Air NZ is poised to take Ansett prize

By GEOFF SENESCALL

Air New Zealand is expected to secure the other half of Ansett Australia within a week.

The deal would end nearly a year of uncertainty over the future of the 50 per cent stake held by Rupert Murdoch's News Corp.

It would also give Air New Zealand and its chairman, Sir Selwyn Cushing, the prize they have sought since buying 50 per cent of Ansett in October 1996 for $540 million.

Combined, Air New Zealand and Ansett Australia would be around 85 per cent the size of Qantas.

On its own, Air New Zealand is about a third the size of the Australian airline.

Air New Zealand spokesman David Beatson declined to comment last night on what Australian sources have said is an imminent agreement.

"Unless something goes wrong at the last minute, it is a done deal," the sources said.

The price the two parties have agreed on is unknown.

Price has been a sticking point since Air New Zealand refused to waive its pre-emptive rights over the News Corp stake when News had tried to sell it to Singapore Airlines in April last year - effectively scuttling the deal.

An unhappy News then asked Air New Zealand to pay more than the $A500 million for which it had agreed to sell the holding to Singapore Airlines.

But in November, Sir Richard Branson turned the Australian aviation market on its head by giving notice that Virgin intended starting a cut-price operator in the region.

Since then, Qantas and Air New Zealand shares have been under pressure.

Qantas has dropped 23 per cent. Air New Zealand A shares - which only New Zealanders can own - are down 28 per cent, and the B shares are down 31 per cent.

As well as facing the prospect of new competition from Virgin, Ansett has been hit by industrial relations problems with staff, who are set to strike today.

These factors have increased News Corp's willingness to do a deal.

Analysts are generally positive about Air New Zealand buying the rest of Ansett.

Strategically, they say, it makes sense. It should also help sentiment.

But as Salomon Smith Barney's airline analyst, Jason Smith, points out: "There is still going to be a fair bit of pain in the next one to two years to make it work."

Analysts say Air New Zealand has no immediate need to raise money to pay for Ansett, as it has enough cash on its balance sheet to cover the purchase.

But some refinancing would be needed later.

An area of concern relates to Singapore Airlines, which remains keen to do a deal with Ansett.

Unless overtures are made to Singapore, the Air New Zealand deal leaves it out in the cold and with only one avenue to pursue - an alliance with Sir Richard Branson's Virgin. This could make Singapore a serious competitor.

Air New Zealand reports its first-half profits on Wednesday.

* A New Zealand consortium is also negotiating with News Corp to buy Ansett New Zealand.