NZ stocks: Air alliance decision set to dominate week

By CHRIS DANIELS

Pundits and tea leaf readers will be put to the test this week, with the delivery of the Commerce Commission's final verdict on the Air NZ-Qantas alliance plan.

It will not be issued today, but the competition regulator is expected to give at least an indication of when this week it will announce its decision.

The decision is the big event for the market this week, and much crystal ball-gazing and speculation has already occurred. Some commentators have interpreted questions put to the airlines at the commission's conference in August as signs that it is leaning towards approving a deal, though possibly with many conditions.

Interpreting such Delphic utterances may be difficult, however, as some also predicted the Australian regulators would endorse the deal, only to be surprised when it delivered a resounding rejection.

The court process that is bound to follow any decision by the commission will be more complicated and possibly more legalistic in New Zealand than across the Tasman.

The Australian federal Competition Tribunal, which has wide powers to review and overturn Australian Competition and Consumer Commission decisions, will hear the airlines' pleas that their alliance deserves to proceed.

Here in New Zealand, however, the next stage is the High Court. Appeals against a Commerce Commission decision need to be made largely on points of law - an obvious one being that the commission somehow failed to conduct the whole process properly.

Air NZ's alliance opponents, led by Wellington Airport majority owner Infratil, already say the commission erred in allowing the two proposals - one for a Qantas purchase of up to 22.5 per cent of Air NZ's shares, the other to set up a joint operating arrangement - to be heard together.

Coincidentally, Air NZ has its annual shareholders meeting in Auckland this Wednesday, where the alliance plan will no doubt be raised. Last week's announcement of a sweeping restructuring, including shrinking staff numbers by 15 per cent in four years, is another obvious topic for curious shareholders.

The strategic review, headed by airline newcomer and rising star Rob Fyfe, began at the same time the Commerce Commission delivered its initial, comprehensive rejection of the alliance plan.

Latest research by ABN Amro says regulatory approval is unlikely. As the airline is about to spend between $150 million and $200 million on upgrading its fleet of eight Boeing 747-400s, ABN Amro says it also expects an announcement soon of a rights issue, designed to raise up to $200 million.