Air NZ / Qantas Deal a done thing?
Deal with Qantas 'nutted out'
31 October 2002
By ANDREA FOX
Air New Zealand and Qantas are negotiating with competition watchdogs over a partnership deal, the fine details of which have been nutted out, according to a source close to the proposal.
But New Zealand Commerce Commission chairman John Belgrave said last night no proposition had been received. The commission had talked to Air New Zealand "a little while ago". If a proposal was received, it would be considered under the Commerce Act.
The Australian Competition and Consumer Commission said it had discussions on the partnership but would neither confirm nor deny last night that it was presently talking to the airlines.
Under the proposal, Qantas is expected to take a stake of up to 25 per cent in Air New Zealand, which is 82 per cent owned by the Government.
Air New Zealand would not discuss the topic at Tuesday's annual meeting.
"Negotiations" with the regulators could be expected to take the form of the airlines being asked to give undertakings such as not to increase fares, the source said.
Undertakings sometimes became obsolete when market conditions changed, and if Singapore Airlines moved into Australia's domestic market as was generally expected within 12 months, then undertaking parties could be expected to go back to regulators and suggest the rules no longer applied.
The benefits to both airlines of a partnership were substantial. Negotiations, which had been going on for more than six months, had reached the fine detail and the autonomy of Air New Zealand's management and board was assured. Qantas would "dominate" the partnership by its size, but would not control Air New Zealand.
Analysts believed Qantas could increase earnings by $120 million to $300 million a year. It did not have to spend time protecting itself against Air New Zealand, it could make savings rationalising trans-Tasman and international flight schedules (Qantas raised its profit by A$60 million a year through rationalising its European schedules in alliance with British Airways) and it was 40 per cent cheaper to service aircraft in New Zealand than Australia.
For Air New Zealand, the partnership would mean enhanced profits, cost savings and efficiencies and freeing up capacity for profitable routes.
While Air New Zealand said other options were being "rigorously" examined, one senior analyst believed its options were limited.
The only other possible partner, Singapore Airlines, "had clearly moved on, especially after the insults from the Government and Michael Cullen," last year.
Small shareholder and public opposition to Qantas getting a share of the national carrier could be overcome "depending on the way Air New Zealand sells it".
"Image-driven" Air New Zealand had clearly shifted its gameplan with its annual meeting statement that negotiations with Qantas had not been spurred by a need for capital.
Managing director Ralph Norris said in Australia six months ago that the national carrier was undercapitalised and was considering a $179 million rights issue.
Now it was saying the alliance was being sought to improve its strategic competitive position, the analyst said.
It needed more equity, but now it was back on track to profit, it could just as easily raise $200 million from issuing shares to the public. But it also urgently had to secure a place in a "super airline group" to survive.
The analyst said that within 10 years there would be only five airline groups in the world – two in the United States, one in Asia, and two in Europe.