Must Read : Caught between a rock & hard place
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Must Read : Caught between a rock & hard place
Caught between a rock and a hard place
PRIME Minster John Howard and New Zealand Prime Minister Helen Clark are both cornered by one of the world's best and most powerful airline strategists -- the CEO of Singapore Airlines, Cheong Choong Kong.
With almost unlimited capital at his disposal, Cheong is making both governments choose between two dreadful alternatives.
The first is giving Singapore Airlines dominance of the region and therefore forcing Qantas to completely integrate into an overseas operation and transfer much of its operation offshore.
The second alternative for the politicians is the risk of being blamed for Air New Zealand and Ansett going into receivership. Neither Clark nor Howard wants to be known as the person who shifted effective control of Air New Zealand out of Auckland, or of Qantas out of Sydney. But both fear Air New Zealand/Ansett receivership would lead to the loss of thousands of jobs and, especially in Australia, the cessation of uneconomic rural routes.
As reported in The Weekend Australian, Air New Zealand has warned the Howard Government in writing that the corporate survival of the Air Zealand/Ansett group is threatened by the government stalemate. Air New Zealand appears to have issued a similar warning to the NZ Government and the unions.
The governments have only two weeks to make the decision and the time available for a decision may be further curtailed if unsecured creditors of Ansett or Air New Zealand get jittery.
On September 3, a $1.3 million loan facility led by Commonwealth Bank, NAB and Westpac is due to roll over. It is unlikely that the banks would appoint a receiver but if the stalemate continues, Air New Zealand directors will no doubt consider writing down their investment in Ansett.
This would cause their loan agreements to be in breach, even though -- as Air New Zealand CEO Gary Toomey points out -- the group is cash positive. Given the letter to the Australian Prime Minister, Air NZ directors may consider calling for a receiver.
What Cheong wants is to increase Singapore Airlines' stake in Air New Zealand from 25 to up to 49 per cent. He would then inject big sums into Ansett to save the airline. Qantas wants to buy Singapore's stake in Air New Zealand and have Singapore buy Ansett.
Negotiations between Qantas and Singapore Airlines proceeded on this option and Australian Transport Minister John Anderson and NZ Finance Minister Michael Cullen both backed it. But, as the power of his position and the potential of regional dominance became apparent, Cheong toughened his stance.
His people now say that if he can't lift his holding he will not sell his 25 per cent stake to Qantas, knowing that it would, in time, send Ansett to the wall.
On the other hand, Cheong's game is a dangerous one because the Singapore government-backed institutions -- known as Singapore Inc -- played a big role in creating the Ansett crisis to the benefit of Singapore Airlines.
Sometimes when a powerful international businessman backs national politicians against a wall the politicians will fight and, in this case, there is goodwill between the Singapore and Australian governments.
The Australian Government let Singapore Telecom buy Optus. To date, Cheong's handling of the situation has been brilliant. Singapore Airlines and the Singapore Government were very unhappy that, before the Qantas float, the Australian Government chose British Airways rather than Singapore Airlines as the international partner for Qantas.
Inevitably, that was going to mean there would be regional rivalry between the two airlines but in Singapore it was seen as a mere setback to Singapore Airlines' master plan to dominate the region.
Singapore's next step was to offer to buy half of Ansett from The News Corporation Ltd at what was a top price.
At the time, few thought the chairman of Air New Zealand -- which owned the other half of Ansett -- would be stupid enough to exercise his airline's pre- emptive right and buy the remaining half of Ansett. Air New Zealand had neither the management talents to operate Ansett nor the wherewithal to fund its capital requirements.
However, Cushing might have got away with the gamble had Singapore Inc not intervened.
Singapore Inc backed the start-up of two discount airlines in Australia, Virgin and Impulse. They withdrew support from Impulse, only when it refused to merge with Virgin.
Singapore Airlines has always claimed it has nothing to do with Singapore Inc but few in the New Zealand or Australian governments believe it because the co-ordination between the two Singapore arms has been brilliant.
Qantas was slow in appreciating just how powerful the partnership of Singapore, Ansett and Air New Zealand would be when combined with Singapore's virtually unlimited capital. The Qantas market capitalisation is only $3.8 billion, whereas Singapore Airlines is capitalised at around $16 billion.
