Qantas loses in bid for Air NZ

By FRAN O'SULLIVAN and VERNON SMALL

Singapore Airlines appears to have beaten rival Qantas in the battle for a bigger slice of Air New Zealand as negotiators put the final touches to a joint rescue package with the Government.

The package will not be settled until tomorrow at the earliest.

But the Government is expected to take a lead role in the recapitalisation of the national flag carrier through options ranging from a placement of Air NZ shares, loans or guaranteeing a major capital-raising exercise.

Singapore Airlines is expected to increase its stake in Air NZ to at least 35 per cent but well short of the 49 per cent in its original proposal to the Government.

The deal is yet to get the cabinet's official approval, but there were firm indications yesterday that the protracted struggle for an increased foreign stake in the national flag-carrier was going Singapore Airlines' way.

Negotiations are said to be "flexible but tough" as the key players approach the decision.

The Government will insist on strong governance measures in return for taking part in the recapitalisation. If it puts equity into Air NZ, it is expected to demand to appoint at least one new director.

Singapore Airlines is also expected to seek increased representation on the board.

There is potentially room for three new directors to be appointed. Former chairman Sir Selwyn Cushing is due to retire soon and two other directors come up for re-election by rotation at the company's annual meeting.

Other Government measures include protection of Air NZ's brand, its international routes and the vital tourism market.

Air New Zealand acting chairman Jim Farmer said last night that the airline would postpone its September 4 result for a week so the major players had enough time to conclude a recapitalisation package which could be unveiled at the same time as the airline's annual result - an expected loss of about $200 million.

The airline's audit committee will meet at its Auckland headquarters this afternoon to complete this year's annual result and the amount of capital it needs before a full board meeting tomorrow.

Singapore Airlines chief executive Cheong Choong Kong was in Wellington yesterday for secret talks with the Government's negotiator Cameron & Co and Singapore Airlines' officials have begun "due diligence" on Air NZ to assess its financial position, indicating cash-raising plans are in train.

On Monday, Prime Minister Helen Clark said the Government had a "preference" not to take a shareholding in the company beyond its existing kiwi share.

But her statement that the Government did not "wish to go near a shareholding" raised eyebrows among those close to the talks, who said the Government was still open to a deal that would see it holding shares in the airline.

Until Air NZ had completed its business plan and capital requirements the Government remained unclear what shape its backing would take.

A Government source said "almost everything is in flux" and it would be unwise to speculate on the final size of the capital raising or the Singapore or NZ Government shareholdings.

Air NZ needs the extra cash to upgrade its fleet and repair the damage to its balance sheet from big losses by its Ansett Australia subsidiary.

The cabinet was due to have its final discussion on the matter next Monday, but yesterday's events suggest an "in principle" decision has been made to go with Singapore Airlines.

Qantas had wanted to buy Singapore Airlines' 25 per cent stake and Brierley's 30 per cent holding before selling Ansett Australia off to Singapore Airlines.

But Singapore has said it will not sell its cornerstone stake.

The Australian newspaper yesterday reported that Qantas expected no more meetings with either the NZ Government or Rob Cameron of Cameron & Co.

But if negotiations between the Government and Singapore Airlines break down, the Australian carrier is expected to move smartly back to the negotiating table.

Dr Farmer said yesterday that the Air New Zealand board would need time to finalise matters after the cabinet had made its decision.

If Air NZ does not announce a recapitalisation plan with this year's result it will be forced to write down the value of Ansett Australia.

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