metlifecare 6.6% Average 5.4%

T2013/2754 : Government Share Offers- Further Decisions Page 8 9.

10. Five out of the six major broking houses currently have Air New Zealand recommended as a buy. This indicates that there is still a reasonable likelihood that the share price could increase further over the next couple of months. It also indicates that there is currently a favourable view in the market place of the stock, and this increases the chances that the offer wi ll be able to secure strong retail support (necessary for the New Zealand ownership target). A table of current broker recommendations on the stock is displayed below:

Broker Current Target Price Recommendation Deutsche Craigs Buy $1.72 First NZ Capital Neutral $1.52 Forsyth Barr Buy $1.85 Goldman Sachs Buy $1.83 Macquarie Outperform $2.08 UBS Buy $2.02 Average $1.84

11. Air New Zealand is also selling at a discount to its industry peers as measured by key multiples (such as Enterprise Value/EBITDAR). This is the basis on which most of the commentators expect continued growth in the share price. However, commentators also note that the Crown's announced intention to sell down its stake is acting as an overhang on the stock and therefore limits potential price increases.

12. However, despite this positive sentiment, the aviation industry is notoriously volatile and therefore it is possible that the current favourable conditions .benefiting Air New Zealand could change at any time. First NZ is a notable contrarian to the upbeat view of future share price performance, with its current research note concluding the share price has reached its peak.

13. Treasury believes that market conditions are currently favourable and present a good opportunity to successfully execute the Sell Down. While it is possible that the share price could continue to appreciate there is no guarantee that this will be the case.

14. It is also important that the stock is viewed positively and looks like an attractive investment to successfully execute the Sell Down and achieve the other objectives of the Government Share Offers programme, such as widespread New Zealand ownership.

Programme Considerations

15. In addition to the market conditions, programme considerations also support proceeding with a transaction . With the Meridian offer now finished and the Genesis ~ -- -· - · - ·· . , the Air New Zealand transaction can take place without diverting resources and attention from another transaction in the programme.

T2013/2754 : Government Share Offers- Further Decisions Page 9 16. The listing of Meridian on 29 October has also provided the programme with some momentum, as the instalment receipts have been trading up on their issue price and the offer has generally met with a positive response from investors and business media. We believe this positive response will be beneficial for attracting retail demand to the Air New Zealand sell down.

Timing

17. Based on commercial and programme considerations, Treasury recommends that the sell down is conducted in the November window. We initially identified 3 possible dates that the transaction could occur in the windows 2-6 November, 8-12 November and 15- 19 November 2013.

18. The first date (2-6 November) was eliminated as it was too close to the Meridian transaction for trading price to be factored into decision making and also coincided with the Melbourne Cup public holiday in Australia.

19. Of the remaining two dates Treasury views the 8-12 November date as the best opportunity to execute the transaction. This date allows us to benefit from the strong initial trading in Meridian instalment receipts and also allows a 1 0 day gap between the completion of the transaction and the start of voting in the asset sales referendum.

20. At the time of writing there is still one potential due diligence issue and one legal issue relating to a requirement to issue a cleansing notice on the ASX. If these cannot be resolved in time for a transaction to take place between 8-12 November, Treasury recommends that 15-19 November is used as a backup.

21. If the transaction cannot be completed by the 15-19 November the last weekend of November (22- 26) is still a possibility if Ministers were prepared to do the sell down during the asset sales referendum period. Treasury would advise against moving any later than this as it moves the transaction outside the director trading window and is potentially too close to both Christmas and the end of the financial half year. We would then look to the next trading window (March 2014) to undertake the transaction.

ASX Cleansing Issue

22. At the time of writing Treasury is still working though an issue under Australian Securities law that requires a cleansing notice to be issued by both the company being sold and the vendor in a block trade transaction where the vendor has a controlling interest. As New Zealand securities law requires that the company does not actively assist the Crown with the transaction it is not possible to get Air New Zealand to issue this notice.

23. Without the notice being issued, Australian institutions participating in the Sell Down would be restricted from selling shares on the ASX to retail investors for a period of 12 months. Commercial advice from Lazard indicates that placing this restriction on Australian institutions would likely result in their non participation in the Sell Down, with a potential serious affect on international demand and therefore pricing tension.

24. There is provision in Australian law to seek an exemption from this requirement by applying to the Australian Securities and Investment Commission (AISC). Treasury is in the process of making an application to ASIC, but does not yet have an understanding of the potential timing required for this process.

T2013/2754 : Government Share Offers- Further Decisions Page 10 25. If a decision from ASIC to grant the exemption is not reached in time it will be necessary to delay the transaction. If an exemption is unable to be granted we may need to reconsider the approach to the transaction. Treasury will keep Ministers informed on this issue as it develops.

Proposed Weekend timeframe

26. The time line below indicates the proposed timeframe from now until the end of the transaction and what will occur on each day (assuming the transaction can take place on the current preferred timeframe -dates may move out one or two weeks or two as a result of the ASX cleansing notice issue or 1(2], (6] - due diligence issue as discussed elsewhere in this report):

Date What happens Tuesday 5 November Treasury discusses this report with you at the regular GSO catch up. If you are supportive of proceeding final logistical arrangements will be put in place. Delegations signed in preparation for the transaction Wednesday 6 November Final briefing on outstanding due diligence issues and - Thursday 7 November ASX cleansing notice issue. Friday 8 November Ministers provide sign off to proceed with the transaction. 6pm (after market close)- RFP sent to members of the JLM panel. [Initial media announcement made] Saturday 9 November Procurement of JLM(s) takes place in Auckland Sunday 10 November Planning for the transaction Monday 11 November Trading halt announced (9am) and book opens (1 Oam) Tuesday 12 November Book closes (5pm). Briefing with Ministers on outcome (6.30 pm) and pricing and allocation decisions made (8pm) and press announcements (from 9pm) Wednesday Trading halt lifted- trading resumes on delayed 13 November settlement basis.

