Air NZ/Qantas Announcement - Press Conf.Transcript
25 November 2002
PRESS CONFERENCE: MONDAY, 25 NOVEMBER 2002
Hon. Trevor Mallard: Thank you all for coming to this press conference, the subject of it is relatively obvious, and that is the Government’s response, or as might become clear over a period of time, but the lack of Government response today, to the proposal from one of New Zealand’s biggest companies, Air New Zealand, to some significant changes. My role initially is to indicate that the Government has two quite distinct roles in considering this proposal: one, which Dr Cullen has on behalf of the Government as a major shareholder; and I will also indicate the methods that we have used to protect Dr Cullen’s right to vote on issues to do with this proposal at the Air New Zealand meeting to consider it, when and if that occurs. Paul Swain has a role as Kiwi shareholder, and as part of that role his broad national interest criteria to consider.
I think many of you are aware that within the delegations, the finance delegations, done earlier this year I have been delegated the regulatory side of the Treasury advice in order to, if you like, protect Dr Cullen from that aspect and, at the same time, a Chinese wall has been set up so that I don’t deal with anything to do with the ownership of Air New Zealand, and those briefings have not come from me.
Ministers were separately briefed this morning on the Air New Zealand proposal. Dr Cullen in one briefing, and Mr Swain and myself in another. What will happen from here is that officials will, in two work streams which will come together in the last week of the last Cabinet week, will do work on both the Kiwi shareholder and on the ownership interest side and that will come together for a decision around the 16th or the 18th of December by the Cabinet or the Cabinet business or policy committee at that stage. That will be a decision that will be subject to Commerce Commission approval of a proposal which does not have any material change from that point.
I have been involved in discussions with Air New Zealand on process.
What became quite clear was that waiting until possibly June for an indication from the Government as to whether a proposal was acceptable would not work for the company. They would have effectively have their entrails out there, in public, for quite a long period of time and if the proposal was not acceptable to the Government they would have suffered commercial damage through that process, and that is something that in the interests of the taxpayer and the ownership Minister was not appropriate.
So we have had that division. That division will continue around material information. There are two teams in Treasury working on this. The other point that has been made pretty clearly to us, and I have made the acquaintance of the Solicitor General fairly regularly on this matter, is that there are some clear legal restrictions on Government on the way that we deal with this, and I think Dr Cullen will outline those.
Hon. Dr Michael Cullen: If I could just repeat one point that Trevor made. We have these two streams of advice coming together for basically an in-principle decision on the ownership interests by Christmas, and a conditional decision on the Kiwi shareholder national interest test. The competition issues of course are decided by the Commerce Commission, and that is likely to be quite a lengthy process stretching into the middle of next year, assuming that the first two decisions go in favour of the proposal. You should make no such assumptions at this point. Certainly, Ministers are not making any such assumptions at this point.
I repeat also what Trevor said, that we all received briefings separately this morning. Indeed, my understanding is that the proposal was not finalised until last night, and indeed from the description of the proposals, even at this late stage of Monday morning, in the media were wrong, which picked up the zero batting average which has been managed so far in terms of media predictions of this particular proposal.
The Government’s primary interest in the ownership perspective has been to maintain majority interest and control. That was its first consideration. Certainly, for the forseeable future and certainly for the proposals after that, the analysis of the proposal from all the other ownership interests’ perspectives will take some time. The officials will need to work on that for some considerable period of time before we can be satisfied in that particular respect.
Trevor enlightened on another point, which is a very important one. I know it is going to cause you intense frustration and no doubt a great deal of attempts to try to get around the rules, but you will not get around them with these three Ministers, or indeed any others. That is, we are not in a position to argue for or against, or to enter into debate upon the proposal itself. We are indeed specifically debarred from doing so, as indeed the key shareholder in the company, and being privy to information which may not be available to all other shareholders, by the nature of the officials’ interaction with the companies, the information that we will be seeking from both companies, in the light of the various considerations that we have to make. Then we are in the position where we should be regarded as being engaged in insider trading if we start getting into those kinds of arguments, for or against. So all your prepared questions I suspect, or at least a large number of them, you may ask, but you are not going to get answers to them from Ministers today. There is no point in booking up debates between myself and Bill English or Trevor and Bill English or indeed any other Minister and Bill English on these proposals. It is for Air New Zealand and Qantas to argue their case, in terms of the propositions which they have put forward.
