Open skies agreement may affect ownership

By DANIEL RIORDAN

New Zealand's membership of a world-first multilateral open skies agreement has increased the likelihood of foreign investors lifting their ownership of Air New Zealand.

As the precursor of further air services liberalisation, the pact has also reduced the Government's need to maintain its ownership constraints on Air New Zealand's share register, including the A and B share structure and the restriction on a foreign airline owning more than 25 per cent.

Singapore Airline owns 25 per cent of Air New Zealand after the Government refused it permission this year to own more.

The original share-owning constraints were put in place when Air New Zealand was privatised. The aim was to ensure that the airline remained predominantly New Zealand-owned and so did not jeopardise its international air services rights.

Open skies agreements eliminate restrictions on how often carriers can fly, the kind of aircraft they use, the prices they charge, and what routes can be flown between signatories.

Bilateral open skies agreements are common - New Zealand has such agreements with about 40 countries, including its new multilateral partners. But the multilateral pact with the United States, Singapore, Brunei and Chile breaks new ground by relaxing restrictions on foreign ownership of airlines in the five countries.

Pulling the two-way agreements into a multilateral format will also make it easier for airlines of a member country to carry traffic from a second member country onward to a third.

John Bradbury, deputy secretary of air services in the Ministry of Transport, said the multilateral agreement had huge significance for New Zealand.

"We have secured something out of the US that nobody else has been able to do before, and that is the removal of the requirement for airlines to be substantially owned in their country."

Under most of New Zealand's bilateral arrangements, including the one with the United States, the partner can withhold or revoke the operating authority of a New Zealand airline if it is not satisfied it is substantially owned and effectively controlled by New Zealanders.

Despite the relaxation of ownership requirements for the US market, Mr Bradbury said Air New Zealand would still need to have its incorporation and principal place of business here, and effective control by New Zealanders.

While the control stipulation meant a foreign carrier could not take more than 50 per cent of Air New Zealand without jeopardising its US market rights, passive foreign investors uninterested in controlling the airline could go beyond that level without undue concern.

As aviation markets around the world relax their access requirements, the need for ownership restrictions is weakening.

Under present Government restrictions, no more than 49 per cent of Air New Zealand can be owned by foreigners (B shares) and the remaining 51 per cent must be held by New Zealand nationals (A shares).