Offer Structure

27. As authorised by Cabinet, the Crown can offer up to 20% of the shares on issue in Air NZ. However, to ensure that the a good price is received it is important that the Crown retains an option of selling a smaller proportion of shares if there is not sufficient demand to sell the whole 20% stake at an attractive price. If this materialises there is an option for the Crown to conduct a second block trade at a later point in time to sell any remaining shares.

28. Treasury's initial view is that we should go to the market with an offer of 10% of the shares currently on issue in Air New Zealand, with the option of selling an additional 10% if there is sufficient demand. This will encourage participants to submit their best price for fear of missing out, ~ · · · ......

I • ' • Treasury will test this view with the JLM(s) when appointed and proposes to maintain flexibility on the amount offered subject to this.

T2013/2754 : Government Share Offers - Further Decisions Page 11 29. If the offer is structured in this way there are three potential outcomes:

Outcome Likelihood Options Insufficient demand to sell Low Sell a yet smaller stake or do not 10% proceed with the sale. Further transaction in 2014 Sufficient demand to sell Medium Sell 10% of the shares on issue and 10% but not 20% conduct another block trade for the remaining 10% in 2014. Sufficient demand to sell Medium Transaction completed full 20% stake

30.

31 . Conducting two transactions may also have commercial advantages if the share price does continue to appreciate as discussed above. However, if demand is sufficient for the full 20% to be sold in one transaction at an attractive price, we are of the view that the full 20% should be allocated. This will avoid additional costs associated with an additional transaction. These options will be discussed with Ministers at the Tuesday night meeting when the results of the bookbuild are known.

New Zealand Ownership Target

32. Due to Air New Zealand already being a listed company, ascertaining New Zealand ownership is more difficult than with the other transactions that are part of the Government Share Offers Programme. A percentage of the existing free float will already be held by international investors meaning that it is not just a simple matter of calculating ownership based on the shares that the Crown is selling.

33. It is not possible to ascertain with any certainty the exact percentage of shares in Air New Zealand that are currently held offshore. While it is possible the access the current Air New Zealand share register, many holdings are held by nominee companies and it is not easy to look behind these holdings to determine underlying ownership. The only way Treasury is aware this can be done is with the assistance of the company, and it is not possible for the Crown to use this option, as this would be a breach of the restriction on the company providing assistance to the transaction under section 6(3) of the Securities Act. In addition, because the stock is listed, ownership will be changing on a daily basis meaning it is difficult to get an accurate understanding at any point in time.

34. In May this year, Deutsche Bank in their capacity as Crown Advisor did an analysis of Air New Zealand's ownership based on publicly available information. They estimated that the company was 9% foreign owned, with a further 6.2% being unable to be analysed. This analysis represents as good an indication as Treasury thinks it is possible to get on foreign ownership. Therefore we propose proceeding on the basis of this information to meet th.e 85% New Zealand ownership threshold. This will require limiting the number of shares that can be sold internationally to 6% of the shares on issue or 30% of the total stake that the Crown is proposing to sell down.

35. Treasury has alerted communications staff to this issue and it will be addressed in the communications on the transaction.

T2013/2754 : Government Share Offers - Further Decisions Page 12 Communications

36. A communications plan has been developed for the transaction, and the Treasury communications team is working with your offices on draft material that can be finalised quickly and released as key transaction milestones are reached.

37. Until a decision is taken to proceed, we recommend ministers continue to say that no decisions have been made around the timing of the transaction.

Due Diligence

38. As Air New Zealand is already listed on the NZX, the issues which arise in the context of the Sell Down differ from those which arose in the context of the Mighty River Power and Meridian Energy IPOs.

39. In the case of the Sell Down, the Crown may potentially be liable:

a) if there were a breach by the Crown of the insider trading prohibition under the Securities Markets Act 1988 (that is if the Crown were to undertake the Sell Down at a time at which it knew (or ought reasonably to have known) it was in possession of non-public, price sensitive information regarding Air New Zealand); or

b) if there were a breach by the Crown of the term that will be implied (by virtue of section 6A of the Securities Act 1978) into the offers of Air New Zealand shares under the Sell Down that, except to the extent disclosed for the purposes of the offers, the Crown has no information in relation to Air New Zealand that is not publicly available and that would, or would be likely to, affect materially the price of the shares if it were so disclosed.

40.

41 .

42.

T2013/2754 : Government Share Offers - Further Decisions Page 13 43.

44. The due diligence process involved making enquiries of the Ministers, departments or Crown agencies which have been identified as being most likely to be in possession of any material information regarding Air New Zealand (the "Crow n Participants"). The Crown Participants were:

Ministers Departments Other Crow n Agencies Rt Hon John Key Ministry of Business, Civil Aviation Authority Prime Minister Innovation and Employment Minister of Tourism New Zealand Trade and Ministry of Foreign Affairs and Enterprise Hon Bill English Trade Deputy Prime Minister New Zealand Transport Minister of Finance Inland Revenue Department Agency

Hon Gerry Brownlee Department of the Prime Government Communications Minister for Canterbury Earthquake Minister and Cabinet Security Bureau Recovery Minister of Transport Ministry of Transport

Hon Steven Joyce The Treasury Minister for Economic Development Minister for Science and Innovation Minister for Tertiary Education, Skills and Employment

Hon Tony Ryall Minister of Health Minister for State Owned Enterprises

Hon Murray McCully Minister of Foreign Affairs Minister for Sport and Recreation

45. We consider that the above list of Crown Participants represents all those agencies that could reasonably be expected to possess or have knowledge of any material information regarding Air New Zealand.

46. However, there is a residual risk of liability if either:

T2013/2754: Government Share Offers - Further Decisions Page 14 47.

48. As contemplated by the current draft of the Crown Due Diligence Planning Memorandum (CDDPM), the CDDWG had its first meeting on 30 October 2013 and reviewed all information provided to the Crown by the Crown Participants in response to the Crown's information requests, in order to determine whether any of that information is, or could reasonably be regarded as, Material Information. A copy of the CDDWG's current draft of its report is attached. In summary the CDDGWG consider at this stage that the only matter which may be material in the context of the Sell Down is in relation to the following information held by ~ ~

49.

