Airlines stonewall as Qantas-Air NZ deal claims fly

By DANIEL RIORDAN

National Party leader Bill English claimed yesterday that Qantas was already carrying out due diligence on Air New Zealand as it aims to buy a cornerstone stake in the national carrier.

But Qantas suggested the claims were premature. Spokesman Michael Sharp said the airline had nothing meaningful to add to its disclosure two months ago that discussions were taking place.

A spokeswoman for Finance Minister Michael Cullen said the Air New Zealand board had not passed on any formal proposal to the Government regarding Qantas' bid for a stake and she was unaware of any escalation in negotiations to the level of due diligence.

Air New Zealand was not commenting on English's claim.

It said it acknowledged almost two months ago that discussions had been taking place since May last year on a wide range of issues, including ownership.

On Sunday, chief executive Ralph Norris told an Australian television programme: "There are obvious benefits that may accrue from a well-thought-out arrangement between the two airlines, but it's a long way to go before that happens."

English said that "last week a team of senior Qantas executives, headed by general manager of airline strategy and network Paul Edwards, spent time in the offices of [law firm] Bell Gully".

"If they were not doing due diligence, what were they doing?"

English said he had been told by "an impeccable source in Wellington" that Qantas was doing due diligence.

He believed a deal was close and likely to be announced soon after the election.

One aviation source close to the negotiations told the Business Herald it was wrong to describe last week's meeting as being part of any due diligence process, but a deal was not far off and could be clinched before the end of September.

Speculation has centred on Qantas seeking a 25 per cent stake.

National is opposed to Qantas taking any stake in the national carrier, saying it would result in less competition and higher prices.

English's position is backed by investment banker Lloyd Morrison, who in an email to about 300 sharebrokers this week said Air New Zealand and the Government were keen to clinch a deal with Qantas.

Morrison's company, Morrison & Co, manages utilities investor Infratil, which owns 66 per cent of Wellington International Airport and would stand to lose money if Air New Zealand and Qantas worked together.

But Morrison said his opposition to any deal reflected his fears that Air New Zealand's desire to boost its profitability short-term by reducing competition would ultimately raise the cost of airline travel and hurt the country.

The Government has repeatedly said it will become involved only when Air New Zealand's board has agreed to consider a specific proposal from Qantas and presented that proposal to its 82 per cent shareholder.

Companies are not required to disclose to the market when they are subject to due diligence.

Qantas may even decide it does not need to do due diligence on Air New Zealand before taking a stake. The airline's books were aired publicly last year before the Government recapitalised it by ploughing in almost $1 billion.

But if Qantas were to reach agreement with Air New Zealand and the Government, a bigger hurdle would lie ahead in the form of competition law on both sides of the Tasman.

The Commerce Commission has made it clear that it would expect to be approached if the two airlines were to get together in any way.

If Qantas took a significant stake in Air New Zealand it would need approval from the commission, whose practice is to look closely at shareholdings of 15 per cent or more.

It is also clear that any merger between the two airlines, which dominate both the domestic and transtasman aviation markets, would be hard put to avoid substantially lessening competition.

At the time of the last transtasman airline merger, when Air New Zealand bought Ansett, a condition of commission approval was that Ansett New Zealand be kept independent.

Since then the competition test in New Zealand has been toughened.

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