Infratil report urges Govt to weigh up AirNZ move carefully

By NZPA

Tuesday 27th August 2002

An independent report into the prospect of Qantas taking a slice of Air New Zealand has cautioned the Government to be careful about balancing all the national interests.

"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," said a report commissioned by infrastructure investor Infratil.

Infratil, a 66 percent shareholder in Wellington International Airport, asked authors Kieran Murray, Colin Lynch and former Treasury secretary Graham Scott to look into the pros and cons of such a deal.

Qantas and Air NZ have been in negotiations for some months over a possible equity sale but say it is far from a done deal.

Acknowledging there was little information about the possible deal to go on, the authors warned the Government, which now owns 82 percent of Air NZ, to beware of conflicts of interest.

"Governments can always make easy money by investing in companies and protecting them from competition, as occurs in many less developed countries.

"It is also common for the interests of a national airline to be confused with the wider interests of the citizens of the country in question.

"This has happened historically in New Zealand and remains a risk in the current situation now the Government has a large shareholding whose value it will want to preserve and grow for fiscal reasons."

The report says an investment by Qantas -- which is speculated to want a stake of up to 25 percent in its New Zealand rival -- would potentially mean less competition.

It says aviation rivalry has seen consumers enjoying lower airfares, more destinations, more frequent flights, better reservation, payment and ticketing options, and greater demand, largely stimulated by price competition.

Any reduction in competition between Qantas and Air NZ could mean a rationalisation of routes, lower quality service, and an increase in fares.

The report urged the Government to maintain a "sceptical attitude," saying the public benefit of such a deal had "aspects that are disquieting".

It also recalled past mistakes of other governments. The "think big" projects and involvement in the Bank of New Zealand were examples of situations where political and public good interests had had severe financial consequences.

The report also underlined the importance of doing some research into the impact of the Qantas move on competition. It pointed to research done when Qantas and Singapore Airlines were competing for stakes in the airline last year, which looked at the implications not only domestic air services but regional airlines and tourism industry.

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