50.

Derek Johnston's Draft Opinion

51. As you are aware, Derek Johnston has been appointed to provide you with independent legal assurance on the due diligence process conducted in relation to the proposed sell down. Attached to this report is the draft opinion from Derek Johnston in relation to the limited due diligence investigations that was conducted by the Crown (which assumes there are no outstanding issues arising from the due diligence). Mr Johnston will be available to discuss his draft opinion with you on Tuesday 5 November 2013 at our scheduled MOM meeting.

T2013/2754 : Government Share Offers - Further Decisions Page 15 52. Mr Johnston will provide his final signed opinion to you once the CDDWG has met and confirmed that there is no longer any information provided to the CDDWG which would be considered to be material in the context of the Sell Down

Delegations

53. Cabinet delegated authority to the Minister of Finance and Minister for SOEs to sign any documentation necessary to conduct the transaction. However, due to the compressed timeframes required to execute a block trade a further delegation will be necessary to the Secretary to the Treasury. The main decision required under this delegation will be the appointment of the JLM(s) for the transaction through the signing of a mandate letter.

54. In addition, an indemnity is proposed to be given by the Crown to the JLM(s) appointed to undertake the transaction, which will be included in the mandate letter. This indemnity will be the same as has been offered to the JLM(s) in respect of the Mighty River Power and Meridian IPOs. A further delegation to grant this indemnity is required from the Minister of Finance to the Secretary to the Treasury.

55. Delegations for both these purposes are attached to this report. It is likely that the Secretary to the Treasury will further delegate these powers to John Crawford, Treasury Deputy Secretary, Commercial Transactions as the most senior official who will be present at the conclusion of the RFP process. Both delegations are subject to you making the decision to proceed with the transaction.

T2013/2754 : Government Share Offers- Further Decisions Page 16

DELEGATION BY THE MINISTER OF FINANCE TO THE SECRETARY TO THE TREASURY RELATING TO THE AIR NEW ZEALAND LIMITED SELL DOWN

Date: November 2013

From: Minister of Finance

To: Secretary to the Treasury

1. Background

The Government has agreed to further reduce the Crown’s shareholding in Air New Zealand Limited (the “Transaction”). The Transaction will involve the sale by the Crown to Eligible Bookbuild Investors of ordinary shares in Air New Zealand constituting up to 20 percent of Air New Zealand’s total ordinary shares on issue.

The Treasury intends to appoint at least one but not more than two joint lead managers for the Transaction, from the previously appointed panel of firms.

The procurement of joint lead managers for the sell down will require the signing of a number of documents on behalf of the Crown, including a Mandate Letter engaging member(s) of the Crown’s Joint Lead Managers Panel to act as the Crown’s joint lead managers in respect of the sell down (“Mandate Letter”)

The Mandate Letter contains a Crown indemnity (the “Indemnity”) in favour of each appointed joint lead manager, their related companies, and their respective directors, officers and employees (together the “Indemnified Party”) against all losses directly suffered by, or claims made against, an Indemnified Party, of whatever nature and in whichever jurisdiction which may be instituted, made or alleged against, or which are suffered or incurred by, such Indemnified Party, arising directly from:

i. any breach by the Crown of, or any failure by the Crown to perform or observe, any of its obligations under the Mandate Letter; and

ii. any unlawful, negligent, reckless or deliberately wrongful act or omission by the Crown in relation to the sell down.

In addition, completion of the Transaction may require the opening of broker accounts with the joint lead manager(s) appointed in respect of the Transaction.

1.1. Previous Cabinet Authorisation

Cabinet authorised the Minister of Finance and the Minister for State Owned Enterprises to sign any documentation necessary to complete the sell down [CAB Min (13) 30/8 refers]. However, pursuant to section 65ZD of the Public Finance Act 1989, only the Minister of Finance may give a guarantee or indemnity to any person, organisation, or government if it appears to the Minister to be necessary or expedient in the public interest to do so.

2. Purpose of Delegation

This delegation is to enable the Secretary to the Treasury, or any authorised sub-delegate, to:

Treasury:2774544v1

• exercise the Minister of Finance’s statutory power to provide the Indemnity

• open broker accounts with the joint lead manager(s) appointed in respect of the Transaction.

3. Delegation of Authority

Pursuant to section 28 of the State Sector Act 1988 I, the Honourable Simon William English, MINISTER OF FINANCE , delegate to the SECRETARY TO THE TREASURY (and any person acting in such role from time to time), the authority to:

• provide the Indemnity, or any amended version of the Indemnity, subject to any changes being non-material changes;

• open broker accounts with the joint lead manager(s) appointed in respect of the Transaction.

This delegation shall come into effect on the date of its execution and shall continue in force until revoked. Authority may not be exercised under this delegation in a manner inconsistent with the Cabinet decisions referred to above.

This decision is subject to final decisions being made on whether to proceed with the Transaction, and final decisions on timing of proceeding with the Transaction.

4. Consent to sub-delegation

Pursuant to section 41 of the State Sector Act 1988, I, the Honourable Simon William English, MINISTER OF FINANCE , consent to the sub-delegation by the SECRETARY TO THE TREASURY of all or any of the powers delegated by me under this instrument to the Deputy Chief Executive and the Deputy Secretary, Commercial Transactions, (and any person acting in such role from time to time).

SIGNED by the MINISTER OF FINANCE the Honourable Simon William English

______Signature

In the presence of:

______

Signature of witness

Name of witness: ______

Occupation: ______

Address: ______

Treasury:2774544v1

DELEGATION BY THE MINISTER OF FINANCE AND MINISTER FOR STATE OWNED ENTERPRISES RELATING TO AIR NEW ZEALAND LIMITED

Date: November 2013

From: Minister of Finance and Minister for State Owned Enterprises

To: Secretary to the Treasury

1. Background

Implementing the Transaction may require the completion of a number of actions. The Minister of Finance will need to take certain administrative and operational actions to complete the Transaction.

