The accord by Singapore Airlines to buy 25% of Air New Zealand ends a year of airline turbulence in Australasia. It also completes a realignment that began eight years ago when SIA first bid for a 25% stake in Qantas Airways.
SIA lost that bid to British Airways and more recently failed in an attempt to buy half of Ansett. But its latest move has put it on an equal par to BA in Australasian aviation.
BA's stake in Qantas will be matched by SIA's in ANZ, which in turn owns Ansett. Ansett New Zealand, which recently changed hands, will change its name but remain an independent carrier with commercial ties to Qantas. Virgin Blue, the planned low-cost Australian venture, will go it alone.
This is a very different result than the one Qantas contemplated. It was ready to pay up to $1 billion for a stake in ANZ and for the privilege of taking it out of the Star Alliance. Qantas saw a link with ANZ as Australasia's answer to globalisation. James Strong, Qantas chief executive, saw the chances of either his airline or ANZ surviving over the long term on their own as "very slim".
Instead, the two will now have different equity partners and ties to different global camps in Star and oneworld.
This realignment will be felt most strongly in Australia. SIA's stake in ANZ gives Ansett access to capital that its parent would have had trouble providing. SIA will not dip into its pocket unilaterally, but chief executive Dr Cheong Choong Keong says he is prepared to respond to any capital call made to all ANZ shareholders. This could be critical to Ansett, which put off fleet planning due to its unsettled ownership.
Equal footing
SIA's stake in ANZ will put Ansett on a more equal footing with Qantas. In recent years, Ansett has seen its domestic market share slowly slide, but now it believes it can can "stand toe-to-toe with Qantas and compete meaningfully".
If Virgin had entered Australia with SIA's backing, Ansett would have faced a tougher time than Qantas in meeting that threat. Some analysts went so far as to say that SIA backing Virgin would have undermined the viability of ANZ and Ansett.
Knowing that regulators would never allow it to invest in both Virgin's Australian venture and ANZ, SIA saw far more potential in the flag carrier, especially with the Ansett link. SIA was never comfortable with the idea of aligning itself with a no-frills carrier like Virgin Blue, given its own stress on service standards. It wanted an Australasian presence to match that which it could have gained through a Qantas stake.
Virgin Blue will go ahead without SIA, but its threat has shrunk from major to manageable. Without SIA's support, Virgin cannot make as big a splash, and Ansett will now be more capable of standing up to it. Some observers predict that SIA's 49% stake in Virgin Atlantic, coupled with its exposure to Ansett, may even moderate the Australian adventure.
Final approvals
SIA's stake in ANZ is not quite complete. It remains subject to regulatory approval, due diligence and completion of ANZ's buy out of Ansett.
Australia's Foreign Investment Review Board could tie restrictions to the Ansett takeover. The most likely are that Ansett must retain an Australian head office and chief executive, that skilled jobs must stay in Australia, and that ANZ must commit to have Ansett or a subsidiary keep on serving the Outback.
Ansett's unions have been especially noisy and could delay a deal, but they seem unlikely to stop it. It is estimated that SIA will close the purchase of ANZ shares by mid-year.
SIA already owns 8.3% of ANZ, shares it bought on the open market in April. It is buying the remaining 16.7% from Brierley Investment (BIL), to bring its maximum to the 25% allowed for any one foreign owner. The New Zealand investment house will continue to hold 30% of ANZ's A shares, which only nationals may own, but SIA has a right to arrange for a local buyer to take over those shares too.
SIA will have two or three seats on ANZ's 10-member board and the Singapore airline will hold a veto over senior management appointments. Other foreigners could own up to 10% more of ANZ. Lufthansa and the Virgin Group could both be interested.
Eventually SIA would like to raise its ANZ stake to 40%. Wellington is currently refusing, but Dr Cheong hopes through the role SIA expects to play at ANZ that it can "persuade the New Zealand Government that we are worthy of a higher share".
Source: Airline Business
