Presentation to Investors Qantas/Air New Zealand Strategic ...€¦ · Presentation to Investors Qantas/Air New Zealand Strategic Alliance 25 November 2002 Presentation to Investors

Presentation to Investors

Qantas/Air New ZealandStrategic Alliance

25 November 2002



25 November 2002

OverviewOverviewEstablishment of a Strategic Alliancebetween Qantas and Air New Zealand

Involves:

• Qantas taking an equity investment in AirNew Zealand of up to 22.5 percent

• Pricing and schedule coordination

• Reciprocal Board representation

Subject to Air New Zealand shareholder andregulatory approval

Investment will be:

• Funded from proceeds of equity raisingundertaken in August 2002

• EPS accretive from 2003/04 onwards

OverviewOverview

Alliance will:

• Enable both Qantas and Air New Zealandto make better use of resources and capabilities, creating significant synergiesand growth opportunities

• Allow both airlines to compete more effectively in an increasingly demandingglobal aviation market

RationaleRationale

Joint airline operations (JAO) covers:

• All of Air New Zealand network

• All Qantas flying to, from and within NewZealand

Air New Zealand will not operate serviceswithin or beyond Australia (except SYD-LAX)

Scope of AllianceScope of Alliance

Qantas will not operate services within orbeyond New Zealand, except through theJAO

Once authorised, Air New Zealand andQantas will coordinate all aspects of pricingand scheduling of the JAO

Scope of AllianceScope of Alliance

Benefits of AllianceBenefits of AllianceEPS accretive from 2003/04 onwards

Full scope of benefits will take up to threeyears to be realised:

• Resolution of alliance memberships

• Implementation of JAO systems andschedules

Combined pre-tax synergies of betweenNZ$330 and NZ$450 million per annumexpected by year three

Combined benefits derived by Qantas andAir New Zealand will be adjusted equitablyin accordance with an agreed mechanism,with reference to:

• Contribution net of EBITDAR and standardised aircraft charge

• Capacity deployed by each carrier on theJAO network

• Benefits brought by each party to the JAO

Benefits of AllianceBenefits of Alliance

Additional 22.5 percent share of Air NewZealand profit accrues to Qantas throughshareholding


Reciprocal codeshare across the JAOnetworks

Air New Zealand codeshare on non-JAOconnecting Qantas sectors

Joint scheduling, pricing and inventorymanagement and coordinated salesactivities on JAO networks

Reciprocal Frequent Flyer programs andlounge access


Increased feed from Air New Zealand toQantas non-JAO services - Singapore, LosAngeles and Australian domestic ports

Operational cost savings, primarily fromcost of sale reductions and mix/usage ofaircraft types

Access to Express and Freedom low-costproducts

Qantas Holidays actively selling Air NewZealand services


Over time, cooperation also expected in theareas of:

• Engineering and maintenance activities

• Joint lounges and co-location of offices

• Alignment of corporate office functions


Investment in Air New ZealandInvestment in Air New ZealandSTEP ONE: Subscription for ConvertibleNotes equal to 4.99 percent equity interestin Air New Zealand

• Issued at 10 percent discount to VWAPfor 20 day period up to and including 20November 2002, equal to NZ$0.445 pershare

• Requires New Zealand Minister of Transport approval, as Kiwi Shareholder

• Approval expected by end of 2002

Investment in Air New ZealandInvestment in Air New ZealandSTEP TWO: Conversion of Notes and concurrent issue of shares bringingcumulative interest in Air New Zealand to 15percent

• Additional shares issued at same price asNotes

• Occurs following regulatory and shareholder approval

• Regulatory approval expected by end ofJuly 2003

Investment in Air New ZealandInvestment in Air New ZealandSTEP THREE: Issue of shares to take totalinvestment to 22.5 percent

To occur either:

• At same time as 15 percent stake taken. Shares would be issued at sameprice as Notes

• Three years after 15 percent stake taken.Shares would be issued at 15 percentdiscount to prevailing market price

Investment in Air New ZealandInvestment in Air New ZealandOptional top-up rights to maintain 22.5percent shareholding

Board RepresentationBoard RepresentationQantas entitled to nominate two directors toAir New Zealand Board:

• One nomination under Strategic AllianceAgreement

• Further nomination when equity holdingabove 10 percent to maintain proportionate representation

Air New Zealand entitled to nominate onedirector to Qantas Board

• Under Strategic Alliance Agreement

Air New Zealand Board quorum andcommittees to include Qantas director

Qantas director required to sign any writtenresolution of Air New Zealand Board

Board RepresentationBoard Representation

Administration of JAO networksAdministration of JAO networksCommercial aspects of JAO networks to bemanaged by Air New Zealand

Management role effective upon reciprocalcodesharing on the JAO networks

Air New Zealand to coordinate managementuntil this is effected

Qantas to second staff to assist Air NewZealand’s management

Air New Zealand management supported byStrategic Alliance Advisory Group (SAAG)

• Qantas and Air New Zealand each nominate three members

• Reviews and endorses business plansand budgets of JAO networks

• Monitors JAO networks’ performance andcapture of organisational opportunities

Administration of JAO networksAdministration of JAO networks

Matters not resolved by SAAG enter definedescalation process

Initial term of five years from resolution ofalliance memberships

Administration of JAO networksAdministration of JAO networks

The Convertible Notes will be accounted foras an investment in Air New Zealand

Following regulatory and shareholderapproval and consequent increase ininvestment to 15 or 22.5 percent, the entireinvestment will be equity accounted

Accounting for InvestmentAccounting for Investment

Qantas share of Air New Zealand net profitwill be taken to account each period,adjusted for accounting policy differencesand goodwill amortisation

Goodwill will be amortised over a period ofup to 20 years

Accounting for InvestmentAccounting for Investment

A strategic alliance with Air New Zealandrepresents a unique opportunity for Qantasand Air New Zealand to achieve moretogether, both operationally and financially,than could be achieved independent ofeach other

ConclusionConclusion



25 November 2002



25 November 2002

AppendiceAppendice

Regulatory Approvals RequiredRegulatory Approvals Required

Kiwi Shareholder (Minister of Transport) approvalrequired for Qantas to acquire any shares in AirNew Zealand and for amendments to the Air NewZealand Constitution

Approval expected by end of 2002


Application to the Australian Competition andConsumer Commission (ACCC) and the NewZealand Commerce Commission (NZCC) toauthorise:• Equity subscription• Strategic Alliance (price and schedule

coordination)Final determination expected by end of July 2003


Expect undertakings will be negotiated to:• Facilitate entry of new competitors• Protect consumers• Lock in benefits to stakeholders

Regulatory Approvals RequiredRegulatory Approvals RequiredShareholder approval (includingGovernment/Treasurer approval) for:• Acquisition of more than 10 percent of Air New

Zealand (under NZSE Listing Rules)• Acquisition of more than 20 percent of Air New

Zealand (under Takeovers Code)• Amendments to Air New Zealand Constitution• Entry into and performance of Strategic Alliance

and related documents• Appointment of Qantas nominated director to Air

New Zealand BoardApproval expected by end of August 2003


Authorisations also required by UK/EC, US, Japanand Fiji authorities

Various waivers and rulings required by ASX andNZSE, Australian and New Zealand TakeoversPanels and Foreign Investment Review Board (AirNew Zealand only) and taxation authorities

Documents

Presentation to Investors Qantas/Air New Zealand Strategic ...€¦ · Presentation to Investors Qantas/Air New Zealand Strategic Alliance 25 November 2002 Presentation to Investors