Given the Transaction is scheduled to take place within a very tight timeframe, this delegation is intended to to mitigate the risk of Ministerial unavailability at relevant times, and to reduce the administrative burden on Ministers.

1.1. Previous Cabinet Authorisation

Cabinet authorised the Minister of Finance and the Minister for State Owned Enterprises to sign any documentation necessary to complete the sell down [CAB Min (13) 30/8 refers].

2. Delegation of Authority

Pursuant to section 28 of the State Sector Act 1988 I, the Honourable Simon William English, MINISTER OF FINANCE , and I, the Honourable Anthony Boyd Williams Ryall, MINISTER FOR STATE OWNED ENTERPRISES delegate to the SECRETARY TO THE TREASURY (and any person acting in such role from time to time), the authority to sign all documentation required to complete the Transaction on behalf of the Crown.

This decision is subject to final decisions being made on whether to proceed with the Transaction, and final decisions on timing of proceeding with the Transaction.

3. Consent to sub-delegation

Pursuant to section 41 of the State Sector Act 1988, I, the Honourable Simon William English, MINISTER OF FINANCE , and I, the Honourable Anthony Boyd Williams Ryall, MINISTER FOR STATE OWNED ENTERPRISES consent to the sub-delegation by SECRETARY TO THE TREASURY (and any person acting in such role from time to time) of all or any of the powers delegated by us under this instrument to the Deputy Chief Executive

Treasury:2774972v1

and the Deputy Secretary, Commercial Transactions, (and any person acting in such role from time to time).

SIGNED by the MINISTER OF FINANCE the Honourable Simon William English

______Signature

In the presence of:

______

Signature of witness

Name of witness: ______

Occupation: ______

Address: ______

SIGNED by the MINISTER FOR STATE OWNED ENTERPRISES the Honourable Anthony Boyd Williams Ryall

______Signature

In the presence of:

______

Signature of witness

Name of witness: ______

Occupation: ______

Address: ______

Treasury:2774972v1 CHAPMAN A

[DRAFT N0.5- 1 NOVEMBER 2013] TRIPPV

Crown Due Diligence Planning Memorandum

relating to the proposed partial sell down of the Crown's shareholding in Air New Zealand Limited

CONTENTS

1 INTRODUCTION 1 1.1 Overview 1 1.2 Sell Down Due Diligence 1 1.3 Purpose of Due Diligence Inquiries 2 1.4 Crown Participants and Knowledge 3 1.5 Application of Chinese Walls 4 1.6 Status of this Crown DDPM 5

2 CROWN DUE DILIGENCE WORKING GROUP 5 2.1 Establishment of the CDDWG 5 2.2 Composition 5 2.3 Observers 6 2.4 Chairperson 6 2.5 Secretary 7 2.6 Professional firms as members 7 2.7 CDDWG Meetings 7 2.8 Operation of CDDWG 7

3 METHODOLOGY 8 3.1 Process 8 3.2 Evaluation Criteria 10 3.3 Timetable 11 3.4 Adoption and Execution of this Memorandum 11

SCHEDULE ONE: CROWN PARTICIPANTS 13

SCHEDULE TWO: FORM OF CROWN DUE DILIGENCE “REQUEST FOR INFORMATION” LETTER 14

SCHEDULE THREE: FORM OF CROWN DUE DILIGENCE REPORT 15

100063761/3092936.7

CROWN DUE DILIGENCE PLANNING MEMORANDUM

Date: [31 ] October 2013

1 INTRODUCTION

1.1 Overview This due diligence planning memorandum (the Crown DDPM ) sets out the scope of the limited due diligence inquiries to be undertaken by the Crown (the Crown Due Diligence ) for the purposes of the proposed partial sell down of its shareholding (the Sell Down ) in Air New Zealand Limited (the Company ).

The shares in the Company to be offered pursuant to the Sell Down are currently owned by the Crown, acting by and through the Minister of Finance.

The Sell Down is intended to be conducted by means of an off-market book build, to be conducted over a period of up to two trading days, 1 in respect of which bids for the Crown’s shares will be sought from institutional investors and brokers (the latter of whom will be required to on-sell any shares allocated to them to their New Zealand resident/citizen clients). The Sell Down will not be underwritten.

1.2 Sell Down Due Diligence The Sell Down may, due to the indirect involvement of retail investors through broker bids into the bookbuild, be an offer of securities to members of the public in terms of the Securities Act 1978 (the Securities Act ). However, as a sale of previously allotted securities the Sell Down will not, by virtue of section 6(1) of the Securities Act 1978 (the Securities Act ), require the preparation of a prospectus and investment statement ( Offer Document ). 2

As a result, the Sell Down does not require that the Crown undertake a full “prospectus” due diligence process of the type most recently undertaken in respect of the Meridian initial public offering.

The Sell Down will, however, be subject to the restrictions on insider trading contained in the Securities Markets Act 1988 (the Securities Markets Act ), due to the Company’s status as a “public issuer” by virtue of its existing listing on the NZX. In particular, section 8C of the Securities Markets Act states:

An information insider 3 of a public issuer must not trade securities of the public issuer.

1 This period is subject to change, at the Crown’s discretion. 2 Assuming that the Company does not advise, encourage or knowingly assist the Crown in respect of the Sell Down – see section 6(3) of the Securities Act. 3 An information insider is a person who: (a) has material information relating to the public issuer that is not generally available to the market (i.e. has inside information); and (b) knows or ought reasonably to know that the information is material information; and

100063761/3092936.7 1 CROWN DUE DILIGENCE PLANNING MEMORANDUM

Additionally, as the Sell Down will involve the sale of previously allotted securities to members of the public, section 6A(2) of the Securities Act will apply to the Sell Down. Section 6A(2) provides that:

… it is an implied term of every offer of a security to which this section applies, that, except to the extent disclosed for the purposes of the offer of the security, the offeror has no information in relation to the original allotter that is not publicly available and that would, or would be likely to, affect materially the price of the security if it were so disclosed …

Section 6A(2) effectively requires the Crown to assure itself, prior to undertaking the Sell Down, that it does not hold information in relation to the Company that is not publicly available and that would, or would be likely to, affect materially the price of the shares if it were so disclosed.

