Qantas caught napping by BIL

By GEOFF SENESCALL

Qantas was caught off guard when Brierley Investments decided to sell a 25 per cent shareholding in Air New Zealand to Singapore Airlines this month.

The Australian carrier is understood to have been courted by Brierley for some time and had no idea it had missed out.

It was only after the negotiations between Brierley and Singapore hit turbulence at a meeting in Wellington on March 15 to sign off on the agreement that Qantas revealed its hand.

Such speculation, however, draws no comment from the Qantas chief executive James Strong. "It's no use to go into that territory ... It's immaterial."

He prefers instead to focus on what benefits Qantas could offer Air New Zealand shareholders if it were the chosen partner.

He does not appear to be deterred by the comments of the Brierley chief Greg Terry that he still prefers to do a deal with Singapore Airlines.

Certainly Mr Strong's decision to speak out is nicely timed, just days before Air New Zealand goes to its shareholders to seek approval for the $A680 million purchase of the remaining 50 per cent shareholding in Ansett Australia.

But Brierley has said it will not re-enter sale talks until Air New Zealand has completed its purchase of Ansett, which is expected to happen by the end of next month.

A successful bid by Qantas would see that transaction with Ansett unwound.

Mr Strong gives no indication that his tactics are simply those of a spoiler. Giving his quest some credibility is the move to hire brokers Merrill Lynch to help work the numbers. He has also briefed Governments on both sides of the Tasman and met Australian regulators.

Ultimately Mr Strong sees a shareholding alliance with Air New Zealand as part of the inevitable globalisation of the aviation industry.

"We are relatively small markets in the world scale and relatively small airlines, although certainly not insignificant.

"But the future is going to be more about size and efficiency, the strength of your balance sheet and being able to get economies as you grow. The ability for either Air New Zealand or Qantas to think they could survive on a standalone basis indefinitely is very dubious.

"We, in effect, have already got a trade investor in British Airways, which owns 25 per cent of Qantas.

"There is going to be a strong affiliation including equity ownership for Air New Zealand one way or another and it is really going to either be Singapore or Australia.

"What we are interested in exploring is a partnership. Deals like this don't work unless they have benefits for both parties," said Mr Strong, pointing to Qantas' successful and strong eight-year relationship with BA.

Qantas still remains an Australian icon with Australians running it. To have a successful partnership with Air New Zealand it would have to be exactly the same.

Mr Strong was confident the hatchet could be buried over problems Qantas had when it owned a 19.9 per cent stake in Air New Zealand, which it sold in 1997. Back then Brierley was the dominant shareholder and there was no shareholders' agreement, he said. "BIL was very hostile to Qantas."

Gaining access to Australia through Ansett was obviously quite attractive for Air New Zealand.

"But when you look at the net outcome, Air New Zealand will be geared up with higher debt, its credit ratings on negative watch. Ansett needs capital urgently. If Air New Zealand raises capital it is going to be expensive equity at the present share value.

"So life is still going to be quite difficult for Ansett in this market. It is quite vulnerable to what happens in terms of new entrants [Virgin]."

* Brierley Investments shares soared to a 19-month high on their first day's trading on the Singapore exchange, closing at 64Sc (75c). In New Zealand they closed unchanged at 48c.