Qantas backpedals on Air NZ control

Ansett's woes are putting pressure on Air New Zealand

By CNN's Geoff Hiscock and Grant Holloway

SYDNEY, Australia (CNN) -- Australian airline Qantas sought to soothe ruffled feathers Thursday as political and legal hurdles mounted in front of its plan to take a major stake in rival Air New Zealand.

Qantas chief executive Geoff Dixon said Qantas did not want a merger or outright control of Air New Zealand.

In a statement issued late Thursday, Dixon said any partnership between the two airlines would see them keep their own brands and operations.

The Qantas proposal would see Air New Zealand continuing to be New Zealand-owned. The chairman would be a New Zealander, as would a majority of the board.

Dixon's statement and his emphasis on "partnership" follows criticism of the proposal from New Zealand Prime Minister Helen Clark and her deputy, Jim Anderton, who both suggested government limits on non-New Zealand ownership of the national carrier would not be lifted lightly.

Dixon said Qantas realized the transaction was a complex one that required the approval of both the New Zealand and Australian governments and the respective competition regulators in the two countries.

No impact on access to bilateral aviation rights

He claimed the Qantas proposal would not affect Air New Zealand's access to bilateral aviation rights.

Clark had said earlier there were "great risks" to Air New Zealand's bilateral international landing rights, which were dependent on it being substantially owned and managed by New Zealand.

There was also a risk to competition within Australia and New Zealand, on the trans-Tasman route and internationally to Los Angeles and other Pacific destinations, she said, according to the New Zealand Press Association.

Clark said the promotion of New Zealand as a tourist destination would be jeopardized if Air New Zealand were to be seen as a Qantas subsidiary.

But Dixon claimed the New Zealand tourism industry had nothing to fear from the proposal, with Qantas already operating more than 200 trans-Tasman flights a week and accounting for about 35 percent of the New Zealand inbound tourism market.

"Our partnership proposal would only strengthen and enhance this effort," he said.

Complex shuffle of regional assets

Analysts say any deal could take more than six months to complete because of the number of parties involved and the regulatory complexity a regional airline asset shuffle would involve.

The proposal necessarily would mean changes to Air New Zealand's ownership of Ansett, the chief rival for Qantas in the Australian domestic market.

The most likely scenario is Singapore Airlines buying Ansett from Air New Zealand.

But such are the difficulties involved, some industry observers rate the likelihood of a successful deal at less than 50 per cent.

Shares in Qantas and Air New Zealand stabilized on the Australian Stock Exchange Thursday, with Qantas closing A1c down at A$3.55 and Air New Zealand also A1c down at A$1.16.

Alliance won't support change of control

It is understood Qantas wants at least 40 percent of Air New Zealand, but under current rules it could acquire 25 percent at most.

New Zealand Deputy Prime Minister Anderton, who leads the key coalition Alliance party, said he would not support handing over control of Air New Zealand to Qantas.

Anderton told National Radio New Zealand an "unassailable" case would need to be put forward for the proposal to be allowed.

"The idea of selling our national airline to anyone would be anathema to the Alliance and we would have to be confronted with an unassailable case for doing so -- and thus far we haven't seen it," Anderton said.

Fleet renewal is a key issue

While Air New Zealand maintains it is under no pressure to accept a deal from Qantas, the airline needs a major cash injection from somewhere to help it renew its fleet -- particularly Ansett's ailing aircraft. It also needs to address the issue of Ansett's losses, estimated to be more than $2 million a week.

Dr Jim Farmer, chairman of a committee of independent directors set up by Air New Zealand to consider the Qantas proposal, told a press conference in Auckland, New Zealand on Wednesday that timing was not an issue.

"We're under no pressure to complete the process of assessing this proposal and the other options available within any specific timeframes," The New Zealand Herald reports Farmer as saying.

Air New Zealand Chief Executive Gary Toomey told the conference the airline was not strapped for cash but that it was exploring funding options to support its medium-term development program.

Toomey said that the company would have $400 million in cash available by the end of the company's financial year on June 30.

Managing director of the Center for Asia Pacific Aviation Peter Harbison says any Qantas-Air New Zealand deal could take up more than six months to complete.

Time was running out for Air New Zealand, which was on course for a record loss this financial year and Ansett was currently losing between $2 million to 2.5 million per week, Harbison said in a statement.

Air New Zealand warned in March this year it was expecting to post a substantial operating loss for the full year to June 30 as a result of the Ansett purchase.

In its half-year result announcement for July-December Air New Zealand posted a profit of just $1.52 million (NZ. $3.8 million).