1.3 Purpose of Due Diligence Inquiries In light of the above, the Crown Due Diligence is being conducted for the purposes of identifying whether the Crown (subject to paragraph 1.4) holds, prior to undertaking the Sell Down:

(a) material information (as that term is defined in section 3 of the Securities Markets Act) relating to the Company (in the sense contemplated by section 3(b) of the Securities Markets Act 4); or

(b) information in relation to the Company that is not publicly available and that would, or would be likely to, affect materially the price of the shares if it were so disclosed.

Information of the types referred to in paragraphs (a) and (b) above is together referred to as Sell Down Material Information in this Crown DDPM .

It is necessary that the Crown confirm whether it holds Sell Down Material Information, prior to undertaking the Sell Down, because:

(a) were the Crown to hold non-public “material information” relating to the Company in terms of the Securities Markets Act, the Crown could, in the absence of a defence, be liable to criminal and civil penalties for insider trading if it proceeded with the Sell Down; and

(c) knows or ought reasonably to know that the information is not generally available to the market. 4 Section 3 of the Securities Markets Act provides: For the purposes of this Act, unless the context otherwise requires, material information , in relation to a public issuer but not in relation to a futures contract referred to in section 3A, is information that— (a) a reasonable person would expect, if it were generally available to the market, to have a material effect on the price of listed securities of the public issuer; and (b) relates to particular securities, a particular public issuer, or particular public issuers, rather than to securities generally or public issuers generally.

100063761/3092936.7 2 CROWN DUE DILIGENCE PLANNING MEMORANDUM

(b) were the Crown to hold information of the type referred to in paragraph (b) above, the Crown could be liable to civil claims for breach of contract, including claims for misrepresentation, if it proceeded with the Sell Down.

For the avoidance of doubt, the due diligence process contemplated by this Memorandum will not, in and of itself, provide any defence were the Crown to in fact trade while in possession of Sell Down Material Information. The so-called “due diligence defence” under the Securities Act, applicable to initial public offerings (such as those of Mighty River Power and Meridian), is not applicable to the trading contemplated by the Sell Down. Although undertaking the due diligence contemplated by this Memorandum does not provide a legal defence, its purpose is to identify whether any Crown Participant holds any Sell Down Material Information in order to minimise any insider trading risk in respect of the Sell Down.

1.4 Crown Participants and Knowledge The Crown’s intention is to make inquiries of all Crown organisations, entities or instruments that, in the Crown’s opinion, could reasonably be expected to possess or have knowledge of Sell Down Material Information, in order to determine whether in fact any such organisations, entities or instruments in fact possess or have knowledge of Sell Down Material Information.

The complete list of these organisations, entities or instruments (the Crown Participants ) is set out in Schedule One.

The Crown acknowledges the possibility that other organs of the Crown could possess or have knowledge of Sell Down Material Information, and further acknowledges that the Crown will be attributed with:

(a) the knowledge of any person who forms part of the Crown; and

(b) the knowledge of any other person who can be properly construed as being an agent of the Crown under the law of agency.

Notwithstanding these acknowledgements, the Crown has elected to restrict its inquiries to the Crown Participants. In determining the list of Crown Participants, the Crown decided not to include certain Ministers and departments on the basis that any Sell Down Material Information known to them would also be known by Ministers and departments who were included as Crown Participants. In particular:

(a) the Crown does not believe that Hon Tim Groser (Minister of Trade and Minister of Climate Change Issues) would hold any Sell Down Material Information not already known by the Minister of Foreign Affairs and/or Minister of Transport; and

(b) the Crown does not believe that the Crown Law Office would hold any Sell Down Material Information that did not originate from, or that would not already be known by, Crown Participants.

100063761/3092936.7 3 CROWN DUE DILIGENCE PLANNING MEMORANDUM

[5] 1.5

100063761/3092936.7 4 CROWN DUE DILIGENCE PLANNING MEMORANDUM

[5]

1.6 Status of this Crown DDPM Until the issue of the final Crown Due Diligence Report (in the form attached as Schedule Three), this Crown DDPM is a work ~ document. To the extent that the Crown Due Diligence process actually undertal

2 CROWN DUE DILIGENCE WORKING GROUP

2.1 Establishment of the CDDWG The Crown has established the CDDWG. The role of the CDDWG is to co-ordinate and supervise the Crown Due Diligence, including:

(a) agreeing or confirming the form of communication with Crown Participants (including, in particular, the form of the request for information which is attached as Schedule Two);

(b) reviewing information provided to it by the Crown Participants in response to the Crown's information requests, in order to determine whether any such information constitutes Sell Down Material Information;

and otherwise supervising the Crown Due Diligence in accordance with this Memorandum.

For the avoidance of doubt, compiling and confirming the list of Crown Participants was determined by the Crown.

2.2 Composition The members of the CDDWG (the Members) and, where applicable, that Member's representative(s) on the CDDWG are as follow:

100063761/3092936.7 5 CROWN DUE DILIGENCE PLANNING MEMORANDUM

Member Position (where Representative on CDDWG applicable)

The Crown Not applicable Brian McCulloch

Ross Mear Financial Adviser to the Not applicable Crown

Chapman Tripp Legal Adviser to the Crown Tim Tubman (Partner, Chapman Tripp)

It is recognised and acknowledged that Ross Mear is a Member solely in his capacity as financial adviser to the Crown.

