1. Market boosted by aviation sector
Auckland International Airport led gainers on the NZX 50, reaching a 2-½-year high in the wake of its upbeat economic report last week.
Air New Zealand rose after posting a jump in traffic for December.
The NZX 50 rose 5.615, or 0.2 per cent, to 3358, heading for its third daily advance. Trading was quieter than usual, with Wellington market participants away for the anniversary day holiday.
Auckland Airport rose 1.8 per cent to $2.29. The shares reached the highest level since mid-2008, extending their gains since the company released a report showing it may account for almost 20 per cent of national gross domestic product and sustain more three quarters of a million jobs by 2031, based on the flow of freight and passengers through the airport.
Air New Zealand, the national carrier, rose 0.7 per cent to $1.43 after traffic figures showed the airline carried 1,322,000 passengers December, 10 per cent more than the same month a year before.
Load factor rose by 1.3 per cent to 86.3 percent compared to the previous period, with revenue passenger kilometers up 7.7 per cent to 2,861 million.
Much of the increase was built on the back of a 10.9 per cent increase in short haul passenger numbers to 1,140,000, broken down to a 10.7 percent lift in the domestic market and a 13.9 per cent increase in Tasman/Pacific.
APN News & Media, which publishes the New Zealand Herald and operates the Radio Network, was unchanged at $2.40 on the NZX after it said the diversified nature of its operations is likely to offset the effects of Queensland floods, with minimal impact on the bottom line.
The company that said while it expects the Queensland economy to rebound strongly once mop-up operations are complete, advertising revenues from small businesses, retailers and real estate are expected to remain under pressure, having already shown some signs of weakness ahead of the floods.
Hallenstein Glasson Holdings, the clothing retailer, fell 1.2 per cent to $4.05.
New Zealand's retailing sector remains under pressure, with November's core retail sales declining 0.2 per cent to $4.24 billion, the second monthly decline. A gain of 0.5 per cent was expected, based on a Reuters survey.
The New Zealand dollar will probably stay within recent ranges this week as investors prepare for the Reserve Bank to keep interest rates on hold this week.
Five of six economists and strategists in a BusinessDesk survey expect the kiwi will respect recent price-action and stay in the middle of its medium-term range between US74 cents and US76 cents ahead of this week's central bank meetings in New Zealand and the US.
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The lone dissenter expects the kiwi to head lower amid heightened expectations of rising interest rates in China.
Economists expect central bank Governor Alan Bollard will keep the official cash rate at 3 per cent after New Zealand dodged a double-dip recession last year, and last week's benign inflation and tepid retail sales data won't have given him reason to tighten rates early.
Analysts now expect Bollard will start lifting rates in September, with 68 basis points of hikes priced in over the next 12 months, according to the Overnight Index Swap curve.
The kiwi rose to US75.82 cents from US75.46 cents last week.
2. 2. Questions over Air NZ's share grab in Virgin Blue
New Zealand's national airline has confirmed it has bought a substantial share holding in the Australian-based Virgin Blue.
Air New Zealand's sudden purchase for A$145 million cash gives it 15 per cent of Australia's second largest carrier. But speculation is rife over the reasons behind the move and how other regional airlines will react.
Presenter: Karon Snowdon, finance correspondent
Speakers: Ben Sandilands, aviation writer, Plane Talking (online Crikey blog); Rob Mercer, head of research, New Zealand stock broker, Forsythe Bar
Listen: Windows Media
SNOWDON: It seems to have taken everyone by surprise, including Virgin Blue executives.
Air New Zealand's determined grab of almost 15 per cent of the Australian airline was achieved by paying a 30 per cent premium on Thursday's opening share price.
The question is why.
Chief executive, Rob Fyfe, said in a statement there was no intention to go over the 15 per cent or pursue a takeover.
It's simply to gain access to the one third of the Australian domestic market controlled by Virgin Blue and to cement the codeshare alliance between the two airlines forged late last year.
SANDILANDS: It seems a little disingenuous in my opinion because he's got that anyhow. It's not actually necessary for him to have spent this money.
SNOWDON: Ben Sandilands is aviation writer for the online Crikey blog, Plane Talking.
The share deal benefits both airlines, says Rob Mercer, the head of research for the New Zealand stock broker, Forsythe Bar.
MERCER: I see substantial benefits for both in terms of strengthening both airlines' weaknesses.Virgin Blue in frequency of service and Air New Zealand, actually serving the Australian domestic market, in terms of Australians travelling to New Zealand, which makes up such a big scene of inbound tourism. And the value proposition is implicit in Virgin Blue's current share price. I think Air New Zealand and Virgin Blue should work really well together.
SNOWDON: It's possible Air New Zealand can't lose on the deal - whether it holds onto the shares in the longer term or not.
Aviation writer, Ben Sandilands, believes Air New Zealand's stake in Virgin Blue is a very strategic one.
SANDILANDS: And we see other forces at work here, bringing about airline consolidation. So Air New Zealand has secured a seat at the table and if anybody wants to take a significant stake in Virgin Blue now, they are going to have to pay Air New Zealand a very handsome price for their 14.9 per cent.
SNOWDON: Who's in the running to take that stake?
SANDILANDS: Speculation lies on sovereign funds such as Temasek Holdings in Singapore and the sovereign funds of the states of the UAE (United Arab Emirates), also the Bank of China has figured in some speculation and it does own some of Virgin Blue's fleet, and as well as that there is some speculation concerning Etihad Airways of Abu Dhabi in particular.