Indeed of course we also have to be very careful that we are not seen as encouraging in any way the purchase of shares within Air New Zealand. Part of this is also about the fact that from the ownership perspective, as Trevor was indicating, it is very important that we do not seem as though we are entering into negotiations in any shape or form, or influencing negotiations, because should we be doing that then we would be deemed to be associated parties to the negotiations and would be barred from voting at the meeting, which may or may not be held, to finally approve the transactions, come the middle of next year.
The first stages we have to go through are the issues of consideration of the ownership interests, with the advice from officials, and the application of the national interest criteria that we have developed, and Paul will then be outlining those because he is the Minister responsible for national interest criteria as the Kiwi shareholding Minister.
Hon. Paul Swain: As Trevor has outlined, one of the strings that are involved here is the Kiwi shareholder. The Kiwi shareholder is required to give approval to any ownership interests of any other airline in Air New Zealand. That is one of the conditions of the Kiwi share. I talked about the proposal this morning. We will be assessing the national interest considerations against this proposal. It is important to spell those out, and they are before you. Those considerations, as far as the national interest tests are concerned, are the following: the maintenance of effective control of Air New Zealand by New Zealand National – a very important consideration; the continuation of Air New Zealand’s ability to exercise New Zealand’s existing and future air rights; the preservation of the unique New Zealand identity of Air New Zealand, particularly in terms of the brand and the Koru; the provision of effective channels for international tourism and travel; the provision of a durable domestic air services network; and, finally, the preservation of New Zealand’s basic employment.
Now that we have received the proposal, we will be considering that proposal against those issues, and we obviously will be wanting to get significant detailed work done on those. There will be reports back to us, and it is around December 16th or the 18th that the Government will be making its comments back to the public on whether, in its view, those national interest tests have been met as a result of the proposal we have received. We are not going to be making any further comment on whether, or not, the proposal meets those because we have only just received it. The next major announcement on that will be on December 16th or 18th this year.
Hon. Trevor Mallard: I reiterate the point that I made at the beginning. It will be subject to Commerce Commission approval. It will be subject to regulatory approval in Australia. For those people who are not aware, we do have some of the strictest competition rules in the world in that area, and those will be applied completely independently by the commission.
Media: Will you be making submissions to the Commerce Commission; if so, which Minister will be making them?
Hon. Trevor Mallard: No, we won’t be.
Media: Will you be making a section 168 statement?
Hon. Paul Swain: No.
Media: Why have you chosen the words “durable air service network” ?
Hon. Paul Swain: The competition issues are the ones that are going to be dealt with, with the Commerce Commission. They are an independent agency, established to deal with the competition issues, and we feel that they are going to be addressed most appropriately by that group. It is not also part of the conditions to try to look at or set what prices should be for this or for that. What we are concerned about is the long-term interest of domestic air services, and we think that these national interest tests are at a quite high level. We obviously have around 3 weeks to deal with those.
The more specific issues to do with competition and also national considerations will also be part of the Commerce Commission’s test, and there is two things to say to that. They will obviously probably take around we think 6 months in order to be deal with that. That will be quite a considerable piece of work. But I think it is important to say, too, that it was this Government that made significant changes to the Commerce Act in order to be able to improve the test in that regard. In our view, it gets a high-level consideration from the Government on national interests, and then goes through the very, very detailed competition analysis from the Commerce Commission.
Media: If you are not making submissions, will the Commerce Commission be able to access any of the advice you have got, for example, the Solicitor-General’s advice?
Hon. Trevor Mallard: I think the essence of the Solicitor-General’s advice is now public. You have got it.
Hon. Dr Michael Cullen: It is very similar to the Treasury paper that you have.
Media: They will have just what we have got, and nothing else from the Government?
Hon. Trevor Mallard: That is right.
Hon. Dr Michael Cullen: They are able to ask for whatever information they want, of course.
Media: So on the 16th or 18th of December you will be effectively saying that in the Government’s mind this will or will not be in the national interest?
Hon. Trevor Mallard: Minus the competition issues, which are properly dealt with by the commission.
Media: So in effect that will be a statement to the Commerce Commission?
Hon. Trevor Mallard: Minus the issues which they have to deal with.
Media: Is it the role for the Commerce Act, in terms of the imposition of any kind of regulation or conditions . . . section 391?
Hon. Trevor Mallard : If they put conditions on, we then make a decision about whether that materially changes the deal, and if it does then we have to come to a judgment as to whether it should proceed or not.
