Study says AirNZ/Qantas deal would harm competition

By NZPA

Wednesday 28th August 2002

The Government is sticking to its arms-length approach to the Air New Zealand/Qantas negotiations following a report warning a deal between the pair could lead to higher fares and service cuts.

"We've made it very clear to Air New Zealand and indeed it was repeated from (yesterday's governor-general) speech from the throne, that any deal that's proposed by Air NZ involving Qantas would have to pass the Commerce Commission tests and the Government would not be prepared to use any form of override," Finance Minister Michael Cullen told National Radio.

A new study released today by economic and financial analysts LECG said any reduction in rivalry between the Australasian airlines could mean cuts to the number of flights and quality of service, and higher fares.

"Impacts of this nature would be a high price for society to pay to maintain the value of the Government's equity stake in a commercial company," LECG said.

The study was commissioned Wellington International Airport, which is 66-percent owned by utilities investor Infratil, and services both airlines.

Infratil manager Lloyd Morrison has been a vocal opponent of the deal, which could see Qantas take up to a 25 percent stake in Air NZ.

The report said that while a tie-up between the airlines could have some benefits such as code-sharing, the Government had a conflict of interest -- as both shareholder and protector of the national interest -- and should leave any decision making to competition watchdog the Commerce Commission.

"It would be relatively easy for the Government to protect its investment in Air NZ by intervening to influence or overrule the impact of the Commerce Commission's attention to competition policy issues," LECG said.

A case in point is the dairy industry, where the Government last year passed a law to allow the creation of dairy exporter and marketer Fonterra -- exempting it from requiring clearance from the Commerce Commission.

"Now that it has an equity interest, the Government should be very careful to keep the public interest paramount over its fiscal interest as a shareholder," LECG said.

Dr Cullen said today his ministers were organised in a way that meant the Government's two roles wouldn't become blurred.

"I as minister of finance hold the shareholding interest. The kiwishare interest and the general transport interest is held by the Minister of Transport, (Paul) Swain, and (Trevor) Mallard, who is the associate minister of finance and actually deals with Treasury on those competition and national interest questions.

"Even within the Treasury minister framework we have separated the shareholding interest from the competition and national interest arguments."

United Future leader Peter Dunne opposes the deal but said Commerce Commission scrutiny would substantially meet his concerns.

But he said the Government shouldn't ignore the opposition to the proposed sale.

"They've got to protect the commercial integrity of the Air NZ board so I don't have a problem with them indicating that they can talk.

"But at the same time what's been fascinating has been the overwhelming reaction from a number of the New Zealand institutional investors and others, really sending large warning signals about this particular investment if it goes ahead," Mr Dunne told National Radio.

"Both the board of Air NZ, the Commerce Commission and maybe the Government have to take account of that."

He said any deal should go through a parliamentary select committee.

Shares in Air NZ, which is 82 percent-owned by the Government, closed yesterday at 64 cents.

The airline is set to announce its annual result this morning.

Analysts expect Air NZ to see a second half trading profit turned into a bottom line loss as it continues to pay for its failed investment in Australian carrier Ansett.

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