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Tue, Nov 26, 2002 - Page 12 News List

Qantas to purchase a major portion of Air New Zealand

BLOOMBERG , AUCKLAND

Qantas Airways Ltd agreed to buy as much as 22.5 percent of Air New Zealand Ltd for NZ$550 million (US$277 million), forming an alliance that will allow them to share routes and cut costs. Shares of both airlines rose.

Australia's biggest airline may buy the stake in three stages, initially paying NZ$0.445 apiece for convertible notes and shares equivalent to a sixth of the rival.

That's about a fifth less than Air New Zealand's share price.

Qantas's bid to dominate the market in Australia and New Zealand came after Air New Zealand almost collapsed last year. The airlines must now convince antitrust regulators that the alliance will be beneficial to travelers, or make concessions, to gain approval, analysts said.

"The big question is whether or not it will get through all the regulatory hurdles," said Bruce Low, an analyst at ABN Amro Australia Ltd. "In its proposed form, it won't."

Qantas may buy 7.5 percent more shares in the New Zealand carrier within three years. Qantas is trying to cut costs and expand to compete with rivals in the southwest Pacific region.

Air New Zealand needs funds to restore its balance sheet and buy new planes after the government last year saved it from bankruptcy in an NZ$885 million bailout.

Air New Zealand's Ansett unit, Australia's former No. 2 airline, failed in September 2001, forcing it to write off a NZ$1.3 billion investment.

Air New Zealand rose 12 percent to close at NZ$0.56, according to the stock exchange. Qantas shares rose 0.3 percent to close at A$3.94 in Sydney.

The alliance is expected to save a combined NZ$450 million within three years, Qantas said in a statement.

The gains will be shown in its earnings from the business year starting July 2003.

The airlines, which began talks in May 2001, will share seats on domestic and international flights, they said.

"Domestically in New Zealand and also on the trans-Tasman they are basically going to have a very, very dominant position if not a monopoly," Low said.

"That makes it very hard to argue that it is in the best interest of competition."

The plan may breach competition rules, the Australian Competition and Consumer Commission said in a statement. The regulator said it hasn't received a formal proposal from Qantas and Air New Zealand.

"The proposal immediately raises competition concerns for the ACCC," and a decision on the proposal will take "some months," commission Chairman Allan Fels said.

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