Media: When were any of you first aware of this deal?
Hon. Dr Michael Cullen: This morning.
Media: But Air New Zealand said it had come here at least to know whether they were wasting their time in pursuing it.
Hon. Dr Michael Cullen: When did we first know that talks were occurring? I think probably about the same time everybody else did – early this year. When did we know there was a deal? This morning.
Hon. Trevor Mallard: And when did we know that they wanted to talk to us about the possibility of a deal? Probably about 3 weeks ago, when I started dealing with them on the process issues, which we have laid out for you today.
Hon. Dr Michael Cullen: My understanding is that this deal was finalised last night, so it is not surprising we first learnt about it this morning.
Media: It was the Solicitor-General who advised you that you cannot say anything right now?
Hon. Dr Michael Cullen: And Treasury as well. You have got the Treasury paper there.
Media: Isn’t there another view you could apply for a waiver from the Stock Exchange, and make comment on the deal as it stands?
Hon. Dr Michael Cullen: No, I do not think that would be sensible. We have a whole range of issues here which suggest it is appropriate for us to consider the issue carefully and go through the processes carefully. I do not think the importance of appearing in a debate on the Holmes show has arisen as a general consideration.
Hon. Trevor Mallard: There are people who have commented on this deal without seeing it or seeing any analysis of it. In my view, that is just stupid and we are not going to be part of that. We are going to deal with this properly and responsibly with the taxpayers’ interests at heart.
Media: I suppose what the issue is, is that this is something that came up during the election campaign, and the Government’s standing was: “It’s totally inappropriate for us to even comment on any of this.”?
Hon. Dr Michael Cullen: We were told in the election campaign that it was a done deal, weren’t we.
Media: It was a suggestion.
Hon. Dr Michael Cullen: It was a press statement, as I recollect. Indeed, there were a number of frequent press statements, not to mention at least three or four different Dominion reports, which purported to outline what was the deal was.
Hon. Trevor Mallard: Sort of an “Af-gaffe”, Air New Zealand gaffe. It’s one of the list, isn’t it, really.
Media: Could you clarify when earlier this year was? You said earlier this year you were away . . .
Hon. Dr Michael Cullen : I think by about March it was clear. You might recall, if I could pick up again, the Herald keeps printing a statement which is untrue, that I encouraged Qantas, or directed them, to discuss with Air New Zealand. No such conversation ever took place. Mr Beatson rang me, saying he wanted to discuss with me matters relating to Air New Zealand. I said “You don’t talk to me. If you have anything you want to discuss, you discuss it with Air New Zealand.” It’s not quite the same thing as directing them to go and have discussions with Air New Zealand.
Media: Are you concerned that no other political party is . . .
Hon. Dr Michael Cullen: Let us wait and see how the political parties react after a bit more analysis, and they have read the details more carefully and thought through matters more carefully. I think that rules out certainly National and ACT from . . .
Media: In terms . . .
Hon. Dr Michael Cullen: This is an issue to be decided on the facts. I think that automatically means the National Party has different relatives with the nature of the decision.
Hon. Paul Swain: It wouldn’t surprise some people if halfway through, particularly Bill English changed his mind. He does that a lot these days.
Media: . . .
Hon. Dr Michael Cullen: It would be nice if there were other parties supporting it, if we decide to proceed, but we have not decided to proceed ourselves.
Hon. Trevor Mallard: Just to make it clear, this proposal does not have Government support. It is a matter which is under consideration by the Government between now and the end of December. The Government’s position is that we will decide whether to support it after we have thought about it, and seen all the evidence and collected more evidence. Other parties’ position seems to be that they decided against it before the deal was even finalised.
Media: Given the importance and the significance of Air New Zealand, is there any argument . . . I mean, one argument is that something will never go before Parliament.
Hon. Dr Michael Cullen: Lots of things never go before Parliament.
Media: . . .
Hon. Trevor Mallard: The big and obvious difference with this case is that there are other shareholders involved. That has not been the case in a lot of the earlier discussions around State assets. We have got to take special care to protect their positions.
Hon. Dr Michael Cullen: It is . . . that the public didn’t have a say in the sale of Tranz Rail, for example.
Media: . . .
Hon. Trevor Mallard: If National is leading it, it would neither, because they haven’t got either.
Media: . . .
