Qantas stake would need to clear many hurdles

Any proposal for Qantas to take a stake in Air New Zealand will first have to meet tests set by three senior Cabinet ministers.

Finance Minister Michael Cullen, who represents the Government's interests as Air New Zealand's 82 per cent shareholder, will want to ensure the taxpayers' investment is protected. Associate Finance Minister Trevor Mallard will protect the "national interest" in any tie-up, and Transport Minister Mark Gosche has to ensure aviation issues such as Air New Zealand's landing rights with other nations are protected.

A raft of regulatory bodies on both sides of the Tasman will also need to be satisfied that an Air New Zealand/Qantas tie-up meets their concerns.

They include:

COMMERCE COMMISSION

It could be significant that under the Commerce Act's tougher new competition test, the commission did not approve the Progressive-Woolworths supermarket merger, which would reduce three competing chains to two. The commission thought it would be much easier for two competitors than three to collude against consumers.

Russell McVeagh partner Andrew Harmos says business people will be looking to see if this reasoning is applied to the Air New Zealand-Qantas deal. The two airlines are effectively the only competitors on a number of transtasman routes, he says, and by the commission's own logic, are more likely to collude than three airlines. How much worse would the threat to consumers be, asks Harmos, if Air New Zealand and Qantas become linked by common directors and shareholding?

The Government has bypassed the Commerce Commission. Last year, it rammed through legislation so rival dairy companies Kiwi Cooperative and the New Zealand Dairy Group could merge their interests together with the New Zealand Dairy Board to form one mega-group, Fonterra.

But in an election campaign debate, Cullen was adamant it would not use such powers again to help Qantas take a stake in Air New Zealand.

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Chairman Alan Fels is already taking action against Qantas, alleging it used its market power in an anti-competitive manner by dumping capacity on the Brisbane-Adelaide route after Virgin Blue's entry in December 2000.

Qantas chief executive Geoff Dixon has said Fels is "overzealous" and given the powers would try to "pull us back to such an extent that we will be regulated out of existence".

The key test under the Australian Trade Practices Act is that any deal must not result in a "substantial lessening of competition".

There is concern that a Qantas influence on Air New Zealand at a high level might stop it providing potential competition on the Australian airline's domestic market.

But Australian Prime Minister John Howard could give the deal a nudge under a "public benefit" clause or through an inter-government contract between his Government and Helen Clark's.

TAKEOVERS PANEL

If Qantas buys less than 20 per cent of Air NZ, there is no issue.

If it buys more, Qantas would have to issue a full or partial takeover offer to other shareholders.

NEW ZEALAND STOCK EXCHANGE

Air New Zealand can issue up to 10 per cent of its capital to Qantas without seeking approval under Stock Exchange rules.

This has led to speculation that Qantas might make up the rest of a 19.9 per cent by privately buying the holdings of Brierley Investments and Singapore Airlines.

But other issues, including director representation at board level and issues affecting asset sales, might require shareholder approval.

AUSTRALIAN STOCK EXCHANGE

The Australian threshold is 15 per cent.

SECURITIES COMMISSION

The major issue relates to insider trading. It would not come into play unless the Government used its inside position as an Air New Zealand shareholder to advantage itself through receiving confidential information.

OVERSEAS INVESTMENT COMMISSION

OIC approval is needed for any deal above 25 per cent.

The Government could use its OIC powers to stop any deal it deemed to be not in the national interest. - the "Young Nick's Head" clause.

AUSTRALIAN FOREIGN INVESTMENT REVIEW BOARD.

The FIRB can demand assurances from Qantas that Australian jobs will not be threatened by any tie-up.

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