Hush after Sydney air talks

By DANIEL RIORDAN aviation writer

Air New Zealand and Qantas Airways are staying tight-lipped after meeting yesterday in Sydney.

Qantas had been expected to present more details of its planned buy-in of Air NZ to that airline's independent directors. But spokesmen for the two airlines said last night that they did not intend to discuss the nature of their negotiations ahead of Air NZ's board meeting next Monday.

Air NZ's independent directors also met representatives of 25 per cent shareholder Singapore Airlines and 30 per cent owner Brierley Investments.

The Qantas proposal is expected to be one of several options before the full Air NZ board when it meets on Monday. Investment bank Salomon Smith Barney has been preparing a report examining various ownership and funding options, although an Air NZ spokesman last night declined to confirm whether the board meeting, set down for Monday and Tuesday, would consider either the Qantas proposal or the report from the investment bank.

Another option for Air NZ is to ask the Government to relax its ownership restrictions so Singapore Airlines can lift its stake to 40 per cent and lead a major recapitalisation.

The second option is for a Star Alliance solution, under which another Star Alliance member - probably United Airlines - would take a 10 per cent stake in Air NZ.

Foreign airlines are allowed to hold a combined 35 per cent stake in the company.

Importantly, this option would keep Air NZ within the global Star Alliance and ensure international competition was preserved. If Air New Zealand leaves the alliance it will be hit with a $US25 million ($60 million) exit fee and other penalties.

United Airlines is understood to have been crunching numbers to see if it makes financial sense for it to take a stake in Air NZ - something it has long been interested in.

There would be many synergies between the two carriers. Star regards the transpacific route, to New Zealand and through Australia up to East Asia, as vital parts of its network.

The US and New Zealand have an open-skies policy, and Air NZ and United have successfully sought immunity from American anti-trust laws which prevented the two airlines discussing even basic issues.

Without the anti-trust immunity, the two airlines could establish a simple code share, but could not discuss what time of day or size of aircraft they might use to make the most of cooperation.

However, it may take several months to get the same anti-trust immunity with the whole Air NZ group, including Ansett.

Industry sources suggested that United representatives will be in Auckland next week at the time of the Air NZ board meeting, although United could not be reached last night for comment.

Meanwhile, Qantas chief executive Geoff Dixon said Qantas was looking at starting a discount international airline, with the help of its Oneworld alliance partners, to fly to markets from which Qantas, in its current form, was unable to generate "an acceptable return."

Commentators said those markets do not include New Zealand.

Air NZ chief executive Gary Toomey said troubled subsidiary Ansett would not be economically viable over the long term unless it increased its 41 per cent market share.

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