Air NZ landing rights under threat

By DANIEL RIORDAN aviation reporter

Air New Zealand's international air rights could be jeopardised if Singapore Airlines increases its stake in the national carrier.

But it would probably be the first time any airline's rights have been called into question over ownership or control issues.

Reuters yesterday reported New Zealand's chief air services negotiator, John Bradbury, as saying a foreign Government could rule out any New Zealand-based airline seen to be under foreign ownership.

"If Singapore Airlines was to purchase more shareholding in Air New Zealand and gain what others might think was a controlling stake, then another country could say, 'well, look, we've exchanged those rights with New Zealand [but] Singapore is getting the benefit of them - we haven't got that arrangement with Singapore, so we will pull the rights,"' said Mr Bradbury, deputy secretary for air services in the Ministry of Transport.

New Zealand has about 45 bilateral agreements with foreign governments, 25 of which have substantial ownership requirements. All have "effective control" clauses.

But what constitutes "effective control" and "substantial ownership" has never been defined. Instead, they are left up to the judgment of the parties concerned, and in practice are understood never to have been challenged.

Some airlines already have on their share registers parties from other countries with bigger stakes than the 25 per cent Singapore holds in Air NZ.

The Ministry of Transport, among others, has been arguing for several years for international airlines to have the same access to international equity as other industries.

The Government's policy is that no foreign airline or airline interest may own more than 25 per cent of a New Zealand international airline, nor in total more than 35 per cent of the share capital. Air NZ's A and B share structure also prevents more than 49 per cent of the airline being owned overseas.

The restrictions are based on those imposed by the Australian Government when it privatised Qantas. Because they were acceptable to all of Australia's bilateral partners, the New Zealand Government adopted them here.

Focus on the share caps comes as Air NZ plays down the difficulty it will have in raising the $5 billion to $6 billion it says it needs over the next four years to renew its ageing Ansett fleet and meet its capital needs.

Chairman Sir Selwyn Cushing maintains that a variety of avenues, in particular financing leases for planes and mezzanine debt raising, will suffice.

But financial markets are less sanguine and say greater financial involvement from Singapore is crucial. That involvement is likely only if Singapore can, in return, increase its shareholding.

Statements by the Prime Minster, Helen Clark, and her deputy, Jim Anderton, this week indicated a softening in the Government's previous hard-line stance against relaxing the ownership caps. They said they might consider such a step, and are expected to field soon a specific request from Air NZ to do just that. Although Singapore said this week it did not believe lifting its stake would solve Ansett's immediate problems, it has made no secret in the past of its desire to raise its stake to 40 per cent.

Singapore took its stake in Air NZ only after being thwarted in its desire to buy Ansett Australia. Its long-term objective is to build a global airline group, the first step of which was buying 49 per cent of Virgin Atlantic.

Although the option of Air New Zealand allowing Singapore to take a direct stake in Ansett has been mooted, analysts consider the future of Air NZ to hinge on its ability to integrate Ansett fully, and allowing Singapore to take a direct stake would be a poor outcome for Air NZ shareholders.

But the lower Ansett's market share drops, the less valuable the airline would be to Singapore.

Meanwhile, D-Day looms for Ansett's grounded 767 fleet, which represents about 20 per cent of its overall passenger capacity. The Australian Civil Aviation Safety Authority will decide today whether to issue Ansett a "show-cause" notice, giving it 14 days to prove it is getting its house in order.