Qantas aims for KO blow

By DANIEL RIORDAN aviation writer

If Qantas succeeds in the transtasman aviation deal, Air New Zealand will go down in history as the little airline that tried - and almost made it.

Qantas control would come as part of an Australasian aviation grand plan also involving Ansett, Singapore Airlines and Brierley Investments.

But aviation analysts on both sides of the Tasman warn that it could be months before the parties are able to negotiate a maze of regulatory and political hurdles, with some serious horse-trading looming.

Governments and competition authorities in both countries will have to be placated.

The Business Herald understands that investment bank ABN Amro, which advises Singapore Airlines, initiated the deal by approaching Qantas several weeks ago.

Singapore Airlines has always wanted Ansett, which is why it bought into Air NZ in the first place.

If the audacious deal revealed yesterday goes ahead, Qantas will end up controlling Air NZ after buying shares in the national carrier owned by Brierley Investments (30 per cent) and Singapore Airlines (25 per cent).

Singapore, in return, will buy Ansett Australia (and the 49 per cent of Ansett International that Air NZ owns) from Air NZ.

Just how much of a stake in Air NZ Qantas will settle for is unclear, as is how much Brierley and Singapore will offload.

A Qantas spokesman said the size of its stake depended on the New Zealand Government's attitude, given the limits on foreign airline ownership.

But Qantas could take 25 per cent with no need to go to the Government, and might be happy with the level of control that gave it.

The Government's policy is that no foreign airline may own more than 25 per cent of a New Zealand international airline, with total foreign airline interests not exceeding 35 per cent of the share capital.

Air NZ's A and B share structure also prevents more than 49 per cent of the airline being owned overseas.

The prices the parties will pay each other for all of this have yet to be hammered out, and will almost certainly be the focus of protracted negotiations.

Some analysts see the hand of Air NZ and Brierley chairman Sir Selwyn Cushing behind the deal. Certainly Sir Selwyn was in chipper mood yesterday, although unavailable for comment.

He is stepping down as chairman of Air NZ and Brierley "pending the proposal's outcome," while remaining a director of both companies.

Air NZ said it had been approached by Qantas on the deal, which was "conceptual" with no valuations having been struck.

The Air NZ board said it was too early to form a view on the proposed acquisition. It had established an independent committee of directors to consider "this and other options." The committee was also seeking expert advice.

Qantas chief executive Geoff Dixon said the airline had held preliminary discussions with Singapore Airlines and Brierley, as well as with Sir Selwyn in his capacity as Air NZ chairman, but would wait for further advice or contact from Air NZ's board and the two major shareholders before deciding whether to proceed further.

Singapore Airlines said it had held exploratory discussions with Qantas at management level but, like Air NZ, said the proposal was only a concept.

Brierley chief financial officer Andrew Shepherd reiterated the company's position stated in March - that it still planned to exit its 30 per cent stake in the airline, but at nowhere near the current share price.

If the deal proceeds, Qantas will end up with a huge share of the transtasman market and the concept of a single Australasian aviation market - long promoted by Air NZ - will become a reality.

Although some analysts scoffed at the deal as posturing and declared it a non-starter, the reaction from most in the investment community was positive.

"Air NZ has its back against the wall. It really doesn't have a lot of options," said Arthur Lim, of JP Morgan.

Ansett would benefit by getting a deeper-pocketed parent in Singapore Airlines, which this month posted an annual profit of $2 billion.

Although that would present Qantas with a tougher opponent in the Australian market, it obviously considered the tradeoff of a stronger international presence worth the deal.

Peter Harbison, director of the Sydney-based Centre for Asia-Pacific Aviation, said Qantas needed Air NZ to meet its long-term global goals.

"It sounds cruel to say it, but in the jungle which is emerging, the little carriers don't survive - including Air NZ." But Mr Harbison said a deal would take months to settle.

"We have several months of protracted and tortuous review by the respective competition bodies if this does go ahead. Six months would be optimistic. They'd have to review every route.

"I'm quite sure the Commerce Commission might approve it, but with a suggestion that Singapore/Ansett set up a domestic carrier in New Zealand, or something similar."

Back to the future? When Air NZ bought into Ansett in 1996, the Commerce Commission approved the deal on condition Air NZ sell Ansett subsidiary Ansett NZ to News Corporation to maintain competition in the New Zealand domestic market.

Among the hurdles to overcome is retention of Air NZ's international landing rights, which are dependent on the airline being majority-owned by New Zealanders.

The key issue for Air NZ's minority shareholders will be the price they are offered for their share of Ansett. Payment might involve Qantas shares as part of a convoluted deal between Qantas and Singapore.

Transport Minister Mark Gosche said he was waiting for more details, but that issues of competition and landing rights must be addressed.

Prime Minister Helen Clark said there was no reason to look more favourably on Qantas than Singapore Airlines when it came to Air NZ's foreign airline ownership limits.

"The same issues arise."

The Government has steadfastly refused to raise the 25 per cent barrier for Singapore, which had been lobbying for 40 per cent.

Air NZ's A shares (available only to New Zealand nationals) rose 9c yesterday to $1.09. Its B shares, available to all comers, closed 14c higher at $1.51. Qantas shares closed 13c higher at $3.48.

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