If it was geared to the level of Qantas it could borrow $12 billion. Faced with such financial and market power in the region, Qantas will be relegated to an uneconomic small regional player with insufficient scale to go it alone against the Cheong juggernaut. If Cheong achieves his goal of regional dominance, Qantas will keep its brand but will integrate its total operation into a world alliance managed on a global basis, probably with British Airways.
Air New Zealand is effectively the balance of power. It will decide whether there is a major airline group based in Australia/New Zealand or whether control of the local airlines moves to Singapore and London.
In normal corporate circumstances this sort of wrangle would be sorted out commercially with a bidding war to buy the company with the balance of power. But because there are ownership restrictions on Air New Zealand and Qantas and all airlines operate under government licences, it becomes a question for governments.
The Australian and New Zealand governments know what is ahead of them once control of their airlines is lost. If the governments take a strong line, Cheong will probably back down despite the present bravado. And if he doesn't , then there may be other ways for the combination of Qantas and the Governments to skewer him. But he is in a very powerful position and he and Singapore Inc know it.
Robert Gottliebsen writes daily for
The Australian and hosts Business Daily on
Sky News channel at 8.30pm and 11.30pm
PRIME Minster John Howard and New Zealand Prime Minister Helen Clark are both cornered by one of the world's best and most powerful airline strategists -- the CEO of Singapore Airlines, Cheong Choong Kong.
With almost unlimited capital at his disposal, Cheong is making both governments choose between two dreadful alternatives.
The first is giving Singapore Airlines dominance of the region and therefore forcing Qantas to completely integrate into an overseas operation and transfer much of its operation offshore.
The second alternative for the politicians is the risk of being blamed for Air New Zealand and Ansett going into receivership. Neither Clark nor Howard wants to be known as the person who shifted effective control of Air New Zealand out of Auckland, or of Qantas out of Sydney. But both fear Air New Zealand/Ansett receivership would lead to the loss of thousands of jobs and, especially in Australia, the cessation of uneconomic rural routes.
As reported in The Weekend Australian, Air New Zealand has warned the Howard Government in writing that the corporate survival of the Air Zealand/Ansett group is threatened by the government stalemate. Air New Zealand appears to have issued a similar warning to the NZ Government and the unions.
The governments have only two weeks to make the decision and the time available for a decision may be further curtailed if unsecured creditors of Ansett or Air New Zealand get jittery.
On September 3, a $1.3 million loan facility led by Commonwealth Bank, NAB and Westpac is due to roll over. It is unlikely that the banks would appoint a receiver but if the stalemate continues, Air New Zealand directors will no doubt consider writing down their investment in Ansett.
This would cause their loan agreements to be in breach, even though -- as Air New Zealand CEO Gary Toomey points out -- the group is cash positive. Given the letter to the Australian Prime Minister, Air NZ directors may consider calling for a receiver.
What Cheong wants is to increase Singapore Airlines' stake in Air New Zealand from 25 to up to 49 per cent. He would then inject big sums into Ansett to save the airline. Qantas wants to buy Singapore's stake in Air New Zealand and have Singapore buy Ansett.
Negotiations between Qantas and Singapore Airlines proceeded on this option and Australian Transport Minister John Anderson and NZ Finance Minister Michael Cullen both backed it. But, as the power of his position and the potential of regional dominance became apparent, Cheong toughened his stance.
His people now say that if he can't lift his holding he will not sell his 25 per cent stake to Qantas, knowing that it would, in time, send Ansett to the wall.
On the other hand, Cheong's game is a dangerous one because the Singapore government-backed institutions -- known as Singapore Inc -- played a big role in creating the Ansett crisis to the benefit of Singapore Airlines.
Sometimes when a powerful international businessman backs national politicians against a wall the politicians will fight and, in this case, there is goodwill between the Singapore and Australian governments.
The Australian Government let Singapore Telecom buy Optus. To date, Cheong's handling of the situation has been brilliant. Singapore Airlines and the Singapore Government were very unhappy that, before the Qantas float, the Australian Government chose British Airways rather than Singapore Airlines as the international partner for Qantas.
Inevitably, that was going to mean there would be regional rivalry between the two airlines but in Singapore it was seen as a mere setback to Singapore Airlines' master plan to dominate the region.
Singapore's next step was to offer to buy half of Ansett from The News Corporation Ltd at what was a top price.
At the time, few thought the chairman of Air New Zealand -- which owned the other half of Ansett -- would be stupid enough to exercise his airline's pre- emptive right and buy the remaining half of Ansett. Air New Zealand had neither the management talents to operate Ansett nor the wherewithal to fund its capital requirements.
