Between the lines - Complex rule book demands caution

By GEOFF SENESCALL

Let's hope Prime Minister Helen Clark understands the implications of her cool response to the possibility of Singapore Airlines owning more than 25 per cent of Air New Zealand.

On Wednesday, amid intense negotiations between Singapore and Air New Zealand's main shareholder Brierley Investments, she said she was not favourably disposed to changing the rules.

The issue is not a show-stopper but it is a negative while the deal hangs in the balance. The Government, through its Kiwi shareholding in Air New Zealand, can veto a foreign airline buying into the local carrier.

Given Singapore Airline's high standing in the aviation world, owning shares in Air New Zealand is not likely to be an issue, but current rules forbid an overseas airline owning more than 25 per cent and foreigners cannot own more than 49 per cent.

Changing the levels does not require legislation, only a Government decision.

The rationale for foreign ownership rules is to protect Air New Zealand's international landing rights. The Prime Minister is no doubt aware, however, that these conventions are being dismantled around the world.

Aerolineas Argentinas, for example, is 80 per cent owned by Iberia of Spain. Yet, the flag carrier of Argentina still enjoys reciprocal access to international destinations.

Even Air New Zealand is attempting to get approval from the Australian Government to own 49 per cent of the international arm of Ansett Australia. There appears to be little resistance in Australia to this.

If the Prime Minister is worried about issues of sovereignty, then what about Brierley's 47 per cent ownership of Air New Zealand? More than half of the stake is in shares only New Zealanders are allowed to own.

Yet Brierley is now a Bermuda-registered company headquartered in Singapore. To get around its transformation into a foreign company, it simply houses its Air New Zealand shares in a wholly-owned New Zealand company, BIL NZ Assets.

So far the Government has ignored this end-run around the ownership rules.

The greatest irony in the Prime Minister's stance, however, is that her Government is proposing a sharemarket takeover code. The rationale is to stop companies being controlled through minority stakes to the detriment of other shareholders.

In the case of Air New Zealand, the Government is reluctant to allow Singapore to own more than 25 per cent of the company.

But you can bet as part of its deal with Brierley that Singapore will have negotiated veto rights over Air New Zealand management, effectively controlling the airline by buying only 25 per cent.

Wouldn't the Government wish Singapore Airlines to own more of Air New Zealand to justify the privilege of controlling our fine airline?