Buyout of Qantas NZ tipped

By SIMON HENDERY

The fate of New Zealand's second-largest airline is in Australian hands.

Qantas New Zealand, owned by a consortium of mainly local businessmen, is negotiating with Australia's biggest carrier, Qantas Airways, over a possible buyout of the local operation.

In a statement to the Australian stock exchange yesterday, Qantas Airways said all Qantas New Zealand services would continue as usual while talks continued, and the Australian company would honour all Qantas New Zealand tickets.

The statement followed rumours this week that receivers spent the weekend at Qantas New Zealand's Auckland offices.

The consortium behind the airline franchise, Tasman Pacific Airlines, bought what was then Ansett New Zealand in March last year from Australian media magnate Rupert Murdoch's News Corporation.

While the airline operates as Qantas New Zealand, it does so under a franchise arrangement with the Australian company, which does not have an ownership stake in the New Zealand operation.

The airline, which employs 1100 staff, has struggled since its launch in 1987, making a profit in only three of its 13 years, and accumulating losses of more than $250 million.

Analysts say it has continued to be under-capitalised and has suffered from an ongoing loss of market share following a crippling dispute with its pilots in 1999.

Its market share fell 5 to 10 per cent as a result, and is now between 30 and 35 per cent.

The mainstay of its aircraft fleet - eight BAE "whisper jets" - are also more expensive to run and less spacious than Air New Zealand's Boeing 737-300s.

Tasman Pacific is headed by Australians Ken Cowley, the chairman of Independent Newspapers. Other shareholders include New Zealanders Sir Clifford Skeggs, Alan Gibbs, Trevor Farmer, Chris Coon, Ian Hendry and Greg Lancaster.

The group is believed to have paid News Corp between $30 million and $40 million for the business.

The possible buyout of its New Zealand namesake comes as Qantas Airways is battling its own financial problems caused by the falling Australian dollar, the weak economy and cut-throat competition from no-frills competitors.

Qantas New Zealand spokesman John Cordery refused to elaborate on the stock exchange announcement, or comment on the rumours that receivers had visited the company.

Neither Mr Cordery nor Qantas Airways would discuss a likely timetable for the discussions between the two companies.

Airline Pilots' Association president Keith Molloy said Qantas NZ's 110 pilots were paid as usual yesterday.

His main worry was that media reports would scare potential passengers out of buying tickets.

The Flight Attendants and Related Services Association industrial officer, Terry Law, said he was still waiting to hear what would happen to his 160 Qantas NZ members.

The problems which have beset Qantas operations on both sides of the Tasman have also hit Air New Zealand.

The local carrier last week warned that it would report a substantial loss in the year to June 30.

Citing analysts and former Ansett executives, Australian media reported last month that Air New Zealand's problem child, Ansett Australia, had lost $A119 million ($143 million) in the December half year and that a massive injection of capital from Air New Zealand shareholder Singapore Airlines was needed to solve the problem.

In February, Qantas Airways said it would cut its 30,000-strong workforce by 5 per cent and suspend some international services after reporting a 22 per cent drop in net profit to $A263 million ($317 million) for the six months to December 31.

The Sydney Morning Herald said yesterday that Deutsche Bank had forecast the company would more than halve its dividend within 18 months as it battled the fiercely competitive Australian domestic market.

Newcomer Impulse Airlines last month cut its one-way Sydney to Brisbane fare to $A39 ($47) after cut-price rival Virgin Blue had led discounting on the route with a $A69 ($83) ticket.

Staff at Qantas New Zealand's domestic terminal in Auckland went about their business as usual yesterday. One said: "We're all cool. We're not worried. We don't think the doors will close on us."

Qantas' woes helped boost rival Air New Zealand's fortunes on the local sharemarket yesterday.

Air New Zealand A shares, available only to New Zealanders, closed up 3c at $1.05 while the more widely tradeable B shares were up 5 cents at $1.50.