However, Cushing might have got away with the gamble had Singapore Inc not intervened.
Singapore Inc backed the start-up of two discount airlines in Australia, Virgin and Impulse. They withdrew support from Impulse, only when it refused to merge with Virgin.
Singapore Airlines has always claimed it has nothing to do with Singapore Inc but few in the New Zealand or Australian governments believe it because the co-ordination between the two Singapore arms has been brilliant.
Qantas was slow in appreciating just how powerful the partnership of Singapore, Ansett and Air New Zealand would be when combined with Singapore's virtually unlimited capital. The Qantas market capitalisation is only $3.8 billion, whereas Singapore Airlines is capitalised at around $16 billion.
If it was geared to the level of Qantas it could borrow $12 billion. Faced with such financial and market power in the region, Qantas will be relegated to an uneconomic small regional player with insufficient scale to go it alone against the Cheong juggernaut. If Cheong achieves his goal of regional dominance, Qantas will keep its brand but will integrate its total operation into a world alliance managed on a global basis, probably with British Airways.
Air New Zealand is effectively the balance of power. It will decide whether there is a major airline group based in Australia/New Zealand or whether control of the local airlines moves to Singapore and London.
In normal corporate circumstances this sort of wrangle would be sorted out commercially with a bidding war to buy the company with the balance of power. But because there are ownership restrictions on Air New Zealand and Qantas and all airlines operate under government licences, it becomes a question for governments.
The Australian and New Zealand governments know what is ahead of them once control of their airlines is lost. If the governments take a strong line, Cheong will probably back down despite the present bravado. And if he doesn't , then there may be other ways for the combination of Qantas and the Governments to skewer him. But he is in a very powerful position and he and Singapore Inc know it.
Robert Gottliebsen writes daily for
The Australian and hosts Business Daily on
Sky News channel at 8.30pm and 11.30pm
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Cheong of all people given the Singapore Govt mentality should know, you can make it hard and expensive for them, but, "you can't beat city hall".
It's just a matter of time and Government has plenty of that, rollover deadlines notwithstanding.
It's just a matter of time and Government has plenty of that, rollover deadlines notwithstanding.
Evertonian
I didn't know about Impulse merging with Virgin. Did I miss that one or has the Pprune let me down??Curious G, I couldn't agree more. It's bluddy frightening.
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What most amazes me (not!) in this current – and ongoing – crisis for * Airlines (and almost by default, QF and Australia as well), is the deafening silence from the Australian media in tracing the all too easily followed road back to the root of most of not all of Asterisk Airline’s problems. It wasn’t 1989, it was 1979, when the (then still) Dirty Digger and boborke’s overweight Hungarian ‘mate’ took control of * Airlines and went about systematically asset stripping it to the bare bones.
But it wasn’t enough for them to gut, strip, rape and burn the bricks and mortar assets of the widely diversified Asterisk corporate structure. On top of that, the Fat Man went on a buying spree, buying the whole display parking lot at any airshow he happened to go to. (And anyone with any recollections of those days will know that’s not much of an exaggeration.)
Three examples – the A320, bought with absolutely no consultation with Asterisk marketing or operations managers. Asterisk was already operating a very similar aircraft, the 737.
The 146 – ditto (‘complimenting’ the F28)
The F50 – ditto (replacing, at twice the price, the paid for F27s)
Certainly in the last case, it turned a tightly run, profit making subsidiary of Asterisk serving a large part of rural eastern Australia into a lame duck. As for the already struggling Melbourne based F27 operation, it turned what was already a loss maker into a gaping wound. I think it could be true to say the 146 had a similar effect on the operation in the West.
If there’s anyone out there who might be so foolish to think that all these massive – and unnecessary – aircraft purchases were made just so the DD and the FM could have bright, shiny new toys on their airline’s gate lounges, think again. Every time PA pulled out his cheque book to buy another aeroplane, the hefty commission went into… I wonder which bank account? I’d be willing to bet it wasn’t the company account. (They’ve not been alone in this – take a look at what Lucius Tan did to Philippines Airlines with his aircraft buying sprees. And where did all the money go there?)
To date, no journo has pursued this line of argument. Of course, that would have nothing to do with the fact that the DD still owns most of the Australian print media.
Would it?
