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Cablegate: New Zealand - Dubai Bid for Auckland Airport Runs

VZCZCXRO0149
PP RUEHDE
DE RUEHWL #0589/01 2262102
ZNY CCCCC ZZH
P 142102Z AUG 07
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC PRIORITY 4571
INFO RUEHAD/AMEMBASSY ABU DHABI 0025
RUEHBY/AMEMBASSY CANBERRA 4915
RUEHDE/AMCONSUL DUBAI 0006
RHEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEAIIA/CIA WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 WELLINGTON 000589

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/14/2027
TAGS: EINV EAIR PREL NZ AE
SUBJECT: NEW ZEALAND - DUBAI BID FOR AUCKLAND AIRPORT RUNS
UP AGAINST POPULIST POLITICS

Classified by Consul General John Desrocher for reasons 1.4
(b) and (d).

This message was drafted by ConGen Auckland and approved by
Embassy Wellington.

-------
Summary
-------

1. (C) A Dubai company's bid to purchase New Zealand's
biggest airport has encountered strong public opposition to
sale of "the family silver" to a foreign company. While
anti-Arab sentiment plays some part, the real root of the
opposition lies in the popular perception that the government
botched previous privatizations. Overwhelming public
opposition, which says a lot about Kiwi ambivalence to
globalization, means that the Dubai company is unlikely to
get the local political support it needs to make the
complicated transaction work. End summary.

----------------------
Barbarians at the Gate
----------------------

2. (SBU) A Dubai company's bid to purchase a majority
shareholding in Auckland's airport ran into trouble as soon
as it was made public. The board of Auckland International
Airport Ltd. (AIAL) announced July 22 its support for the
Dubai Aerospace Enterprise (DAE) offer; seven other potential
buyers have expressed interest in the airport. DAE is
controlled by Dubai's ruling al Maktoum family. About 23% of
AIAL's shares are owned by two of the four cities that make
up the greater Auckland metropolis, Manukau City (where the
airport is located) and Auckland City. Remaining shares are
publicly traded on New Zealand and Australian stock
exchanges. Under the complicated terms of the transaction,
DAE would have to gain 75% shareholder support to purchase
51-60% of AIAL for a total cost of NZD 2.6 billion
(approximately USD 2 billion). Shareholders will vote on the
deal in November.

3. (SBU) Reaction from the public and from politicians was
swift and almost entirely negative. Letters to the editor
ran overwhelmingly against the sale. Manukau Mayor Sir Barry
Curtis, a politician from the traditional left who is
expected to retire soon after running Manukau for 24 years,
expressed vehement opposition to the sale, noting how much in
dividends Manukau City had earned from its investment over
the years. Auckland Mayor Dick Hubbard, a first-term
politician from a business background who will seek
reelection in October, waffled. All but one of the
candidates seeking to succeed Curtis and Hubbard in upcoming
local elections expressed opposition. The only one to
support the sale was long-shot Auckland mayoral candidate
Steve Crow, owner of New Zealand's largest chain of "romantic
accessories" stores and sponsor of an annual topless
motorcycle rally in Auckland.

4. (C) The opposition in Auckland was mirrored at the
national level. The DAE bid was a godsend for Foreign
Minister Winston Peters, head of the New Zealand First party.
In recent polling, New Zealand First has been languishing
below the 5% threshhold of support required for parliamentary
representation; the DAE bid was perfect fodder for Peters'
brand of populism. The governing Labor Party has taken a
neutral stand, citing its obligation to be an independent
regulator of the airport, though PM Helen Clark shed her
neutrality long enough to note that "in general, people don't
like their public assets privatized," a sentiment later
affirmed by Trade Minister Phil Goff. National Party leader
John Key said that, in principle, he would like to see the
airport stay in New Zealand hands. A Green Party MP plans to
introduce legislation giving Wellington the power to block
the sale. (Comment. The fact that AIAL, with 77% of its
shares traded on open markets, is already private and
possibly foreign-owned seems almost forgotten in the current
debate. End comment.)

