Qantas to take share of Air New Zealand

2:00pm

UPDATE - Air New Zealand confirmed today that Australian airline Qantas would take a 22.5 per cent stake in the New Zealand carrier.

Qantas will pay for its stake by buying a new issue of Air NZ shares.

Its investment would go through three stages:

* Subject to approval by the New Zealand Ministry of Transport, Qantas will subscribe to convertible notes equal to 4.99 per cent interest at NZ44.5c per share.

* Subject to approval by regulators and Air NZ shareholders, those notes will convert to shares. At the same time, additional shares will be issued by Air NZ, taking Qantas' total equity stake to 15 per cent.

* Qantas would be given an option to acquire the remaining 7.5 per cent at the time of regulatory approval or within three years of that approval.

Qantas' stake injects $550 million into cash-strapped Air NZ's coffers.

The New Zealand carrier also plans a $220 million capital rights issue next year although the decision has not been finalised.

Air NZ shares, which were put on trading halt this morning, shot up 4c to 54c immediately afterwards.

Air NZ chief executive Ralph Norris said its alliance with Qantas would create 200 extra highly skilled jobs in the company.

He added that no jobs would be lost.

Mr Norris said the deal would bring significant economic benefits to New Zealand, including an extra 50,000 tourists each year and a higher profile.

Qantas chief executive Geoff Dixon said Qantas would fund the investment in Air New Zealand from some of the proceeds of an equity raising undertaken in August.

He said it was anticipated that the alliance would deliver combined synergies of up to $450 million by year three of the agreement and would be earnings per share accretive from 2003/04 onwards.

Qantas chairman Margaret Jackson said the Qantas board had unanimously approved the agreement and the share transaction.

Ms Jackson said the board believed the strategic benefits to both airlines would ensure they played major roles in growing the economies of both countries.

Mr Dixon said the strategic partnership would assist both airlines to retain their independence in an industry facing considerable and continuing difficulties.

The alliance is subject to approval from the NZ Minister of Transport, Air NZ shareholders, the New Zealand Commerce Commission and the Australian Competition and Consumer Commission.

The Government did not immediately rule out the proposal.

Three ministers responded to the announcement. Finance Minister Dr Michael Cullen is holder of the Crown's 82 percent stake in Air NZ, Transport Minister Paul Swain is holder of the Kiwi Share and Associate Finance Minister Trevor Mallard who holds delegated authority for regulatory issues connected with the proposed deal.

Dr Cullen, Mr Mallard and Mr Swain said in a joint statement the Government intended to maintain majority ownership and control of Air NZ for the foreseeable future.

"The proposal is consistent with that intention. However, there are a number of other factors which need to be considered," they said.

The Government would assess the proposal both from a principal shareholder and from a Kiwi shareholder perspective, they said.

As principal shareholder, it would have to be satisfied the proposal was in the best commercial interests of the company going forward.

As Kiwi shareholder, it had to assess whether the proposal met the national interest considerations agreed by cabinet.

These included:

* Maintenance of effective control of Air NZ by New Zealand nationals;

* Continuation of Air NZ's ability to exercise New Zealand's existing and future air rights;

* Preservation of the unique New Zealand identity of Air NZ;

* Provision of effective channels for international tourism and travel;

* Provision of a durable domestic air services network; and

* Preservation of New Zealand basic employment.

The two companies would be expected to provide any information required to assist with this evaluation, the ministers said.

The Government had said it would get back to Air NZ on December 18 with conditional decisions.


The agreement includes Qantas and Air NZ forming a group, made up of an equal number of representatives from each airline, that will co-ordinate the entire Air NZ domestic and international network and Qantas flights to, from and within New Zealand.

It also includes Air NZ managing the day to day commercial aspects of these services with support from the coordinating group.

As well, Air NZ and Qantas will codeshare on all New Zealand domestic and trans-Tasman flights and on flights between New Zealand and the Americas.

Air NZ will also codeshare on Qantas Australian domestic flights and Qantas international flights that connect with Air NZ flights.

Under the agreement, Qantas will invite one Air NZ director to join the Qantas board and will nominate two representatives to be appointed to the Air NZ board.

The deal will also give Air NZ the crucial code sharing agreement it needs after losing the links it enjoyed before its Ansett subsidiary collapsed last year.

In return Qantas will get two seats on Air NZ's board, and the New Zealand carrier will get one seat on Qantas' board.

Qantas estimates the alliance will provide economic benefits worth $1 billion to New Zealand and more than A$680 million ($771 million) to Australia, over the next five years.

Air NZ chairman John Palmer said today's announcement was one of the "most positive developments in Air New Zealand's aviation history -- an important milestone in aviation's evolution in this part of the world and an initiative that will bring tremendous economic gain to New Zealand".

It would allow Air NZ to grow without losing the elements which make Air NZ unique.

"The decision allows Air NZ to retain its autonomy and independence and to focus on the next stage of the airline's development ...

"But most importantly this decision is good news for the travelling public because it ensures a strong Air NZ can continue with a domestic and international network that is viable commercially and affordable for the consumer."

Mr Palmer said a major airline grouping in the region was being established.

All the airline activities of Air NZ would combine with those parts of Qantas that operate to, from or within New Zealand.

Commercial management of the combined operations would be the responsibility of Air NZ.

- NZPA