Singapore chat puts air deal on course

By GEOFF SENESCALL

Brierley Investments and Singapore Airlines are understood to have patched up their differences, making a deal with Air New Zealand likely.

According to aviation sources the framework of an agreement could be put together as soon as this week, ultimately leading to Brierley's selling its B shares (able to be held by foreigners) in Air New Zealand to Singapore.

This would give Singapore a 17 per cent foothold in Air New Zealand, reducing Brierley's exposure to around 30 per cent. Under existing regulations Singapore is allowed to own up to 25 per cent.

Brierley boss Greg Terry declined to comment on a possible tie-up with Singapore in an interview with the Business Herald on Friday.

However, he did talk broadly about the benefits of Air New Zealand's partnering with a major airline after taking full ownership of Ansett Australia last month.

He said the real risk the airline faced was trading away the cost savings of merging with Ansett, which were expected to be around $200 million a year.

"If Air New Zealand is not going to trade them away competitively then it needs to form a wider strategic alliance and one that will ensure that, as far as feasible, Australia will remain a two-airline nation."

The urgency for doing a deal is that Singapore is also in negotiations with Sir Richard Branson, who is setting up an Australian version of Virgin.

Singapore, which this year took a stake in Sir Richard's European airline Virgin Atlantic, must decide this month if it will join.

A Virgin-Singapore alliance would be a forceful pairing to take on the incumbent duopoly of Qantas and Ansett, which, to date, have dominated the Australian domestic market.

While relations between Brierley and Singapore had been strained, Mr Terry - a pragmatist - is understood to have been working hard on getting them back on side.

Singapore had originally wanted to buy directly into Ansett early last year, but Air NZ (controlled by Brierley) refused to waive its pre-emptive rights over the other 50 per cent shareholding, owned by News Corp.

Singapore, soon after, entered into direct talks with the Brierley and Air New Zealand chairman, Sir Selwyn Cushing, about buying shares in the local carrier.

However, tensions are believed to have flared between Sir Selwyn and Singapore's Dr Cheong during the negotiations and they foundered.

Late last month it is believed that Mr Terry, who is based in Singapore, took over negotiations.

During his time with the conglomerate Jardine Matheson in Hong Kong, Mr Terry got to know Ansett chief executive Rod Eddington, who was then running Cathay Pacific.

Mr Eddington is close to Singapore Airlines.

Two key issues to resolve between Brierley and Singapore will be price and influence.

Mr Terry will not want to sell the Brierley holding at the present depressed price. His belief is that the Air New Zealand shares are trading at around half what they should be.

Singapore will not want to do a deal unless it can be given assurances that it has sufficient influence and possibly rights over the rest of the Brierley stake should the aviation laws ever be relaxed.