Air NZ sees 'ongoing benefit' in Qantas detente

By CHRIS DANIELS aviation writer

It is a curious time to be an Air New Zealand investor. Profits are up and the airline is turning itself around.

But what was promoted as a crucial plank in its plans has been kicked away.

The long-term consequences of the failure of its Qantas alliance plan are hard to predict.

Chairman John Palmer said the past year or more of talks had led to an improvement in the Air NZ-Qantas relationship, one that "we are sure will be of ongoing benefit to our business irrespective of this particular outcome".



Profit expectations had not been downgraded by the rejection.

Palmer said the company had "been improving the business ... and the decision today simply adds a little more urgency to it."

Air NZ is now likely to tap investors for a rights issue.

It has already indicated it needs up to $200 million to pay for a complete refit of its Boeing 747-400 fleet.

It has the right to call on another $150 million of Government money, promised as part of the bailout agreement in 2001.

Chief executive Ralph Norris said the forecast of an improvement on last year's $220 million profit was still valid.

Asked if a new, perhaps less comprehensive agreement with Qantas, for instance one applying only to long-haul routes, could be reached, Norris said all options were being considered.

"We will certainly have some discussions with Qantas on what options are appropriate for us to consider, within the bounds of what would be appropriate from a regulatory position."

If all appeals are finished and the alliance is dead and buried, Qantas will become a 4.99 per cent shareholder in Air NZ.

It spent $98.2 million on notes last December, which convert into equity once the push for an alliance is over.

Australian budget carrier Virgin Blue, whose plans for New Zealand expansion provided the foundation for much of Air NZ's claim that prices would not rise should it join with Qantas, is now looking at whether it will have to build terminal facilities at Auckland Airport.

Commercial head David Huttner said an offer of counter space from Air NZ depended on approval of its alliance.

Virgin is to start flying in New Zealand in February, under the name Pacific Blue.

Air New Zealand's share price fell 4c after the Commerce Commission ruling was delivered, closing at 49c.