Govt gags itself over Air NZ/Qantas proposal

By NZPA

Monday 25th November 2002

The Government is gagging itself over Air New Zealand's proposal to sell a stake to Qantas until ministers decide whether to approve or kill the deal.

Air NZ announced today it wants the go-ahead for the Australian airline to spend $550 million on a 22.5 percent stake in the New Zealand carrier.

Qantas would pay for its stake by buying a new issue of Air NZ shares. The airline is 82 percent owned by the Government which spent $885 million bailing it out last year.

The Government did not rule out the deal immediately. Ministers will let the airline know by December 16 or 18 whether it can seek approval for the deal from competition watchdogs in New Zealand and Australia.

Ministers said the first hurdle had been cleared -- that the Government retain majority ownership -- but whether it was in the national interest and in its own interest as the owner had yet to be decided.

If those hurdles were also cleared then the regulatory bodies would have to give their approval.

National Leader Bill English said the Government was mistaken over the ownership issue as the way the deal was structured meant Qantas would gain 50 percent control for a quarter of the company's value.

Finance Minister Michael Cullen, his associate minister Trevor Mallard and Transport Minister Paul Swain said the Government intended to maintain majority ownership and control of Air NZ for the foreseeable future.

Mr Mallard is looking after the regulatory side of the deal, Mr Swain will work on whether the deal is in the national interest and Dr Cullen is in charge of protecting the Government' ownership interests in Air NZ.

More information would be sought from both airlines before the decisions was made, but all three firmly refused to be drawn on the merits of the proposal.

As principal shareholder, the Government would have to be satisfied the proposal was in the best commercial interests of the company going forward, Dr Cullen said.

Mr Swain would assess whether the proposal met the national interest considerations agreed by cabinet.

These included:

* Preservation of New Zealand's existing and future air rights;

* Preservation of Air NZ's identity;

* Provision of a durable domestic air services network and;

* Preservation of basic employment in New Zealand.

If the Government approved an initial go ahead, the Commerce Commission would probably take until the middle of next year to decide on competition issues.

Dr Cullen said no one should automatically assume the deal would get as far as the commission.

"You should make no such assumption at this point. Certainly ministers are not making any such assumption at this point.

All three ministers avoided any comment on the deal itself.

"We are not in position to argue for or against, or to enter into debate on the proposal itself ... It is for Air NZ and Qantas to argue their case," Dr Cullen said.

Armed with legal opinions, Dr Cullen said making any comment would put the deal at risk due to company law and also open them up to allegations of insider trading.

The ministers said they were briefed on the deal for the first time this morning.

No discussions would be held with Australian ministers as they go through a similar, if less complex, process than their New Zealand counterparts.

Dr Cullen acknowledged there was little support from other political parties, but hoped some would change their minds. If that didn't happen the future of the deal would still be decided by Cabinet not Parliament.

"It would be nice if there were other parties supporting, if we decide to proceed, but we haven't decided to proceed ourselves," Dr Cullen said.

He said he understood Air NZ had other proposals if the deal fell through, but that was for it to discuss.

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