Qantas, Air NZ shares fall on SIA deal

Qantas sees the SIA-Air NZ deal as a back-door move on rival Ansett

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia (CNN) -- Shares in Qantas Airways and Air New Zealand tumbled Wednesday after the New Zealand carrier spurned the Australian's advances in favor of Singapore Airlines.

In Sydney, on a day when the overall market moved up, investors sold out of Qantas, with its shares slumping 18 cents or 5.3 percent to A$3.23.

Across the Tasman, Air New Zealand's unrestricted B shares dropped sharply, losing 14 percent or 23 cents to NZ$1.40.

The A shares, which are restricted to New Zealand residents, were 6 cents lower, or 5 percent, at NZ$1.15.

The two markets were reacting to a complex proposal unveiled on Tuesday under which Singapore Airlines will increase its existing 25 percent stake in Air New Zealand to a "significant" holding.

Deal subject to government approval

But the deal is subject to the approval of the New Zealand government, which has a 25 percent limit on ownership by a single carrier.

Qantas immediately attacked the proposed arrangement between Air New Zealand and the Singapore carrier, calling it a "back door" attempt to control Ansett, the chief rival for Qantas in the Australian domestic market.

The Air New Zealand board on Tuesday endorsed a recommendation to continue its 100 percent ownership of Ansett Australia -- which it bought last year -- and to allow SIA to "significantly" boost its Air New Zealand stake.

Qantas says that unlike SIA, it wants a partnership arrangement with Air New Zealand, and not a merger or outright control.

Heavy capital outlay ahead

Air New Zealand faces a heavy capital outlay to upgrade its own and the Ansett fleet, and needs the sort of capital infusion that SIA can provide.

The Air NZ board's acting chairman, Jim Farmer, said on Tuesday the board and the independent directors' committee were united in the view that it was in the company's best interests for SIA to lift its stake significantly in Air New Zealand.

He said SIA would increase its shareholding through a placement of new shares at NZ$1.31 a share, being the averaged price of Air NZ's A and B shares at the close of trading last Friday.

SIA chief executive Cheong Choong Kong is in New Zealand this week for talks with the New Zealand government.

Dr Farmer told a news conference in Auckland Wednesday that it would not be possible for SIA to move to a majority stake.

The other factor is investment company Brierley Investments, which holds a 30 percent stake. This would be diminished if a placement to SIA goes ahead.

Brierley Investments is headquartered in Singapore.