The battle for Air New Zealand (ANZ) has moved into the halls of government. ANZ is lobbying hard for a relaxation of New Zealand's foreign ownership caps so that Singapore Airlines (SIA) can take a bigger stake and infuse ANZ with much-needed capital. SIA now owns 25% of ANZ. Reports vary on whether it wants to boost that to 49% or some lesser amount.

Under New Zealand law, a foreign airline may not own more than 25% of ANZ, airlines in total are restricted to 35%, and overall foreign ownership is capped at 49%. Wellington is worried about the implications of allowing SIA to own more.

The government is focusing on three concerns: market access and landing rights; competitive air service; and the effect on New Zealand tourism.

These concerns were first raised when Qantas started the bidding for an ANZ stake. Qantas still says it is in the running, and has revised its bid so that it would replace all other foreign shareholders without needing to lift ownership caps. But Qantas can succeed only if SIA agrees to sell, and the Singaporeans have emphatically said no.

The 30% stake that Brierley Investments retains in ANZ raises a problem. Since Brierley moved from New Zealand to Singapore last year, its shares now count toward the foreign cap. They will be diluted if SIA is allowed to buy new issue shares, but the Brierley stake still restricts how much SIA can buy.

Michael Cullen, New Zealand economics minister, has raised concerns about lifting the foreign caps. He complains that a decision will force his government to decide how important Ansett is to ANZ, when Ansett is not even a New Zealand brand.

If the government declines to lift the cap, ANZ still can raise capital by selling part or all of Ansett, but ANZ's board is reluctant to do that. Both chief executive Gary Toomey and independent analysts warn that selling Ansett would weaken ANZ and curtail its ability to compete with Qantas.

If New Zealand agrees to lift ANZ's ownership caps, Australia is likely to do the same for Qantas. A decision by New Zealand's cabinet is expected to be taken shortly.

Source: Airline Business