Reality bites in Ansett decision

By GREG ANSLEY

Australian Transport Minister John Anderson expects Qantas to tell him today whether it will buy Ansett from Air New Zealand.

Most analysts agree the final decision will be a political rather than a market solution.

Therefore, they say, Qantas is likely to reverse its earlier rejection of an Ansett buyout and pick up its floundering rival.

It is also widely expected that despite all its bluster to the contrary, the Australian Competition and Consumer Commission will overcome its loathing of monopolies and agree to let Qantas have 90 per cent of the domestic aviation market.

The Government's competition policy, administered by Professor Allan Fels and the ACCC, bars mergers causing or likely to cause a substantial reduction of competition.

"There are going to be some difficult competition issues to be worked through," Mr Anderson conceded.

The escape clauses are the failing-firm and public interest provisions of competition policy, previously used only in a handful of minor mergers.

Hope remains that a bidder other than Qantas may pick at Ansett's bones, but outside Virgin Blue, which is keen to gain extra routes, and the more distant possibility that Singapore may be enticed back in some form, no serious buyers are on the horizon.

Professor Fels yesterday gave vent to the anger many feel towards Air New Zealand by suggesting that the commission may extend its deliberations on any Qantas submission well beyond the Thursday deadline set by Air New Zealand's financial reporting requirements.

"They haven't got a proposal before us, so I don't think we'll be approving any overnight transactions," he said.

"Air New Zealand has taken a tremendously long time to deal with this whole matter, and when it comes to us, we'll take our time too."

But analysts say the political jetstream is scorching everyone.

"Allan Fels is not a political novice," said Professor John Quiggan, an Australian National University expert on aviation and competition law.

"For the ACCC, it is a situation where the only alternatives are a merger with Qantas or allowing Ansett to collapse completely.

"For the ACCC to insist on its processes at this point would be fatal for it as an organisation, I would think."

The Government's intervention in the Ansett crisis is driven as much by concerns for its own immediate future - an election is only two months away - as by the enormous implications of the loss of Ansett.

The airline holds 40 per cent of the domestic aviation market, and provides the only air links to large and politically-sensitive tracts of rural Australia through its subsidiaries.

It is responsible for 16,000 jobs directly and as many again indirectly, and contributes about $A3.2 billion a year to the national economy.

The Government's preferred option, outside a miraculous Ansett survival, is for Qantas to pick up the bulk of the airline, with the rest distributed between Virgin Blue and other unspecified buyers.

"Qantas is having a good look, Virgin Blue is involved, there may be others who are prepared to see whether a commercial continuation of the businesses of Ansett is realistic," Mr Anderson said yesterday.

"The Australian public would expect us to leave no stone unturned ... and this is why, unusual as it is, we've been prepared to say that [a Qantas buyout] is an option that has to be explored.

"Our objective is to keep Ansett flying as long as possible and to open up as many options as possible, given the very grave situation that we suddenly find ourselves in."

Professor Fels said the ACCC would compare the effects of a ban on a Qantas-Ansett merger with the alternative - an Ansett collapse - and consider issues of public benefit.

"The argument that will be put to us - but it will have to be persuasive - is that Ansett has no future, in effect that it would go under unless someone took it over," he said.

The ACCC has let companies in similar dire straits go to the wall, and Professor Quiggan said that a Qantas-Ansett merger would once not have got to first base.

"It's only with the failing-firm situation that it's coming under consideration," he said.

"I think the practicalities are that there isn't going to be time for any serious assessment of it."

Professor Fels said the ACCC had allowed some companies to fail rather than merge because potential buyers who had initially expressed interest had not followed up that interest.

"The general issue we face - and which all anti-trust regulators face around the world when someone's going under - is not so much the impact of their going under, but what's the best outcome for competition," he said.

"Is it best to stand around and let that happen and then a liquidator takes over and the assets that remain are picked up by someone, or is it better to have some kind of managed exit from the market? Long-term, important questions are involved."

If the Qantas takeover goes ahead, analysts say caps on fares and such other moves as restrictions on predatory policies will almost certainly be introduced.

" the airline industry is now going to be a permanently regulated industry," Professor Quiggan said.

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