Air NZ talks confirmed, deal denied and rules laid down

The incoming government may have to deal quickly with the possibility of selling shares in Air New Zealand to Qantas.

Finance Minister Michael Cullen has confirmed talks are under way about a deal, and also expressed concerns about the possibility of the Government having to spend more money on Air NZ if it went into a full competitive war with its Australian rival.

Dr Cullen said on a televised debate yesterday he had been told of talks between the airlines, and had laid down the ground rules for any potential sale of a stake to Qantas. A deal would have to meet existing competition law and national interest tests.

Competition regulator the Commerce Commission said Qantas paid it a visit a fortnight ago, although the airline has not filed an application for approval to purchase a stake in Air NZ.

Dr Cullen's spokeswoman reiterated today the Government knew no detail of the talks and due to the election had kept at arm's length. The spokeswoman did not know whether Air NZ was close to making a proposal and holding off due to the election on Saturday, or was still working on the deal.

Dr Cullen said Labour was committed to "maintaining clear majority ownership", but it had to "lean back" and could not play a closer role in the deal making like a normal major shareholder.

During the debate Dr Cullen also questioned whether Air NZ could win an outright commercial war with Qantas. He defended the right for Air NZ to talk to its Australian rival if it wished.

"I challenge the assumption that somehow or other Qantas being involved is worse than some other airline ... If we decide to compete head on with Qantas in full competition why do we assume that Air NZ is going to win that competition, and how deep do you think the public pockets should be to keep that competition moving along."

National's finance spokesman David Carter accused Dr Cullen and the Air NZ board of keeping the deal under wraps until after the election.

An angry Dr Cullen said he had "received no proposal from Air NZ and if I had done so ... that would have to be made public" under law. The board of Air NZ was also required to disclose such a deal.

Air NZ put out a press release today saying Mr Carter was wrong.

"At the point where the board of Air NZ makes any decision of strategic significance it will be announced immediately to the market through the New Zealand and Australian stock exchanges," Air NZ said.

The two airlines have been speculated as very close to signing a deal for at least a "cornerstone" share of 20 per cent or more of Air NZ, which would have to come from the Government.

The two airlines compete on the same local and trans-Tasman markets, where commerce regulators would step in if any deal reduces competition. The two companies also belong to rival international airline networks, oneworld and Star Alliance.

The Government stepped in when Air NZ was on the verge of collapse last year and now owns 82 per cent.

Aviation analyst Peter Sigley of JB Were said Dr Cullen's confirmation last night came because it was such a badly kept secret.

"To date he's denied they (the Government) have had any involvement which technically speaking is probably true, but every single thing Air NZ's been doing would have been directly in dialogue with him.

"Maybe it's got to a point where if they come out shortly after the election and confirm that a transaction has occurred, and then it becomes apparent that a whole lot of work has gone into it ahead of time ... It's going to be really hard for him to deny a week after the election that he wasn't in some sort of dialogue."

Mr Sigley said Qantas had made it clear it was not interested in anything less than 25 per cent of the airline, but 20 per cent might be more desirable to Air NZ.

Air NZ shares closed unchanged today at 65c.

- NZPA


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