The Commerce Commission said today that it cannot clear or authorise Air New Zealand's acquisition of up to 50% of Ansett Holdings and Bodas. Ansett Holdings wholly owns Air New Zealand's only major domestic competitor, Ansett New Zealand.

The Chairman, Dr Alan Bollard, said:

" The Commission is not satisfied that Air New Zealand and Ansett New Zealand would not acquire a dominant position in the domestic passenger air services markets if this acquisition went ahead. The Commission would require public benefits to outweigh the detriment likely to arise from the acquisition, and, in this instance, it is not satisfied that the benefits likely to accrue are such that it should be permitted."

The Commerce Act prohibits business acquisitions that result in dominance being acquired or strengthened in a market. However, it allows them to be authorised if the Commission is satisfied that the public benefit resulting from the acquisition is such that it should be permitted.

In making its decision, the Commission considers three major issues:

· whether, as a result of the acquisition, Air New Zealand and Ansett Holdings (and its subsidiary Ansett New Zealand) would be associated persons in terms of the Commerce Act;

· if they would be associated, whether the acquisition would result in a dominant position being acquired or strengthened in a market;

· if the acquisition would result in a dominant position being acquired or strengthened, whether the Commission is satisfied that the public benefit is such that it should be permitted.

Air New Zealand has provided the Commission with details of a proposed joint venture structure intended to isolate Ansett New Zealand from Air New Zealand and thus prevent the two parties from being associated.

The Commission considers that it is unable to give a clearance or grant an authorisation which is conditional upon the joint venture structure being implemented when the acquisition is effected and that the joint venture structure does not fall within s 69A of the Act, relating to undertakings to dispose of assets or shares.

The Commission concludes that the acquisition would result in Air New Zealand and Ansett New Zealand being associated persons in terms of the Act.

In considering the issue of dominance, the Commission has regard to the nearly 100% market shares which Air New Zealand and Ansett New Zealand would have in domestic passenger air services markets if the acquisition proceeded. The Commission concludes that, taken together, the conditions of entry to the domestic markets are such that they would deter entry to those markets.

The Commission is not satisfied that the threat of entry to the main trunk passenger air services market, in the form of cabotage by an international carrier, would constrain Air New Zealand and Ansett New Zealand. While the Commission agrees that entry by a full service airline would be sufficient to constrain Air New Zealand and Ansett New Zealand, the Commission is not satisfied that the likelihood of such entry is great enough to constrain them, or that such entry would be timely. Entry by a value based airline appears to be more likely in the short term than entry by a full service airline, but the Commission is not satisfied that the present prospects for value based entry would be sufficient to act as a constraint on Air New Zealand and Ansett New Zealand.

The Commission is satisfied that its conclusions in respect of the main trunk market apply equally to the provincial and tourist passenger air services markets.

The Commission then considers whether any public benefit resulting from the acquisition would be such that the acquisition should be authorised. The Commission notes that estimating the magnitude of public benefits and detriments which would result from the acquisition is difficult. While Commissioners agree that significant public benefits and detriments would be likely to result from the acquisition, they are not able to reach a consensus on the likely magnitude of each element of public benefit and detriment, or on the overall balance between public benefit and detriment.

The Chairman and Commissioner Stapleton are of the view that the detriments arising from the acquisition are larger than suggested by Air New Zealand, while the public benefits are not as large, and that the detriments would not be outweighed by the public benefits. They are not satisfied that the public benefit resulting from the acquisition is such that the acquisition should be permitted.

Conversely, Commissioners Allport and Auton are of the view that the detriments, while significant in terms of the New Zealand domestic market, are outweighed by the public benefits arising from the acquisition. They are therefore of the view that the acquisition should be permitted.

The Commerce Act provides that issues before the Commission shall be decided by a majority vote and, in the event of equal votes, the Chairman, in addition to his deliberative vote, shall also have a casting vote. The Chairman exercises his casting vote in the same manner as his deliberative vote.

Accordingly, the Commission determines to decline to give a clearance or grant an authorisation for Air New Zealand to acquire up to 50% of Ansett Holdings and Bodas.

Media Contact Geoff Thorn - telephone (04) 4980 956 (work)

(04) 5264 267 (home)