SNOWDON: (Etihad) Which has a close relationship with Virgin Blue already?
SANDILANDS: Yes, they do. Etihad has in fact an alliance arrangement with Virgin Blue which starts off next month in which Virgin Blue aircraft will fly, sorry, V Australia, aircraft will fly to Abu Dhabi and connect at the hub for onward flights to Europe and North Africa.
SNOWDON: Air New Zealand is 74 per cent government owned. It has not ventured in to the Australian market since its disastrous takeover of the failed Ansett over a decade ago. It's indicated it will wait six months before seeking a seat on the board but in the meantime Virgin Blue will be watching other skies. Its major shareholder, with 26 per cent, is Richard Branson, the founder of Virgin Atlantic. Having indicated he's prepared to sell his interest in that airline, there is a chance he will sell out of Virgin Blue as well.
Rob Mercer thinks Air New Zealand, on the other hand, is in for the long haul and consumers will see better competition across the Tasman.
MERCER: We will see the airlines deliver more frequency of service at an affordable price. The other thing with Virgin Blue is that they have gone from bring a discount carrier to a full service carrier. And over the next two or three years I think you'll see their product be more aligned to Air New Zealand, so I think the two airlines will culturally, actually work quite well together.
3. 3.Air NZ moves to 14.9pc of Virgin Blue
AIR New Zealand has confirmed it has bought 14.9 per cent of Virgin Blue for $145m and will not seek a board seat for at least six months.
The airline said today it had paid 44 cents a share for its stake using existing cash resources in an off-market transaction.
Air New Zealand chief executive officer Rob Fyfe reconfirmed there was no intention to go over 14.99 per cent and also confirmed the Kiwi carrier had no intention to seek a board seat for the first six months.
By late morning, Virgin shares were up 0.5 cent to 44.5c.
Mr Fyfe said the investment provided the Kiwi carrier with an interest in Australia’s second biggest carrier and access to opportunities in the growing Australian domestic marketplace.
Related Coverage
Air NZ muscles up to compete with Qantas The Australian, 2 days ago
Air NZ flags new dogfight Herald Sun, 2 days ago
Air NZ's raid stuns Virgin Adelaide Now, 3 days ago
Air NZ swoops on Virgin The Australian, 3 days ago
Virgin deal signals cheaper fares Herald Sun, 10 Jan 2011
However, AirNZ had no intention of flying its own planes on Australian domestic routes.
“This is simply an investment in Virgin Blue that reinforces Air New Zealand’s strategy to grow its business in Australasia which is continually evolving as a single aviation market,’’ Mr Fyfe said.
“The Tasman alliance with Virgin Blue was a key step in this strategy. This investment cements the important relationship between our two airlines and demonstrates the confidence we have in Virgin Blue and its management to grow their business both within the Tasman alliance and beyond the scope of the alliance.’’
Analysts also saw the move as a strategic play by Air New Zealand to gain a bigger share of the domestic market.
UBS said the move indicated a desire for more formal co-operation between the two airlines.
“Virgin Blue’s domestic network is of strategic interest to Air New Zealand which faces a smaller captive market, lacks scale, and faces increasing competition,’’ it said. “(The) transaction would simply be another example of cross border alliances in the aviation industry.’’
4. Receiver upbeat on Helicopters NZ sale
Strong bidding interest from overseas and New Zealand for South Canterbury Finance asset Helicopters NZ has receiver Kerryn Downey optimistic of a $90 million-plus sale within three months.
Indicative bids for the Nelson company, up for sale as part of SCF's receivership process, closed last week.
Several bids had come in from local and overseas parties, including New Zealand and international helicopter operators, and he was expecting a report from Goldman Sachs, which is helping with the sale, early this week.
Helicopters NZ was ascribed a face value of $90.3m last year when it was transferred to SCF from the Allan Hubbard-controlled Southbury Corporation.
"I am reasonably certain that number, if not higher, will be the sale price," Mr Downey said. "I am very upbeat about Helicopters. Its operating performance is ahead of budget which is extremely encouraging."
He hoped to conclude the sale by March or April. A
competitive sale process is good news for the taxpayer, after the Government paid out close to $2 billion to investors and financiers under the Retail Deposit Guarantee Scheme when SCF failed last year.
Mr Downey said it was "disappointing" the company had not received Civil Aviation Authority approval to continue with a key United States military contract in Laos and Cambodia.
But the prospects were good for resolving the problem over the company's air operating certificate sooner rather than later and the Southeast Asia contract was a small, though relatively important, part of the company's overall operations, he said.
The contract, which involved working with an arm of the US Department of Defence to recover remains of servicemen missing in action, was about 10 per cent of the company's business, he said. Its main operations were in New Zealand, Australia and Antarctica.
The CAA withdrew operational approval believing it did not have the jurisdiction to cover operations in Laos and Cambodia. And just before Christmas the High Court denied the company an order to continue its air operating certificate, pending an appeal.
Directors had still not decided whether to appeal against the CAA decision.
Indicative bids for SCF's 80 per cent shareholding in another valuable asset, Scales Corporation, close on January 28.
The company, which has cold store, petfood, property, bulk storage and shipping operations, and is the country's biggest apple grower, is itself not for sale – only the 80 per cent shareholding.
A hotly contested sale for this stake in the business.
"It is a very highly performing business with rock solid profitability. There is significant interest. The competitiveness of the process and the level of interest suggest high values there."
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