Has any one tried manually setting the proxy using networksetup before kicking off the internet recovery ?

You can use networksetup as long as you have a recovery partition.
Without one, i don't think it's possible to do a "pure" internet recovery.
I usually use Internet Sharing from another Mac to get around this if there's no non-proxy network connection available...

Problem solved !!!!

See LAST POST here:

https://discussions.apple.com/thread/5297672?start=15&tstart=0

Now for the first time, the new macbook Air 2013 can boot from USB (it could not do so before). The specifics of the Haswell Air build did not allow same, as both the original poster any myself discovered!

Oddly nobody else has tested this since the 10.8.5 update, so Ive been testing same for hours now with a Mac Mini clone as booted thru USB to the Macbook Air 2013 Haswell

specifics of the Haswell Air build not being able to be USB bootable are discussed here:

https://jamfnation.jamfsoftware.com/discussion.html?id=7589

Screenshot below proving same, I have a 1TB MAC MINI HD clone fully booted and working on the 2013 Air! with OSX 10.8.5 , formerly not possible in 10.8.4

If you just erase the drive but do not reinstall Lion and you cannot recover data from Macbook Air, then you will return the computer with a blank drive, not as if it were new.

However, the computer you are returning will only be resold as a refurbed unit, so Apple will install whatever software needs to be installed on it. You are not obliged to do that yourself unless you want to.

If you follow the drive prep procedure I provided all your data is essentially securely erased. That is what the one pass Data Recovery option does.

Hmmm. I smell spam.