-----------------------
Not Simply Anti-Arabism
-----------------------

5. (SBU) Anti-Arab sentiment played a part in the public
reaction, as evident in some of the more overwrought letters

WELLINGTON 00000589 002 OF 003


to the editor. (One suggested that DAE would not allow Jews
to use the airport.) However, public opposition goes beyond
ethnicity. A poll taken in June when the only bidder on the
airport was a Canadian pension fund revealed that 84% of
Manukau and Auckland residents opposed sale of their
councils' AIAL shares, with an equal proportion of the
broader New Zealand public opposing sale of the airport to a
single foreign entity. A more recent poll revealed 81%
disapproval of the DAE bid. It is also worth noting that
few, even among vehement opponents of the deal, have argued
that putting the airport in "Arab control" would make the
facility less secure or somehow expose New Zealand to a
greater terrorist threat.

6. (SBU) The real source of public opposition is New
Zealanders' recollection of past privatizations. Much of the
commentary since the DAE announcement has called attention to
the sale in the 1980s of the state-owned phone company,
railway, postal bank, insurance company, forestry
corporation, Bank of New Zealand, and Air New Zealand. In
the popular mind, buyers (often foreign) stripped these
companies of assets, or ran them into the ground, or both.
Similarly, that all of New Zealand's significant newspapers,
banks and supermarkets are foreign-owned breeds suspicion and
resentment.

--------------
Those in Favor
--------------

7. (SBU) Not all voices are opposed or silent. Editorials
in the country's two biggest newspapers, the Herald and
Dominion Post, urged that the bid be judged on its merits.
Free market economists poke holes in the anti-DAE arguments.
They argue that problems in the 1980s were not due to sales
to foreigners per se, but rather due to poor government
management of the process. As a result, the phone company,
for example, simply went from being a badly-run state
enterprise to a badly-regulated private monopoly. They point
out that other countries have sold airports to foreign buyers
without the sky falling in. Heathrow is owned by a Spanish
consortium and New Zealand's Infratil owns airports in Kent,
Glasgow and Luebeck. They also claim that AIAL is not
particularly well-run. It collects stiff fees (Air New
Zealand is suing over AIAL's latest landing fee hike), but
lacks the amenities one would expect from an OECD country's
gateway airport - it has no brand-name hotel, no rail link to
the city, and a road link often so clogged that getting to
and from the airport is more easily accomplished by
navigating through suburban neighborhoods.

-------
Comment
-------

8. (C) Reaction to the DAE bid shows how ambivalent New
Zealanders are about globalization. Most Kiwis understand
that countries with thriving economies are those that are
open to the world. So in public they recognize that the
country needs immigrants to replace the thousands of young
Kiwis who emigrate each year, but they mutter in private (and
sometimes publicly) that Asians are lousy drivers and are
bidding up real estate prices. They insist that they want an
FTA with the U.S. but reject on largely nationalistic grounds
a reasonable and cost-saving proposal to set up a joint drug
testing agency with Australia. Their own airport company
owns facilities abroad, but their foreign minister describes
the proposed sale of New Zealand's airport, inevitably
described as "a strategic asset" or "the family silver," as
"economic treachery."

9. (C) DAE's bid probably will not succeed. Under the
complicated terms of its proposal (apparently cheaper for DAE
than simply going to the market to buy 51% of openly-traded
shares), DAE needs the support of at least one of the two
city councils. While it could technically reach 75%
shareholder support without the 23% of shares owned by
Manukau and Auckland, most commentators believe that gaining
the support of virtually all of the holders of
publicly-traded shares is just too high a bar to overcome.

10. (C) Manukau Mayor Curtis has already made clear where he
stands. Auckland Mayor Hubbard, a businessman, is probably
philosophically open to the sale, but he faces a tough
reelection campaign and will probably bend to popular will.

WELLINGTON 00000589 003 OF 003


The major national parties will be reluctant to get involved.
One National MP told Auckland PO that, while he is depressed
that the DAE bid is not being considered on its commercial
merits, his party will certainly lie low and say as little
about the situation as it can get away with. Against all
this, the support of a few liberal economists, newspaper
editorial writers, and New Zealand's leading pornography
vendor is probably little consolation to DAE.
MCCORMICK

© Scoop Media

 
 
 
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