Air Transport World

Breaking up is hard to do. (government privatization of airlines is gaining momentum)

Privatization, like alliances, is popular. Four governmentsthe U.K., japan, Canada and New Zealand-have sold 100% of their airlines to nongovernment investors. Others have sold controlling and minority shares. Many more countries are considering the possibilities. Denationalization activity slowed right after the Gulf War but has picked up considerably in the last few months. Clearly, conservative economic policies are making themselves felt in airline ownership, although for different reasons: To raise cash, reduce subsidies and external debt, shed the financial burden of re-equipment, provide consumer benefits, acquire airline management expertise to increase the airline's value and become part of a globe spanning alliance to provide strength.

The shares sold vary widely, depending on the condition of the airlines and in the market at the time. For example, the U.K., japanese and Canadian governments found public investors for their airline holdings of 100%, a remaining 34.5% and 100%, respectively. The British Airways price was attractive. Japan Airlines, despite increased competition, remains a formidable presence. Air Canada looked financially stable at the time. New Zealand, which retains a tiny golden share, structured a private deal.

But Argentina is retaining a 5% stake, perhaps indefinitely. Venezuela is keeping 20% for awhile. The Singapore government retains 54% of Singapore Airlines. It has said that it will divest gradually but only small amounts have been sold to alliance partners recently. Australia will keep 51% of Qantas but sell 100% of Auslian Airlines. The government wants foreign airlines to buy Australian but not if they serve Australia. It may offer shares to the public if airlines don't buy aU of them. India proposes selling 40% of its two carriers. The list goes on. Heaven knows how Nigeria will structure a deal for its airline, which never has made money and whose fleet is down to a few operational aircraft.

There is a good deal of justifiable suspicion that continued government participation suggests business as usual, meaning protection and intervention. Some analysts disagree. One suggests that governments may simply retain an equity share to ensure that they can recoup their historic investment. Another, Bayo Ogunlesi, a member of First Boston's intemational group, says: 5% [that Argentina is keeping] is just as an investor. It is not control. There is nothing in the contractual agreements that would give them anything." As for Venezuela, he says: "The Venezuelan government kept 20% but it will sell that in the domestic capital markets when conditions allow.

"The important thing," Ogunlesi insists, is whether they have sold their controlling interest." Also, what regulatory changes governments have made. Fare regulation has go= airfines into trouble," he says. "Nobody will put money into such a situation. One of the first things governments have had to recognize is they must allow their airlines to operate as commercial entities."

Roger Leeds, formerly with the World Bank and now head of Price Waterhouse's International Privatization Group, disagrees. "Lufthansa is a good investment for the German government. It runs like a private company. …

Log in to your account to read this article – and millions more.