Norris backs Cullen on st-hurdle stumble

By CHRIS DANIELS aviation writer

Air New Zealand chief executive Ralph Norris yesterday endorsed Finance Minister Michael Cullen's view that the alliance plan with Qantas would fail to win initial regulatory approval.

But he said the deal would be salvaged once the airlines made concessions.

In an interview with the Australian Financial Review, Cullen said he expected the New Zealand Commerce Commission and the Australian Competition and Consumer Commission to reject the plan in their draft decisions, expected to be released early next month.

"You can be fairly sure that both of the regulatory authorities' initial conclusions - I'm pretty sure, anyway - [will] come out negative," said Cullen.

"But then I think we'll get to that [in] the second round."

Cullen's spokeswoman confirmed the contents of the interview as an accurate portrayal of the minister's comments, but said he was not available to expand on them.

Norris told the Business Herald that Cullen's comments were "probably pretty accurate".

When asked why more commitments were not given to ease the way through the regulators from the start, Norris said the draft determination would outline the competition issues, before it goes through a hearing process where the parties would get the opportunity to address the regulators' concerns.

"Basically for us it's a matter of understanding what their concerns may be and addressing those in the process as it's being determined," he said. "We will be able to address what are the substantive issues that need to be dealt with through that process."

Not until the draft determination was issued would the airlines know what the regulators would require.

Problems were highlighted and outlined in this first draft, which allowed the parties to work out how to answer them. It was also at this stage, said Norris, that the appropriate weight would be given to the test of national benefit.

Cullen said the proposed partnership was crucial to the survival of both Qantas and Air New Zealand, and the national interest case should outweigh concerns about reduced competition on New Zealand domestic routes and flights across the Tasman and Pacific.

Promises from Qantas chief executive Geoff Dixon that the Australian carrier would not try to take over Air New Zealand have convinced Cullen.

"I don't underestimate the guile and long-term strategic and short-term tactical sense of Geoff Dixon. But I am actually convinced ... that he is quite genuine about the fact that he is concerned about Qantas' long-term future and he sees a co-operative alliance between the two airlines as being beneficial to both.

"He's not trying to swallow up Air NZ; he does not see that as being terribly in Qantas' interest."

The alternative case to the alliance was an Air NZ which would be more exposed and "fragile". The Government would argue very strongly that this would not be in the national interest.

Air New Zealand and Qantas have already promised to allow potential rivals access to terminal space and ground handling facilities. Any such assurances have been dismissed by likely competitor Virgin Blue, which says anything less than structural industry change would be unacceptable.

It wants to buy Freedom Air, the budget brand Air NZ has used to shut out potential rivals.