Air NZ-Qantas deal seen as way forward

By GREG ANSLEY in Canberra

As Air New Zealand and Qantas prepare for another round in their battle for a transtasman alliance, support has come from a proposal that New Zealand and Australia forget national jealousies and move toward a Nordic-style union.

Denis McLean, former New Zealand diplomat, Defence Secretary and ambassador to the United States, argues in a book that the so-far-defeated merger of the airlines could be a template for much broader co-operation between two global minnows.

In The Prickly Pair: Making Nationalism in Australia and New Zealand, McLean says the two countries need to unite against a big, unfriendly world.

While political union is off the agenda, much closer economic, corporate, legal, regulatory and policy bonding could be forged without sacrificing essential identities.

McLean gives as an example the Nordic Union of Denmark, Iceland, Norway, Sweden and Finland, whose wide range of transborder arrangements shows that integration and co-ordination can be achieved without subordination or political merger, he says.

Taking into account the corporate and political lessons to be learned from the Ansett collapse, McLean argues that the proposed Air NZ-Qantas deal could point to broader gains.

His book was completed before the two nations' competition watchdogs vetoed a significant Qantas stake in the New Zealand carrier, but still provides a well-argued case for the merger.

Both airlines need capital, he says, and both face direct competition from outside operators who can pick the eyes out of their businesses.

A national carrier with both domestic and international services must provide extensive infrastructure and fly often unprofitable routes, but foreign rivals have freer rein.

The Air NZ-Qantas solution may be uncomfortable to nationalists, especially in New Zealand, "but as a rationalisation of the issues confronting two major businesses in the two countries and a way to manage their interactions to best mutual advantage, the concept may well prove to be a model for the conduct of transtasman relations," McLean writes.

He summarises the proposal:

* A strategic alliance managed by an advisory group of three from each airline, with decisions to be unanimous.

* A 22.5 per cent Qantas stake in Air NZ, with three Qantas directors on the board and one Air NZ director on the Qantas board.

* A $550 million cash injection into Air NZ.

* A joint airline operations network, to be commercially managed by Air NZ, embracing all Air NZ flights, Qantas' transtasman routes and co-ordination or pricing, capacity and all other aspects of business operations within the network.

* Extensive code-sharing rights.

"The advantages to New Zealand, in terms of efficiencies, additional tourist flows, more jobs, especially in the engineering and maintenance fields, improved freight capacity, etcetera, are real and quantifiable," McLean writes.

But he acknowledges that Air NZ's interests would be merged into those of Qantas, raising concerns about competitiveness and higher air fares, and issues of nationalism.

The proposal set those aside in recognition that the long-term survival of both airlines could be at stake.

"Old shibboleths about the purity of national control and maintaining national identities began to carry less weight against the imperative of survival," McLean writes.

"What the two airlines have produced is a carefully worked-out and structured approach to overall financial and management problems and strategic challenges which appears to balance their respective interests."

McLean says the proposed alliance appears to be the first serious attempt between the two countries to develop a management scheme for an area of joint and interlocking concerns.

Like the Anzac frigate programme, the alliance would ensure NZ involvement in day-to-day administration and development, but with the bonus of harmonising operations on the basis of shared strategic interests. In effect, McLean says, Air NZ will manage about 10 per cent of Qantas' operations.

"For the first time since the conclusion of the Anzac Pact in 1944, the two countries (or a significant sector of their respective commercial concerns) propose to join together in a 'we two against the world' basis ...

"It is noteworthy that Australian and New Zealand interests have been able, at this mature stage of their national development, effectively to suppress national jealousies and doubts in favour of a concerted approach to an 'Australasian' set of problems."