Air New Zealand's tortuous attempts to forge an equity alliance with Australian operator Ansett are fast taking on more shades than a chameleon. After prolonged discussions to reach an agreement to make a phased purchase of TNT's 50 per cent holding, new talks are underway to change the shape of the deal again.

This time Air NZ wants to buy the transport group's entire half share immediately. The change of tack followed a New Zealand Commerce Commission veto of the original deal. In its draft decision in early February, the antitrust body said it feared the agreement would lead to a monopoly in the local domestic market, where Ansett New Zealand is Air NZ's only competition.

The NZCC rejected an Air NZ proposal to 'quarantine' Ansett NZ so it could continue to operate separately. A total buy-out of TNT by Air NZ would change the picture, reducing the number of owners from three to two and allowing Ansett's other co-owner, News Corp, to take complete charge of Ansett NZ as a wholly owned entity.

Such an arrangement would also require a renegotiation of the A$425 (US$321 million) price tag Air NZ had agreed to pay for its stake in Ansett; some analysts believe a revised sales price could be as low as A$350 million.

At the same time another potential equity partner is hovering in the wings. Singapore Airlines says if the Air NZ deal collapses it is interested in taking a stake in the Melbourne-based carrier. A final decision from the NZCC is expected to be handed down early in April.

The continuing uncertainty over future ownership has battered staff morale at Ansett as domestic market share slips and profits tumble. The latest bad news came when News declined to release a first half profit figure for the airline. Insiders say the airline struggled to record a profit of A$10 million for the six months to December, normally its strongest period, compared to earnings of A$111 million in the first half of 1994/95. All this is going on while Ansett struggles to maintain profitability in the face of an ongoing capacity onslaught from rival Qantas, which holds a 6.5 percentage point lead in the domestic market. Ansett is leasing in extra aircraft: two B767-200s, two Airbus A320s and a B737-300 to add domestic capacity and a B767-300 for international services.

But analysts are unanimous in concluding Ansett's fleet revamp is not enough and a far larger expansion is required. As it is, the current expansion can only be financed by a planned capital injection from its owners, whoever they turn out to be, estimated at around A$300 million. Ansett already has up to $1.7 billion in debt and an estimated $900 million in leasing commitments.

Tom Ballantyne

Source: Airline Business