Dubai offer grounded by our fear of flying

A report in NZ’s Sunday Star Times says that New Zealand Inc. needs congratulating, saying you have screwed yourselves and the country by sending Dubai Aerospace Enterprise packing.

None of you come out well from this farce about Auckland International Airport’s (AIA) ownership. Let’s hope you learn your lessons. New Zealand’s need for productive inbound foreign investment has never been greater if we are to maximise our economic potential.

And it works the other way around. Never have New Zealand companies needed so urgently to make productive, outbound foreign investments if they are to compete in the global economy.

As it happens, the government thinks so too. Ten days ago it announced Investment New Zealand had found it too hard to attract investment to the country. So, in future the government will help our companies invest overseas. That’s excellent news. But judging by the way it politicised the airport issue, the government has as much to learn as anybody about sensible foreign investment.

As painful as it is, let’s remind ourselves what we’ve thrown away by behaving so badly over the airport. Right now, it is an OK airport at the end of very long and lightly travelled international routes. It responds to, rather than leads, traffic growth.

But with a good shareholder and management committed to investing more as active leaders, the airport could become the middle point on rapidly growing, valuable routes between South America and Asia. Such a shareholder could also help develop connections to other parts of the world. All New Zealand businesses, not just tourism, would benefit hugely.

Dubai Aerospace had the potential to be that shareholder. But at every turn NZ Inc opposed it.

The public opposes foreign control by a massive margin, judging by opinion polls.

Two issues seem to fuel their hostility. First, people are deeply jaundiced by the sell-off of assets in the 1980s and 1990s to foreign companies. Rightly so. Some of the deals such as Telecom and Tranz Rail massively enriched the buyers but impoverished us. But they weren’t all bad. So it is vital to take each new proposition on its merits rather than indulge in a thoughtless, blanket rejection of all foreign offers.

Second, people instantly assumed the airport was performing optimally now. There was no self-examination or reflection, just a blind conviction that we could run the airport without the help of any foreigners. They condemned the Dubai deal without pausing for a moment to consider its merits.

Politicians pandered to these public prejudices. Every politician who spoke on the issue embarrassed him or herself. For example, Phil Goff and Winston Peters sounded small-minded; and Helen Clark, trying to distance herself from Goff’s comments, sounded unconvincing when she said Dubai’s offer would still get a fair hearing through the normal governmental process.

Manukau and Auckland city councillors were just as bad, although as mayors go Dick Hubbard was rather more thoughtful than Barry Curtis, his Manukau counterpart. The councils are the worst kind of shareholders. They are happy to clip the ticket but they deeply resist investing in more aggressive growth of the airport if it means some dilution of profits in the short-term.

Next up, the NZ Superannuation Fund and Morrison & Co increased their stakes in the airport. They had good commercial reason to do so. The fund likes infrastructure assets and Morrison & Co is good at buying and running them through its listed vehicle, Infratil. So much so, the fund has made Morrison & Co one of its two infrastructure investment managers.

But it is a far more intimate relationship than the fund has with its other 38 investment managers across a range of asset classes. Those are arms length whereas it co-invests with Morrison & Co.

There’s nothing wrong with that except for a perception problem. Lloyd Morrison and his company are rightly passionate about New Zealand, the country and its assets. Hence, for example, his personal campaign for a new national flag.

So the announcement by Morrison & Co that it had increased its own stake in the airport and done likewise on behalf of the Super Fund must have looked deeply suspicious to Dubai.

The Super Fund is supposed to be absolutely non-political. But here it was co-investing taxpayer funds with a fiercely nationalistic company. With Morrison & Co jostling for a leadership role, this must have looked like NZ Inc lining up to thwart the Dubai bid.

Then there’s the curious role of Air New Zealand. All airlines, through the Board of Airline Representatives of New Zealand (BARNZ), are locked in acrimonious negotiations with Auckland Airport over landing fees. There’s nothing usual about that. Indeed, they have the same unhappiness with Wellington Airport, majority owned by Infratil. In both cases BARNZ and the airlines are dead opposed to the massive land revaluations both airports have made to justify increases in landing fees.

The airlines argue the higher values are unjustified because the land will never be used for anything but an airport.

AIA has proposed raising its landing fees by 2.5% a year for five years and to increase departure and arrival fees by $1 per passenger per year. These are not large increases and the airport has pledged not to use the revaluation stunt again. But anyway, Air NZ alone, not BARNZ or other airlines, headed to court to seek judicial review.

Handily for Dubai, this gave it an excuse for scrapping its proposed offer for the airport. And how handy for Air NZ to see off Dubai, and by extension Emirates, the competitor it fears the most.

This is amazingly short-sighted of Air NZ. If Dubai had been involved in the airport it would have significantly grown traffic. Yes, Emirates would have become a bigger competitor, but the increase in passengers would have benefited Air NZ as well.

And last but no means least in the rogues’ gallery, come the two boards and management teams. AIA’s seemed completely oblivious to and thus blind-sided by public and political opposition. They sold the deal very poorly to their key constituents. Clearly, they have bad stakeholder relations, which is a grave failure of governance.

Dubai Aerospace, board and management, performed just as badly. Their excuse for killing the bid fools nobody. Quite simply, they failed to read and respond well to local sentiment.

It will come back to haunt them. This was the first airport they have tried to buy. With every future bid they will be tarred with this failure to win over the locals, just as their Dubai counterparts, DP World, failed so dramatically to buy six US ports last year.

Sadly, this sorry saga isn’t over yet. Next up, the Canadian government’s pension fund plans to bid for a minority stake in the airport. Council shareholders, in their ignorance, might think this is a better offer than Dubai’s. But it isn’t. The Canadian fund is a passive investor with nothing to offer the airport in management skills or international connections.

In theory, there’s a better outcome: a consortium of, say, Manukau City 10%, Auckland City 10%, the Super Fund 15%, Infratil 15%, Dubai 25% and a public float of 25%. That way, all desires could be met: New Zealand majority ownership in a mix of public and private shareholders; some new and more growth-oriented shareholders; and the expertise of Dubai.

It would be a big ask of Dubai to make a significant commitment in time, money and effort for only a 25% stake.

But it is an even bigger ask of NZ Inc. It would require its public, political and business members to engage with the world.

Report by The Mole