Singapore Airlines (SIA) and Air New Zealand (ANZ) each want the half interest in Ansett Holdings that News Corporation is selling for A$500 million ($315 million).

ANZ owns half of Ansett Holdings, which in turn owns 49% of Ansett International Airlines and 100% of Ansett Australian Airlines. When ANZ bought 50% of Ansett Holdings three years ago from TNT, it also bought the right to pre-empt any bid for News Corporation's share if it were to sell. SIA's recent agreement to buy News Corporation's half means that ANZ must decide if it will trump SIA's bid. If it can raise the money, the New Zealand carrier has made it clear that it will.

SIA's offer is conditional on a due diligence review and other sale details. Completion of those could trigger the start of ANZ's 30-day pre-emptive period in May.

ANZ would prefer not to share management of Ansett with SIA. News Corporation had no interest in running an airline and gave ANZ a free hand. The carrier cannot expect SIA to be so pliable. Indeed, with SIA's financial muscle, network and resources, ANZ fears being relegated to a junior role. For those same reasons, SIA is not worried about sharing control of Ansett with ANZ.

ANZ wants Ansett to feed Australian traffic to its Brisbane hub for flights to Asia and to its eastern Australian gateways to New Zealand and North America. SIA wants Ansett to feed Australian traffic to Singapore or to SIA gateways in Australia. Traffic flows to feed ANZ and SIA could run in different directions, leading to conflicts over which Ansett should favour. Neither ANZ nor SIA want such squabbles, but ANZ would be the more vulnerable. The Australian market is more important to ANZ than to SIA.

The big hurdle ANZ faces in trumping SIA is cash. When ANZ first hinted it might exercise its pre-emptive right, ratings agency Standard & Poors places the airline's long-term rating on negative credit watch. ANZ's options appear to be an equity issue to raise cash, a cash injection from Brierley Investments (BIL), which owns 42% of ANZ, or an agreement with SIA to buy shares in ANZ instead of Ansett.

Sir Selwyn Cushing, chairman of ANZ and BIL, planned to meet SIA in late April to discuss a combination of the second and third options. BIL is apparently willing to sell some of its ANZ shares to SIA, and would use the proceeds from that to help ANZ buy the other half of Ansett.

SIA reportedly is not keen to help finance a trump of its own bid for Ansett and appears more interested in owning half of Ansett than a portion of ANZ.

Source: Airline Business