Somare pans PNG airline merger

EX-public enterprises minister Arthur Somare believes government plans to merge Air Niugini with Airlines PNG will mainly benefit APNG’s controlling shareholder, John Wild.
Somare pans PNG airline merger Somare pans PNG airline merger Somare pans PNG airline merger Somare pans PNG airline merger Somare pans PNG airline merger

Wild owns a 47% stake of APNG, which listed on the Port Moresby Stock Exchange in 2008.

While the onset of the global financial crisis has helped push APNG shares down 40% from their debut of 1 kina each to their current price of 60 toea, APNG did post a K2.1 million ($A0.98 million) profit in the 2010 calendar year.

But this result included the impact of a K2.53 million gain from the revaluation of investment property compared to 2009.

Just over a year ago the AAP reported that Qantas' entry into the PNG airline market, triggered by development of the PNG LNG project, had led to a price war on the Cairns to Port Moresby route.

Several government sources claimed to the news service at the time that APNG was seeking a merger with Air Niugini but Air Niugini chief executive officer Wasantha Kumarasiri confirmed that a merger was not being considered.

"[Prime minister Michael Somare] and our minister [public enterprises minister Arthur Somare] have assured us they are dedicated to Air Niugini," he reportedly told AAP in August 2010.

In the same report, a Prime Minister's Office spokesman said "we hope sense will prevail".

Yet the change in government and the appointment of Sir Mekere Morauta as Public Enterprises Minister has resulted in the emergence of a proposed merger between the two PNG airlines.

APNG has welcomed the government decision to proceed and said the merger was subject to approval from its shareholders, approval of a final transaction by the government and other regulatory and third party approvals.

"Airlines PNG will work closely with the PNG government and Air Niugini to develop the

merger transaction," the airline said.

"A memorandum of understanding between the three parties will see the establishment of a merger implementation office under the leadership of Rt Hon Sir Mekere Morauta, Minister for Public Enterprises.

"The merger implementation office will establish the transaction structure and timeline for implementation and ensure the people of PNG receive full and fair value via a fully transparent process and independent valuation of both companies."

Yet recently-ousted public enterprises minister Somare said such a merger would not be in the national interest.

"When the Ministry of Transport first put forward this proposal last year it told the Somare government the enlarged airline would become more profitable because it could increase domestic and international airfares," Somare said.

He scoffed at government announcements that the merged airline could service 130 domestic destinations.

"Even if the enlarged airline serviced 50 or 60 domestic destinations by Christmas this year, or less than half the number promised, this would result in a massive cost blowout from which the airline might never recover," Somare said.

While Air Niugini had flight-based revenue of more than K900 million in 2010 compared to APNG's K207 million, with more than half of APNG's flight-based revenue from charter flights, the PNG government has flagged that Air Niugini will have a majority stake in the merged airline.

Yet Somare has claimed APNG's financial situation is "highly questionable" as its financial liabilities exceed its assets.

He said the merger would largely favour APNG's dominant shareholder Wild and had "the potential to destroy the national carrier [Air Niugini]".

Independent Consumer & Competition Commission chief executive officer Dr Billy Manoka recently told The National that it would have the last say on the proposed merger, while four trade unions have reportedly asked the government to scrap the merger.

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