Wednesday, September 1, 2010

Queenstown Airport: Court Case looks set to Drag

I could well imagine that the argument in the High Court in a judicial review sought by the Queenstown Community Strategic Assets Group (QCSAG) and the Queenstown Airport and the Queenstown and Lakes District Council (QLDC) over Auckland International Airport Ltd [AIA.NZX] purchase of a nearly 25% stake in Queenstown Airport will go something like this.

The QCSAG, who are apparently a group of wealthy influential Queenstowners who have their panties in a twist about the strategic move by AIA, have already argued publicly that the move by the QLDC was "antidemocratic" because insufficient disclosure was made to council and therefore to the public but look set to argue that provisions in the Local Government Act 2002, which requires council-controlled businesses to issue a statement of intent annually to councils, should take precedence over a 1996 clause in Queenstown Airport's constitution which states it can issue new equity without first offering them to its shareholder.

The QLDC and Queenstown Airport are defending their decision to sell to AIA

The QCSAG will also cry foul, like Air New Zealand [AIR.NZX] who will take separate action - probably against AIA rather than the QLDC - that the move by AIA is anti competitive and will take control of the airport away from locals. Furthermore, they will contend that the asset should remain fully locally owned for the benefit of Queenstowners so the potential benefits of full ownership will allow them to reap all the profits.

The issue of big bad Aucklanders who have no experience in business in the area coming down to pick on the little guy who knows how things run will be pushed as well as a contention that AIA will be looking after themselves first before Queenstown Airport.

The QCSAG will pick on AIA's propensity to throw its business might around by raising prices at their Auckland Airport and by implication Queenstown Airport, and their dominant position in the ports market in New Zealand - the word monopoly will be thrown around with gay abandon.

The QCSAG will also argue that AIA paid too little for the airport and that if the port is to be sold it be open to competitive bids.

The QLDC are going to defend their decision and I would imagine reiterate what they have already said in the media that claims by QLDC and AIR lack merit for the following reasons.

The QLDC will argue that the 1996 clause in Queenstown Airport's constitution should take precedence over the 2002 Local Govt Act because Queenstown Airport is an autonomous business separate from the QLDC and any significant public disclosure made to satisfy the QCSAG's stance would be commercially sensitive.

The issue of control of the Airport being taken away from locals would be countered by AIA arguing that they are only buying a less than 25% share with a view to take 35% in 2011 so control will still remain in local hands.

One key point in AIA;s rebuttal will be that they will bring airport expertise, the right avenue for growth in Queenstown Airport and of course the all-important capital required to grow the airport quickly and in the right manner. Pointing back to the QLDC and its ratepayers, AIA will argue that by injecting capital into the business it will allow the QLDC to retire council debt and along with their experience in this sector it will allow Queenstown airport to grow quickly, allow more tourism and be a better long-term return for locals than it would be without AIAs input.

Direct flights to Queenstown will propel growth of that airport, in percentage growth terms, higher than that of AIA and that alone is a good reason to make the buy and increase their stake further to 35% as the purchase agreement allows.

The question of AIA looking after themselves first would be relatively easy to bat away because AIA would contend that their financial stake in Queenstown Airport means that argument is simply silly.

The issue of AIA's monopoly would be argued away because they would contend that since they have no business in the South Island, this isn't a problem and any shareholding in Queenstown Airport would be mutually beneficial to both ports and therefore the monopoly bogey would take a back seat to what AIA will bring to a port connected to a much larger shareholder with a bigger business, providing custom and business expertise.

On the question of the price paid for the port stake being too little AIA would argue that they paid well above market rates for the asst and will provide documentation to prove their point. I have argued that AIA paid too much.

In my opinion though, after arguing my way through some of what might happen in the Christchurch High Court, I think a good judge will find most of what both sides say after the issue of the 1996 Clause VS the 2002 Local Govt Act largely irrelevant because their argument will be primarily based on politics and the politics of business, which can be clearly be argued all the way to the Supreme Court if participants have sufficient funds, so if this is the case the judge's interpretation of these acts will be all important.

Like the vexed case of Woolworths Ltd [WOW.ASX] and Foodstuffs VS the Commerce Commission over the purchase of The Warehouse Group Ltd [WHS.NZX], Queenstown Community Strategic Assets Group VS Queenstown Airport and the Queenstown and Lakes District Council is likely to be another long running saga if they are both willing to take this case all the way to the Supreme Court.

You can look forward to more from me on this as this saga unfolds.

Disc I own AIA shares in the Share Investor Portfolio

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