The Commerce Commission has today released a draft determination saying that, on the information currently available to it, it would not authorise a proposal for Air New Zealand to buy up to 50 percent of Ansett Holdings Ltd.

"Our preliminary view is that in this case, the proposal would give rise to a dominant position in domestic passenger markets," Commission Chairman Dr Alan Bollard said. "The overall result is likely to be a less competitive domestic airlines industry which is less responsive to customer needs."

Air New Zealand has applied for authorisation to buy 25 percent of Ansett Holdings and to have the option to buy another 25 percent. Ansett Holdings owns the only major domestic competitor to Air New Zealand, Ansett New Zealand.

The draft determination is not the Commission's final decision. Air New Zealand and interested parties now have a clear indication of how the Commission views the proposal, have time to make written submissions and provide further information at a conference. A final decision should be made by March 20.

The Commerce Act prohibits business acquisitions that lead to a dominant position being acquired or strengthened in any market. However, it also allows them to be authorised if the Commission is satisfied that the public benefits arising from the acquisition outweigh the detriments to competition. To be considered, the claimed benefits must arise directly from the acquisition and not arise if the acquisition did not go ahead.

The Commission has identified several detriments resulting from reduced competition in domestic passenger air services markets. It has assessed them under four headings:

· increased prices for air services and fewer services available to customers

· less efficiency as there would be less pressure to minimise costs and avoid waste

· reduced product quality as the firm and its staff could adopt a "take it or leave it" attitude

· less innovation as there would be less pressure to change

In its application for authorisation, Air New Zealand claimed the following public benefits for the proposal, these were also examined by the Commission in reaching its draft determination:

· improved international passenger air services for New Zealanders

· improved international freight air services for exporters and importers

· support for New Zealand tourism operations

· greater competition on air transport routes to South Pacific and New Zealand

· preservation of Air New Zealand as the national flag carrier

· enhanced ability for Air New Zealand to forge overseas alliances

· increased earnings for the company's New Zealand owners

· economies of scale

· improved diplomatic relations between Australia and New Zealand

"The Commission has compared the detriments and benefits and, on balance, it believes the detriments outweigh the benefits," Dr Bollard said. "If this conclusion is confirmed by submissions made on the draft determination and by information given to the Commission at the conference, the Commission will not authorise the proposed acquisition."

Air New Zealand, in its application, proposed a quarantining structure as a way of keeping its and Ansett New Zealand's management separate should the acquisition go ahead. However, the Commission can accept undertakings to sell assets or shares only and it does not believe it can accept Air New Zealand's proposal.

"Even if the law was different and the Commission was allowed to accept a broader range of undertakings," Dr Bollard said, "we do not believe that the proposed quarantine structure would be enough to prevent the airlines being associated and therefore would not preserve competition between them."

Timetable of Commission process:

by February 13 applicant and interested parties to make submissions on draft determination

February 27-29 conference of applicant and interested parties in Wellington - the conference is an opportunity for further information to be presented and for the Commission to ask questions, it is not adversarial

by March 20 final determination

Media contact: Communications Officer Vincent Cholewa

Phone work (04) 498 0920, home (04) 479 1432