2.3 Observers In addition to the Members’ representatives, the following persons may attend, or be represented at, all meetings of the CDDWG as an observer and participate in the Crown Due Diligence as determined by the CDDWG ( Observers ):

Observer Representative(s)

The Treasury Bridget Tyson, Senior Solicitor

Simon Gilmore, Commercial Transactions Group Julian Sakarai, Solicitor

Chapman Tripp Barry Brown, Partner Joshua Pringle, Senior Associate

Each Observer attends the CDDWG meetings in his or her or its capacity as an Observer and such attendees are not to be taken to be participating as a Member. Each Observer which is a firm or organisation acting as an advisor to the Crown will owe obligations only as set out in its own terms of engagement to the Crown and not to the CDDWG or any Member.

Additional Crown representatives will be entitled to attend any meeting of the CDDWG and to participate in discussions from time to time at their discretion.

Others, such as experts or advisors may, at the invitation of the Chairperson, also attend meetings of the CDDWG from time to time in an observer capacity to provide information to the CDDWG or assist the process contemplated by this Memorandum.

2.4 Chairperson The Chairperson of the CDDWG will be Dr Brian McCulloch ( CDDWG Chair ). The CDDWG Chair must ensure that the meetings of the CDDWG are properly conducted, Members’ representatives are properly heard and that matters raised at CDDWG meetings are adequately addressed.

100063761/3092936.7 6 CROWN DUE DILIGENCE PLANNING MEMORANDUM

2.5 Secretary The Secretary of the CDDWG (who is not a Member) will be Bridget Tyson (CDDWG Secretary ). The CDDWG Secretary will be responsible for convening meetings, circulating agendas with any relevant accompanying documents and keeping minutes.

2.6 Professional firms as members Where a professional firm is a Member (for example, Chapman Tripp), the sign-off given by it as a Member is given based on the knowledge of its personnel who have been directly and substantively involved in those parts of the Crown Due Diligence for which the firm is responsible.

Professional firms have in place Chinese Walls and other information management arrangements designed to ensure that the information of one client is not made available to or used for the benefit of other clients. As such, personnel of a professional firm may have access to information of their clients which cannot be accessed by their representatives participating in the Crown Due Diligence.

2.7 CDDWG Meetings The CDDWG will meet for Members (or their representatives) to consider or discuss:

(a) the status of the Crown Due Diligence generally;

(b) the status of the information requests sent to Crown Participants;

(c) material issues that have been identified as a consequence of the information requests sent to Crown Participants; and

(d) the preparation and content of the Crown Due Diligence Report.

CDDWG meetings are to be held as required by the CDDWG.

An agenda will be circulated by the CDDWG Secretary prior to each meeting setting out matters to be dealt with at each meeting, together with any relevant accompanying materials. Draft minutes from each meeting will be circulated by the CDDWG Secretary prior to the following meeting so that they may be confirmed at the following meeting.

2.8 Operation of CDDWG Decisions of the CDDWG are required to be unanimous. If the CDDWG is unable to reach unanimity on a matter, it must be brought to the attention of the Treasury Steering Committee for determination.

The CDDWG is to ensure that the Crown Due Diligence is properly documented in order to demonstrate (should the need arise) that a proper, systematic and thorough investigation has been undertaken by it, within the parameters established by this Memorandum.

Each Member (or its representative) must apply an independent and inquiring mind to the information provided to the CDDWG by Crown Participants (including

100063761/3092936.7 7 CROWN DUE DILIGENCE PLANNING MEMORANDUM

considering whether a particular Crown Participant would be expected to have more information than the information it has provided to the CDDWG) and raise with other Members (or their representatives) any issues or concerns the Member (or its representative) has regarding the same or the Crown Due Diligence generally.

Each Member (or its representative, as applicable):

(a) is entitled to rely, in the case of matters outside his or her area of expertise, on Members (or representatives) with the appropriate expertise; and

(b) is not the agent of, does not act on behalf of and cannot affect the legal obligations of, any other Member (or its representative) and is not in a contractual relationship with any other Member (or its representative) solely by virtue of being a Member of the CDDWG.

Each Member acknowledges that participation in the Crown Due Diligence and signing the Crown Due Diligence Report does not, of itself, give rise to any liability amongst the Members nor to any addressee of the Crown Due Diligence Report except:

(a) to the extent set out in any agreement between a Member and any other Member or between a Member and an addressee of the Crown Due Diligence Report; or

(b) where a Member knowingly or recklessly misleads the CDDWG or any other Member.

3 METHODOLOGY

3.1 Process The stages of the Crown Due Diligence are set out below. Due diligence programmes are (and should be) responsive to the facts revealed by investigations. Accordingly, changes in the methodology may be necessary.

1 CALLS/RFI The Crown will send a ‘Request for Information’ letter to Crown Participants in the form set out in Schedule Two. The letter will be preceded by a call to each Crown Participant from The Treasury, outlining the key elements of the letter and what is required of Crown Participants.

2 Clarification If necessary, clarification meetings will be held with meetings representatives of the Crown Participants to explain the nature of information requested under the letters.

3 Classification The Crown will collate responses received in response to the ‘Request for Information’ letter. A meeting of the CDDWG will be held following the deadline for responses to determine whether any of the information contained in the responses obtained under the Crown Due

100063761/3092936.7 8 CROWN DUE DILIGENCE PLANNING MEMORANDUM

Diligence is, or could reasonably be regarded as, Sell Down Material Information.

Where further information or clarification is required, this determination will, to the extent necessary, be deferred until that further information or clarification has been obtained.

4 Follow Up The Crown will follow up with any Crown Participant that:

• provides a response that requires clarification or further information; or

• is yet to provide a response.

5 Ongoing As new responses are received, or further information or Classification clarification is received in respect of responses where it was required, the CDDWG will consider and classify those responses in accordance with section 3 above.

