Tim Hazledine: Time to put kibosh on cartel nonsense

COMMENT

When New Zealanders return from their Christmas holidays, for their first 17 days on the job - well into February - they are 100 per cent working for foreigners. This is how long it takes us to come up with $9 billion dollars in annual dividend and interest payments on the $180 billion of foreign-owned capital in New Zealand.

Of course, foreigners have to spend time working for us, too, but the numbers are much smaller. New Zealand individuals and companies own about $80 billion of assets abroad, which yield just $2 billion a year in returns to us. The net imbalance in payments is the main contributor to this country running one of the largest current account deficits in the world - now around 4 per cent of GDP.

What is going on here? These numbers are the legacy of two decades of mistakes.

In the 1980s it was Governments, with their horrible Think Big projects and fire-sale privatisation programme, that created a herd of foreign-owned cash cows to be milked for easy payouts.

In the 1990s the mistakes were largely made by our corporate sector, in a tragic succession of ill-judged transactions. In essence, in their dealings with the rest of the world our captains of industry and finance bought high and sold low.

The most recent major example of paying too much was Air New Zealand's purchase in 2000 under pressure from Qantas and the Australian Government of what turned out to be one of the world's worst airlines, Ansett Australia. This operation quickly went belly-up with a write-off of $1.3 billion, and almost brought down Air New Zealand with it. It had to be bailed out by the New Zealand Government, which now owns 82 per cent of our national carrier.

Now they want to make the other mistake: sell low. Top management at Air New Zealand have negotiated with the lads at Qantas a deal whereby in exchange for a $550 million lump sum - money Air New Zealand needs to upgrade its long-haul fleet - we lose not just independent control of our airline, but also hand over to Qantas in perpetuity a stream of operating profits large enough, in my calculation, to pay back the lump sum within three years, a wonderfully short payback period in any business, and spectacular in the low-margin airline industry. Do I have a harbour bridge to sell to these guys!

Not that I am suggesting that Qantas should just be made to sweeten its offer. The whole deal, which would form a near-monopoly cartel over nearly all the routes Air New Zealand flies, is hopelessly anti-competitive and has been firmly rejected as such by the independent Australian Competition and Consumer Commission.

I expect the New Zealand Commerce Commission will do the same, but even if they don't, the deal can't go through if the ACCC won't approve it. That is good, but now the airlines are threatening to appeal the case on which they have already spent $10 million of our money - to Tribunal and High Court.

Someone should put a stop to this, and someone can. His name is Michael Cullen and he is, as Finance Minister, our agent in this matter. He holds in trust the interests of the owners of Air New Zealand, who are us, the taxpayers of this country. Unfortunately, Dr Cullen has not yet seen fit to act, or he would have. He needs to be shown a plan forward.

Here is what Dr Cullen should do. First, of course, put the kibosh on the cartel. Second, make it very clear that Air New Zealand is a key strategic asset and that it is not going to be pushed out of its markets by predatory behaviour from Qantas or anyone else. Because Air New Zealand's basic business position is sound and because the Government is the Government, this would be what economists call a credible commitment - it would work and it wouldn't cost a penny.

Third, the Government should back the airline in quickly raising the capital it needs for fleet upgrading. This might cost some taxpayer money or it might not - again, the Government's credibility as guarantor could be sufficient.

And fourth, it should consider investing in joint ventures to assist the airline to carry out its important promotional role - building what is becoming our most profitable export industry, tourism.

The prognosis is good. The facts are that Air New Zealand has actually been performing very well since the ill-judged Ansett debacle. Its innovative Express Class fare system has been a great success in New Zealand, a win/win situation for consumers and the airline. It is now launching Tasman Express. It is well ensconced in the leading international airline network, the Star Alliance. We should happily give its management credit for all this, while wondering how much more they could do if their attentions were not diverted by the cartel nonsense.

This is no time for our Government to lose its nerve. A strong, independent Air New Zealand would deliver many benefits to the people of this country, not least driving down that balance of payments deficit.

* Tim Hazledine is a professor of economics at the University of Auckland. He made submissions to the Commerce Commission opposing the proposed airline cartel.

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