Will AN fold? I doubt it. Watch for some absolutely convoluted piece of double shuffling on the part of Helen Clarke and Howard that will allow them to save face. (Something ‘heroic’?) [Sorry, couldn't resist that.] The only guarantee I can give is that it will end up costing the Oz and Kiwi taxpayers – and the travelling public – considerably more than any real solution would.
But it wasn’t enough for them to gut, strip, rape and burn the bricks and mortar assets of the widely diversified Asterisk corporate structure. On top of that, the Fat Man went on a buying spree, buying the whole display parking lot at any airshow he happened to go to. (And anyone with any recollections of those days will know that’s not much of an exaggeration.)
Three examples – the A320, bought with absolutely no consultation with Asterisk marketing or operations managers. Asterisk was already operating a very similar aircraft, the 737.
The 146 – ditto (‘complimenting’ the F28)
The F50 – ditto (replacing, at twice the price, the paid for F27s)
Certainly in the last case, it turned a tightly run, profit making subsidiary of Asterisk serving a large part of rural eastern Australia into a lame duck. As for the already struggling Melbourne based F27 operation, it turned what was already a loss maker into a gaping wound. I think it could be true to say the 146 had a similar effect on the operation in the West.
If there’s anyone out there who might be so foolish to think that all these massive – and unnecessary – aircraft purchases were made just so the DD and the FM could have bright, shiny new toys on their airline’s gate lounges, think again. Every time PA pulled out his cheque book to buy another aeroplane, the hefty commission went into… I wonder which bank account? I’d be willing to bet it wasn’t the company account. (They’ve not been alone in this – take a look at what Lucius Tan did to Philippines Airlines with his aircraft buying sprees. And where did all the money go there?)
To date, no journo has pursued this line of argument. Of course, that would have nothing to do with the fact that the DD still owns most of the Australian print media.
Would it?
Will AN fold? I doubt it. Watch for some absolutely convoluted piece of double shuffling on the part of Helen Clarke and Howard that will allow them to save face. (Something ‘heroic’?) [Sorry, couldn't resist that.] The only guarantee I can give is that it will end up costing the Oz and Kiwi taxpayers – and the travelling public – considerably more than any real solution would.
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Talk about hard-ball tactics!
On the one hand we have the Air NZ shareholders,Garry Toomey,Air NZ/Ansett Employees as well as Dr Cheong and the big three banks (that's A$1.3 billion worth) lobbying Miss Clark as well as John Howard to allow the Singapore Airlines deal to go through.
What is the scenario??
If Miss Clark denies the increase in investment her cabinet will be held responsible for the national carrier going into revceivership and be responsible for the loss of some 22000 direct jobs on both sides of the Tasman (indirectly up to 200,000 could be affected).
A heavy burden to carry.
On the other hand if approval is granted Miss Clark will be regarded as the hero of the nation and having been seen to save the National Carrier as well as its partner airline.
Not only that but trading relations with Singapore will reach a new and improved level in the future with all NZ nationals to benefit.
Also she will be seen as the one who kept out the evil Qantas from getting their grubby hands on Air NZ yet again.
After all - better the Singaporeans controlling Air NZ than the aussies!
Remember the Bledisloe and world cups!!
The stakes are high and both the Australian Govt (which now has a trading block agreement with Singapore) as well as the New Zealanders do not want this to sour any future investment in their respective countries.
Sounds like a forgone conclusion.
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Have to agree with Curious G on this. Based on the NZ Government's decisions lately regarding other policies (especially those of defence and the decision to remove the RNZAF's teeth), anything could eventuate. That woman is full of surprises, and no doubt the trade agreements with our SE Asian partner will play a big influence in what happens to Air New Zealand and Ansett.
Kermie
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Heres an idea,
Ansett issues 100 million more shares and the australian government buys the lot. That devalues the other shareholders investment to almost zero, Ansett remains Australian, and AIR NZ gets all the help from Australia that it deserves.
Isn't it amazing that in world war two Australia was invaded from the North and we defended it, now it's getting invaded again from the North, and we are all but giving it to em.....
Ansett issues 100 million more shares and the australian government buys the lot. That devalues the other shareholders investment to almost zero, Ansett remains Australian, and AIR NZ gets all the help from Australia that it deserves.
Isn't it amazing that in world war two Australia was invaded from the North and we defended it, now it's getting invaded again from the North, and we are all but giving it to em.....
