luftaom

(please note that this is an extract as it appears on another board from this weekends Australian Financial Review.)

Third airline raises stakes in delicate game of poker

Just two weeks before its business is sold. the board of
Sydney Airports Corporation met on Wednesday at the
epicentre of a fascinating behind-the-scenes poker game
being played out over a new third entrant into Australian
aviation - which may happen sooner than anyone thinks.

Having paid a deposit of 10% or $19.2 million, on Monday
to buy the Ansett domestic terminal, SACL management
is now negotiating new leases over the terminal with Australia's
only national airlines, Virgin Blue and Qantas.

They each want long-term leases for one of the two concourses,
and they want them exclusive to make life more difficult for any
new third domestic airline - most likely Singapore Airlines, but
possiibly Emirates or Dragon Air.

These three airlines are believed to to be negotiating with the
Ansett administrators to buy the defunct carrier's operating
certificate and other assets needed to start a new domestic
operation.

But is there a third player actually on the horizon? Enter
Singapore Airlines.

I understand Singapore is the most serious of the three parties
negotiating with Ansett administrators Mark Korda and Mark
Mentha to buy the Ansett airline operating certificate (AOC)
and associated assets, which the two Marks have carefully
preserved for sale.

This is a delicate business, No AOC has been sold like this before
and there is no precedent for valuing it. Mentha and Korda kept
it from being cancelled by the aviation authorities because they
have retained the Ansett chief pilot on their payroll and kept
the engineering facilities in running order.

As a package with the AOC, the administrators are offering
for sale the reservation system, leases on 18 Airbus A320
aircraft, engineering facilities and valid enterprise agreements.

They say those agreements, plus the fact that all the
fixed assets, such as the terminals and head office, have now
been sold, means that a reborn Ansett (with a different name,
of course, and no terminals of its own) would have a lower cost
base than Virgin Blue. Most of the staff including pilots and
flight crews, are still looking for jobs, by the way, and would
be available.

This means that anyone who is thinking of paying good money
for Ansetts AOC must be in a hurry. otherwise they would take
12 months to get their own.

The key is Singapore. The Star Alliance, of which Singapore
is a lead member, is being slaughtered in the Australian market
place by Qantas and its Oneworld partners.

Singapore would do the same if the roles were reversed, but
right now the feeder flights to and from the flights in and out
of Australia by Singapore and its Star Alliance partners are
costing a fortune, and the situation can't go on. Singapore
must either get Virgin Blue into Star Alliance or start its own
domestic operations.

But Virgin is an unlikley starter because joining Star costs tens
of millions of dollars, and Virgin doesn't have the systems to
handle it anyway. Joining Star would proberly involve a
fundermental change to the Richard Branson/Chris Corrigan
business model.

So despite all Singapore's reluctance to risk an entry into the
Australian market as a third start-up airline, reality is intervening.

For Virgin Blue owners, Corrigan and Branson, Singapores entry
into Australia with a very low-cost base would be a disaster.
Instead of looking at an enormously profitable 25-30% of the
market shared with Qantas, they would be back to 15% and
once again struggling to cover costs.

That's why they are keen to tie up the Sydney terminal space
through an exclusive arrangement. But even if SACL were
prepared to give it to them, which must be unlikely since
it would make SACL appear hypocritical as it has promoted
the "common user" idea previously, the timing makes it
impossible.

With the airports sale just two weeks away it would be a
courageous SACL board indeed that ageed to a 10-year
exclusive lease, even though the Government hasn't told
it not to.

Alan Kohler