Law change still expected in potential Air NZ-Qantas deal

By NZPA

Wednesday 24th July 2002

Competition concerns are growing after confirmation from Finance Minister Michael Cullen that Qantas is talking with Air New Zealand about taking a cornerstone shareholding in the kiwi carrier.

In a televised election campaign debate last night, Dr Cullen confirmed the rival airlines were talking, but said no laws would be changed to accommodate the deal.

But aviation analyst Peter Sigley of JB Were said that was difficult to believe because the Air NZ-Qantas alliance would shatter conventional ideas about market dominance.

"Competition's the big one," he said.

"I'm sure they'll try and work out a way to allow Virgin Blue accelerate its access into the market (but) is it really going to be a fully viable competitor to Air NZ and Qantas?"

If Qantas was to gain a cornerstone stake in Air NZ, the deal would have to gain Commerce Commission approval. But Dr Cullen stressed to the airline that no favours would be given to help the sale. It would have to meet existing competition law and national interest tests, he said.

He also asked why political opponents were opposed to a sale to Qantas but not to other airlines.

The Government has been accused by opponents of keeping a sale in Air NZ shares quiet until after the election. Mr Sigley suggested Mr Cullen's confirmation last night came because it was such a badly kept secret.

"To date he's denied they (the Government) have had any involvement which technically speaking is probably true, but every single thing Air NZ's been doing would have been directly in dialogue with him.

"Maybe it's got to a point where if they come out shortly after the election and confirm that a transaction has occurred, and then it becomes apparent that a whole lot of work has gone into it ahead of time ... It's going to be really hard for him to deny a week after the election that he wasn't in some sort of dialogue."

Figures were flying as to how much of the Government's 82 percent shareholding was of interest to Qantas. Mr Sigley said Qantas had made it clear it was not interested in anything less than 25 percent of the airline, but 20 percent might be more desirable to Air NZ.

"In terms of not triggering a takeover situation under the Takeovers Code, maybe that's going to be more palatable."

Analysts are now focusing on the obstacles that might face a possible deal. Apart from competition concerns, an alliance between the two juggernauts could impact aviation and tourism, and it could also pose political problems.

If Labour maintains power after election, it may be unwilling to upset its coalition allies. Only the Progressive Coalition has indicated it would approve such a deal, and potential partners New Zealand First and the Greens have both said they either oppose it or have reservations.

"Australians already own enough of our economy and we don't think it makes sense for the competing airline to take a stake in our national carrier," Greens co-leader Rod Donald told National Radio this morning.

"At stake is the added value of air transport when it comes to tourism for New Zealand and New Zealand's economy," added NZ First leader Winston Peters.

"At stake is the control of this airline by the New Zealand people."

Mr Sigley said commercially a Qantas shareholding made sense, but it might not be good for travel and trade.

"It's one of the greater good questions the Government's got to look at. Is it better for them to ensure the long-term viability of Air NZ by giving away competition? Maybe that's a smart thing to do, but I don't know if not having competition's going to be that good long-term for the country either. Maybe it's better than having a dead airline."

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