Ansett airline deal collapses


Solomon Lew and Lindsay Fox have dropped plans to buy Ansett

CNN's Geoff Hiscock
Asia business editor

SYDNEY, Australia (CNN) -- The sale of the distressed Australian airline Ansett to the Tesna consortium is off, after a breakdown of talks.

Ansett's administrators said Wednesday that flights would end on Monday night unless an alternative rescue plan emerges.

A rescue seems highly unlikely.

The collapse means about 3000 Ansett staff who were hoping to work for Tesna will not have jobs.

Melbourne businessmen Lindsay Fox and Solomon Lew, the principals of the Tesna syndicate, ended talks with the Ansett administrators late Tuesday night.

Tesna was due to take over Ansett from midnight Thursday. But there has been increasing speculation in recent weeks that the deal would not go ahead.

Third-party issues

The administrators, Mark Korda and Mark Mentha of Andersen, said in a statement at midday Wednesday that Fox and Lew had served a termination notice, and had advised they could not meet Thursday's deadline "because of third-party issues".

Korda said Tesna's move was unexpected because of the freqent assurances given by the consortium that it was committed to the transaction. Tesna had employed new senior executives, offered jobs to about 3000 people and committed to new aircraft.

But Tesna said in a statement sent to media that time had run out. "We have reluctantly reached the conclusion the sale agreement is not capable of completion, and that the process involving Tesna and the administrators cease," it said.

Later, Solomon Lew told a press conference the third-party issues related to non-delivery of airports and of aircraft.

Korda said Ansett employees were devastated by the outcome. He said there now probably would be no return to secured creditors of Ansett.

The breakdown came less than a day after the Sydney Airports Corporation agreed to transfer the lease of the Ansett domestic terminal to Tesna.

Boost for Qantas

Tesna's pullout means that Qantas, which has now 77 percent of the domestic market, and discount newcomer Virgin Blue, which has about 13 percent, will cement their respective positions in the Australian industry.

Shares in Qantas jumped 42 cents or more than 10 percent to close at A$4.57 on the Australian Stock Exchange Wednesday.

Ansett, which was once the second largest domestic airline behind Qantas, collapsed in September after it was cut adrift by its parent, Air New Zealand.

It has been flying in a much-reduced form while the administrators prepared it for sale.

In November Tesna struck an agreement with the Ansett administrators to buy the mainline business of Ansett for $267 million in cash and employee entitlements.

Mounting skepticism

The administrators have insisted all along that the Tesna deal would go ahead, in the face of mounting skepticism that it was simply a property play by Fox and Lew.

Union representative Martin Foley told ABC radio Wednesday that the Ansett staff had heard the "conspiracy theories" that Fox and Lew only wanted Ansett's key Sydney domestic terminal.

"Every time we raised the issue with Mr Fox and Mr Lew they told us the rumors were not true and they were committed to the process," Foley said.

But at the eleventh and a half hour, that had changed, Foley said.

"People can draw their own conclusions".

Korda said the administrators would now go back to the unsuccessful bidders to pursue alternatives.

One of those is a joint proposal from Virgin Blue and Patrick Corp (the former Lang Corp) to take over some of the Ansett assets and employ up to 2000 former Ansett staff. But its proposal would mean the end of the Ansett name.

Patrick Corp, a transport and logistics group headed by former merchant banker Chris Corrigan, agreed on November 24 to inject up to $156 million into Virgin Blue and take a controlling interest in it, if it was successful in a bid for Ansett.

Qantas CEO Geoff Dixon said earlier this week that he did not think the Australian market could support three airlines. He said the extra capacity that Ansett and Virgin Blue proposed to bring to the market inevitably would lead to aggressive competition.

Dixon said he expected only two airlines would remain in the domestic market a year from now. His prediction has now happened, but a year early.