6 Final Crown The CDDWG will provide the final Crown Due Diligence Due Diligence Report, which will be addressed to, and may be relied on Report by, the addressees of that report. The report will include either (i) a positive confirmation from the CDDWG, to the best of its Members’ knowledge having undertaken due inquiry, that no information provided to it arising from the Crown Due Diligence is, or could reasonably be regarded as, Sell Down Material Information, or (ii) a positive confirmation, to the best of its Members’ knowledge having undertaken due inquiry, that some or all of the information provided to it arising from the Crown Due Diligence is, or could reasonably be regarded as, Sell Down Material Information. The report will include a schedule appending the information (if any) received from Crown Participants, and providing the CDDWG’s determination as to whether that information (on a case by case basis) is, or could reasonably be regarded as, Sell Down Material Information. The report will be given subject to any further information provided to the CDDWG by Crown Participants prior to the commencement of the Sell Down.

100063761/3092936.7 9 CROWN DUE DILIGENCE PLANNING MEMORANDUM

7 Subsequent Pursuant to the terms of the “Request for Information” information letter, Crown Participants will be required to continue to supply to the Crown any information that could constitute Sell Down Material Information, until such time as the Sell Down is initiated. The Crown will collate any information received in response to this continuing request and supply that information to the CDDWG. The CDDWG will determine whether any of this additional information is, or could reasonably be regarded as, Sell Down Material Information and will advise the Crown of its determinations. To the extent that the CDDWG advises the Crown that any or all of this additional information is, or could reasonably be regarded as, Sell Down Material Information, the Crown Due Diligence Report will be qualified to that extent.

If any Member becomes aware at any time prior to the execution of the Sell Down that the Crown holds or may reasonably hold Sell Down Material Information, that Member must notify the CDDWG, which will promptly consider the information and determine whether to notify the Crown. This notification obligation shall not impose an additional monitoring obligation on any Member, except to the extent expressly set out in this Memorandum.

8 Follow Up To the extent that the Sell Down is not initiated promptly after the date of the Crown Due Diligence Report (which, for the avoidance of doubt, will be given as of the date specified in the Crown Due Diligence Report), or if the Crown Due Diligence Report is not given promptly after completion of the initial stage of the Crown Due Diligence (due, for example, to a decision to materially delay the execution of the Sell Down), the CDDWG will, if called upon by Treasury, conduct such follow-up inquiries as the CDDWG considers necessary in order to update and refresh the Crown Due Diligence Report, in advance of the Sell Down. This may include, without limitation, sending new request letters to Crown Participants, and substantially re-undertaking the process contemplated by this Memorandum.

3.2 Evaluation Criteria Whether or not information is, or could reasonably be regarded as, Sell Down Material Information will require the CDDWG to consider the information provided by the Crown Participants in light of:

100063761/3092936.7 10 CROWN DUE DILIGENCE PLANNING MEMORANDUM

(d) leading judicial and scholarly interpretations of those tests.

Although driven by legal considerations, commercial input will be important in determining:

(a) for the purposes of the Securities Markets Act, whether “a reasonable person would expect [the information, if it] were generally available to the market, to have a material effect on the price of listed securities of the [Company]” (in the words of section 3(a) of the Securities Markets Act); and

(b) for the purposes of the Securities Act, whether the information “would, or would be likely to, affect materially the price of the security if it were so disclosed” (in the words of the section 6A(2) of the Securities Act).

As the question of whether information is, or could reasonably be regarded as, Sell Down Material Information remains a question of judgment, Members (or representatives) of the CDDWG should use their own expertise as a guide, and err on the side of caution in making their assessments.

Chapman Tripp, legal adviser to the Crown, will provide the CDDWG with a memorandum setting out the applicable legal tests and providing practical legal guidance to the CDDWG as to what information could constitute Sell Down Material Information. However, the question of whether particular information could have a “material effect” on the price of Air NZ’s listed securities will necessarily involve that the CDDWG make a considered commercial judgment.

3.3 Timetable The timetable for the Crown Due Diligence is as follows:

16 October: Dispatch Crown Due Diligence “Request for Information” letters to Crown Participants

30 October: Responses due back from Crown Participants

30 October: CDDWG classification of responses from Crown Participants

Ongoing: Review of additional information provided by Crown Participants (if any)

[DATE] : CDDWG provides Crown Due Diligence Report

3.4 Adoption and Execution of this Memorandum The CDDWG must ensure that it is satisfied that the process proposed in this Memorandum is sufficient to make all enquiries which are reasonable in the circumstances of the Sell Down, it being acknowledged that compiling and confirming the list of Crown Participants was determined by the Crown.

100063761/3092936.7 11 CROWN DUE DILIGENCE PLANNING MEMORANDUM

This Memorandum will be formally adopted by the CDDWG. The Members agree that this Memorandum may be executed in any number of counterparts (including by facsimile) all of which counterparts when taken together shall be treated as one document.

CROWN DUE DILIGENCE PLANNING MEMORANDUM: SIGNATURES

Member Representative Signed

The Crown Dr Brian McCulloch (Chairperson)

Chapman Tripp Tim Tubman

Ross Mear Not applicable

100063761/3092936.7 12 CROWN DUE DILIGENCE PLANNING MEMORANDUM

SCHEDULE ONE: CROWN PARTICIPANTS

Rt Hon John Key

Hon Bill English

Hon Gerry Brownlee

Hon Steven Joyce

Hon Tony Ryall

Hon Murray McCully

Ministry of Business, Innovation and Employment

Ministry of Foreign Affairs and Trade

Inland Revenue Department

Department of the Prime Minister and Cabinet

Ministry of Transport

The Treasury

Civil Aviation Authority

New Zealand Trade and Enterprise

New Zealand Transport Agency

Government Communications Security Bureau

100063761/3092936.7 13 CROWN DUE DILIGENCE PLANNING MEMORANDUM

SCHEDULE TWO: FORM OF CROWN DUE DILIGENCE “REQUEST FOR INFORMATION” LETTER

Refer attached

100063761/3092936.7 14 CROWN DUE DILIGENCE PLANNING MEMORANDUM

SCHEDULE THREE: FORM OF CROWN DUE DILIGENCE REPORT

(CDDWG)

Report of the CDDWG in connection with the partial sell down of the Crown’s shareholding in Air New Zealand Limited

To: Her Majesty the Queen in right of New Zealand (the Crown ), the Prime Minister, the Minister of Finance, the Minister of State Owned Enterprises, the Associate Minister of Finance (Hon Steven Joyce) (together the Addressees )

Date:

1 Background 1.1 The CDDWG was established in accordance with the Crown Due Diligence Planning Memorandum dated [31 ] October 2013 ( CDDPM ) and is providing this report (the Report ) on the limited due diligence inquiries undertaken by the Crown ( Crown Due Diligence ) for the purposes of the proposed partial sell down of the Crown’s shareholding (the Sell Down ) in Air New Zealand Limited (the Company ).