Hon. Trevor Mallard: I am certain that Air New Zealand will be outlining the proposals and their perceptions of the benefit to them to parties who are outside the Government. I think that will be a useful process, and it will mean that people are better informed.
Media: . . .
Hon. Paul Swain: No.
Hon. Dr Michael Cullen: No, and nor have we on this issue at all during this year.
Media: Dr Cullen, I don’t understand what you are saying.
Hon. Dr Michael Cullen: Because they have got their own regulatory proceedings through the ACCC. There is no sense of a jack-up here politically. This is a proposal from two companies. We are involved in the more complex form than the Australian Government is, but nevertheless it will go through the appropriate processes one by one.
Media: . . .
Hon. Dr Michael Cullen: I can’t comment on that, because that is the essential counterfactual case against which you have to measure the proposal. But it is a useful issue that you should raise if there is a counterfactual.
Media: . . .
Hon. Dr Michael Cullen: The $200 million?
Hon. Dr Michael Cullen: No, they are anticipating that decision about March of next year whether to proceed with the $200 million rights issue. They have of course, in effect, a Government commitment to subscribe . . . $150 million of that by . . .
Media: . . .
Hon. Dr Michael Cullen: I don’t anticipate us not supporting that, given our previous stance. We have already made that decision. We would have to revisit that because we have already made that decision.
Hon. Trevor Mallard: I think we have effectively done that. It has also effectively decoupled from the things we are talking about today. It’s going to happen anyway.
Media: . . .
Hon. Dr Michael Cullen: Have they considered other options? I think you should ask them that, but my understanding is yes.
Media: Did you rule anything out, such as a sale of any share of the Government holdings?
Hon. Dr Michael Cullen: Yes we ruled certain things out by going in the opposite direction. That is, we stated very clearly two things. Firstly, that the proposal must retain majority New Zealand ownership and control, and, secondly, that there was to be no override of the Commerce Commission. We have said that many other times.
Media: That doesn’t answer my question. Did you rule out selling any of your stake to Qantas or any other bidder . . .?
Hon. Dr Michael Cullen: I am not aware that that proposal was ever made.
Media: But did you consider . . .
Hon. Dr Michael Cullen: No, I just said what was not acceptable was an override of the Commerce Commission, or proposals which remove the Government’s majority ownership and control.
Media: So they could have brought forward today a proposal that involved the sale of the Government's holding?
Hon. Trevor Mallard: I think Qantas would have brought that forward wouldn’t they, to be technically correct, rather than Air New Zealand. It is a question of with whom the relationship is.
Hon. Dr Michael Cullen: But they didn’t, despite the fact that many newspapers reported that proposal as being signed and sealed about a month ago.
Media: Presumably you didn’t know whether these newspaper reports were right or wrong either at the time?
Hon. Dr Michael Cullen: I knew that at least one was wrong because the sums just didn’t add up. One of the Dominion proposals simply couldn’t be arrived at unless you assumed I think something like a $3 billion capital flow, which seemed a bit unlikely really.
Media: Did you accept the Independent report that . . . found that $1 billion . . .?
Hon. Dr Michael Cullen: Let’s get ourselves to the issues of considering the proposal. We have already told you, we can’t get into that.
Hon. Trevor Mallard: I think it is also fair to say that none of us have read it.
Media: Are you little bit sceptical of those claims though?
Hon. Dr Michael Cullen: You can’t get into those questions. That is getting us into the proposals for and against. We told you at the start that we are not getting into those issues.
Media: OK , but when you look at them differently, given that Air New Zealand made all sorts of extraordinary claims when it . . . Ansett . . .?
Hon. Dr Michael Cullen: We shall get all the information that we require for Mr Mallard to do his job, for Mr Swain to do his job, for me to do my job, and then we will all do our collective jobs together come late December.
Media: So . . . report that Air New Zealand referred to that has not been made public?
Hon. Dr Michael Cullen: We will look at all information we require.
Media: What about those Mum and Dad shareholders? What would you advise them?
Hon. Trevor Mallard: Don’t rely on Mark Sainsbury.
Hon. Dr Michael Cullen: Don’t rely on so-called aviation reporters in most of our newspapers would be my key advice to them.
Media: Buying a stake in Air New Zealand . . .
Hon. Dr Michael Cullen: We did, and we’re not feeling unhappy.
Hon. Trevor Mallard: Thank you very much.
Hon. Paul Swain: Right.