When a financially troubled airline faces multi-billion dollar spending on new aircraft, a totally palatable solution to its woes is highly unlikely. Thus it was with the eight options studied by Air New Zealand's independent directors. Each contained fish-hooks with the potential to create significant snags for the airline and
New Zealand. In the end, the directors have sensibly chosen the option which offers Air NZ its best chance of growth and continued independence, and the country the least potential risk.
That involves Singapore Airlines increasing its 25 per cent stake in Air NZ and supporting a planned rights issue. The snag is that the Government will have to lift its cap on foreign ownership, which prevents a single airline owning more than 25 per cent of Air NZ.
The cap is there for good reason. It safeguards the national ownership and independence of the airline, and it protects the international landing rights negotiated by the Government on its behalf. If the airline were not majority-owned by New Zealanders, overseas governments would have reason to withdraw those rights.
The cap will, therefore, not be lightly lifted. At the very least, the Government will demand added guarantees that Air NZ will not be subsumed by SAL's size and aspirations, and that national ownership and control will be retained. The airline began its campaign of persuasion yesterday by indicating that the Singaporeans' future stake would not exceed 50 per cent.
It was less forthcoming on the precise Singaporean shareholding level. But it could be argued that if SAL's holding were raised to 35 per cent, that would not breach the cap on the stake able to held by all overseas airlines. Presumably, however, another rule, that which restricts total foreign ownership to 49 per cent, will also be broken. Unwinding the airline's "A" and "B" share structure offers a potential means of negating that breach.
Intricate issues abound for the Government. But a reasonable overriding principle might be that this is the best solution for Air NZ. Certainly, it averts the possibility of a taxpayer bailout or the threat posed by the Qantas option. The latter would have resulted in Qantas and SAL dividing the Australasian market between them. Qantas would have taken 49 per cent of Air NZ by buying the stakes of Brierley Investments and SAL, and Air NZ would have on-sold Ansett Australia to the Singaporeans. Air NZ would have been condemned to the status of a minor regional carrier. It is an added plus that SAL has failed to gain its desired 80 per cent stake in Ansett, the wholly owned subsidiary which is the key to Air NZ developing an integrated Australasian airline.
The backing of SAL has further advantages. It offers formidable expertise in airline operation, and Air NZ will be able to take advantage of its hub at Changi Airport. Qantas could offer no such benefit. If the Government gains assurances from SAL that it will retain and expand Air NZ's international operations, especially those important to New Zealand tourism and business, the airline should be poised for a growth path diametrically opposed to that likely under Qantas.
It is rich, of course, for the Australians to now complain that the Singaporeans will control Ansett by the back door. The Qantas offer included handing control of Ansett to SAL. Qantas can now concentrate on developing a top-flight domestic operation in New Zealand, rather than pushing a scenario likely to promote cobbled-together and contrived competition.
The airline industry is changing rapidly. Large multinational alliances are the order of the day, and some national carriers, such as Belgium's Sabena, have been bought by foreign competitors. Open skies agreements are gaining more traction. But national interest suggests that landing rights will continue to be jealously guarded by many governments. The Government is, therefore, right to be wary of any threat to New Zealand's rights.
It has already turned down one application by SAL to increase its stake to 40 per cent. Since then, however, the national flag carrier has lost more of its lustre. Matters have changed dramatically. The Singaporean option looks likely to fly.
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When a financially troubled airline faces multi-billion dollar spending on new aircraft, a totally palatable solution to its woes is highly unlikely. Thus it was with the eight options studied by Air New Zealand's independent directors. Each contained fish-hooks with the potential to create significant snags for the airline and
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