1.2 Terms defined in the CDDPM have the same meaning in this Report.

1.3 Any statement in this Report is made at the date of this Report.

2 Role of CDDWG As contemplated by the CDDPM, the CDDWG reviewed all information provided to the Crown by the Crown Participants in response to the Crown’s information requests, in order to determine whether any of that information is, or could reasonably be regarded as, Sell Down Material Information.

3 Report 3.1 Each member of the CDDWG ( Member ) has reviewed and considered all information provided to the CDDWG by the Crown (obtained by the Crown from the Crown Participants) in accordance with the process outlined in the CDDPM and, relying:

(a) in the case of each Member in respect of matters outside his or her knowledge and/or expertise, on those Members of the CDDWG with the appropriate knowledge and/or expertise; and

(b) on reports or information provided to the CDDWG by representatives of, or advisers to, the Crown,

confirms to the Addressees, to the best of its or his knowledge having undertaken due inquiry that: [CDDWG to provide results of its determinations].

3.2 Each member is satisfied, to the best of its knowledge (relying, where appropriate, on the matters set out in paragraphs 3.1 (a) and (b) above) that:

(a) the Crown Due Diligence process has been conducted in accordance with the procedures set out in the CDDPM;

100063761/3092936.7 15 CROWN DUE DILIGENCE PLANNING MEMORANDUM

(b) the CDDWG member is not aware of any material deficiency in the Crown Due Diligence process or the scope of enquiries undertaken by the CDDWG for the purposes of the Sell Down as far as the member is reasonably able to judge, taking account of the limits of that member’s recognised areas of expertise and the scope of engagement of that member, provided that it is acknowledged that compiling and confirming the list of Crown Participants was determined by the Crown;

(c) written responses have been received by the CDDWG from all Crown Participants and have been considered by the CDDWG, in each case in accordance with the CDDPM, and the results of that consideration are reflected in this Crown Due Diligence Report; and

(d) the CDDWG member has no reason to believe (so far as the member is reasonably able to judge, taking account of the limits of that member’s recognised areas of expertise and the scope of engagement of that member) that any Crown Participant has withheld any Sell Down Material Information from the CDDWG.

3.3 Set out in the Schedule to this Report is:

(a) each piece of information received from Crown Participants (if any);

(b) the CDDWG’s determination as to whether that information (on a case by case basis) is, or could reasonably be regarded as, Sell Down Material Information.

3.4 The due diligence process conducted by the CDDWG will not, in and of itself, provide any defence were the Crown to in fact trade while in possession of Sell Down Material Information. The so-called “due diligence defence” under the Securities Act, applicable to initial public offerings (such as those of Mighty River Power and Meridian), is not applicable to the trading contemplated by the Sell Down. Although undertaking the due diligence does not provide a legal defence, its purpose was to identify whether any Crown Participant holds any Sell Down Material Information in order to minimise any insider trading risk in respect of the Sell Down.

3.5 Nothing in this Report or in a Member’s participation in the Crown Due Diligence process (including membership of or representation on the CDDWG) shall render the Member (or its representative) liable to the Addressees (or any other person) for, or as a result of, the reliance on the advice, representations, assurance, comments, opinions or reports of the CDDWG or of that Member (or that representative) or another Member or the reliance on the advice, representations, assurance, comments, opinions or reports of any other person except where a Member has knowingly or recklessly misled the Addressees.

3.6 It is recognised and acknowledged that Ross Mear is a member of the CDDWG solely in his capacity as financial adviser to the Crown and is not responsible for, and has not provided any advice to the CDDWG or any of its Members in relation to, tax, regulatory or accounting matters.

100063761/3092936.7 16 CROWN DUE DILIGENCE PLANNING MEMORANDUM

3.7 As outlined in paragraph 2.6 of the CDDPM, the statements made in paragraphs 3.1 and 3.2 above by Chapman Tripp as a member of the CDDWG are given based solely on the knowledge of its personnel who have been directly and substantively involved in those parts of the Crown Due Diligence process for which the firm is responsible, subject to any obligation of confidentiality owed by the firm.

4 Outstanding matter Crown Participants have been asked to continue to supply to the Crown any information that could constitute Sell Down Material Information, until such time as the Sell Down is initiated. The Crown will collate any information received in response to this continuing request and supply that information to the CDDWG. The CDDWG will determine whether any of this additional information is, or could reasonably be regarded as, Sell Down Material Information and will advise the Crown of its determinations. To the extent that the CDDWG advises the Crown that any or all of this additional information is, or could reasonably be regarded as, Sell Down Material Information, this Report will be qualified to that extent.

5 Benefit of Report This Report is given solely for the benefit of the Addressees and may not be relied on by any other person or for any purpose other than the Sell Down. This Report may not be quoted or referred to in any public document or filed with any government or regulatory or similar body without the prior written consent of each member of the CDDWG.

6 Counterparts This Report may be signed in any number of counterparts all of which, when taken together, will constitute one and the same instrument. A party may enter into this Report by executing any counterpart.

100063761/3092936.7 17 CROWN DUE DILIGENCE PLANNING MEMORANDUM

SIGNATURES

Member Representative Signed

The Crown Brian McCulloch (Chairperson)

Chapman Tripp Tim Tubman

Ross Mear Not applicable

100063761/3092936.7 18 CROWN DUE DILIGENCE PLANNING MEMORANDUM

SCHEDULE

Refer attached

100063761/3092936.7 19