Air NZ says talk of Ansett buy just speculation

By Yoke Har Lee

Air New Zealand has denied an Australian news report that it has approved Singapore Airlines' purchase of a 50 per cent stake in Ansett Australia for A$500 million (NZ$595 million). The managing director of Air NZ, Jim McCrea, said the report in the Sydney Morning Herald was pure media speculation.

"There is a formal process that all parties need to work through on this issue."

SIA's vice-president (public affairs), Rick Clements, told the Business Herald that due diligence was still in progress and would be completed this month.

The Sydney Morning Herald said on Wednesday that Sir Selwyn Cushing's meeting last month with SIA deputy chairman Dr Cheong Choong Kong produced an informal agreement that Air NZ would not block SIA's purchase. An industry source told the Business Herald that when Sir Selwyn met Dr Cheong in Singapore, he indicated what Air NZ wanted.

"When Cushing met SIA, there was no strong objection from Air New Zealand.

"They said the best thing for them is if they can buy Ansett; that's what they have always said. If that is not possible, then they will have to look at alternatives.

"The ball's in Air NZ's court [about] what it wants to do."

Analysts have pointed out that SIA would be a stronger owner for Ansett, although Air NZ would definitely benefit from owning 100 per cent in Ansett.

Under the procedures laid out, SIA would have to complete due diligence, after which its bid would go to News Corp, the seller of the stake.

News Corp would then notify Air NZ of the sale. Air NZ has 30 working days to decide whether to exercise first right to buy the 50 per cent stake.

Analysts said it was now a matter of SIA and Ansett coming to the table and agreeing on a shareholding structure for a merger that was agreeable to Air NZ.

Meanwhile, Bloomberg news says Asian airlines are likely to see profits squeezed by a surge in jet fuel prices as competition for passengers prevents them from passing on rising costs in ticket prices. Jet fuel prices rose as much as 60 per cent after crude oil producers cut supply in March, pushing up the cost of benchmark Brent oil 53 per cent.

Singapore jet fuel prices hit a peak of $US20.25 ($NZ36.71) a barrel on April 7, just seven weeks after touching a five-year low of $US12.60 a barrel. At present levels of $US18 to $US20 a barrel of jet fuel, Asian airlines could see costs rise 5 to 8 per cent this year, analysts say.

Air India sets aside 16 per cent of its yearly budget for jet fuel. The company bought 5.2 million barrels last year.

Air India said a flight to London from New Delhi used about 860 barrels of jet fuel, which would cost about $US16,300 based on yesterday's closing price of $US18.90 a barrel. That is a 50.9 per cent increase from seven weeks ago. Worsening the outlook for Air India is a failure to use financial markets, such as futures contracts, to lock in a price for fuel and cushion price fluctuations.

Even airlines that use financial markets to manage price risk have not escaped the surge in jet fuel costs.

Japan Air Lines, which hedges, or locks in a future price, for up to 50 per cent of its fuel costs, said profits could fall this year because 30 per cent to 40 per cent of its jet fuel purchases were linked to market rates. SIA, which said it hedges up to 50 per cent of its fuel purchases up to a year forward, would not comment on the immediate effect of higher fuel prices on operating expenses.

SIA buys about 24 million barrels of jet fuel a year, accounting for about 17 per cent of operating expenses.