Singapore Airlines ‘good fit’ for Virgin Australia

Singapore Airlines could face a battle from a Chinese competitor if it wants Air New Zealand’s cornerstone stake in Virgin Australia, according to analysts.

Singapore Airlines is a strong contender to buy Air NZ’s 26 per cent shareholding in Virgin Australia, currently valued around $338 million.

Already Virgin’s third-biggest shareholder with a 15.6 per cent stake after Air New Zealand and Etihad Airways, Singapore could take its Virgin holding to 41.6 per cent if it decided to buy.

“I think Singapore Airlines would really, really strain hard to become the controlling owner (of Virgin Australia),” Peter Harbison, executive chairman of CAPA-Centre for Aviation, told AAP.

“It would be very, very good for Singapore Airlines, and I suspect it would be very good for Virgin too.”

It would probably benefit the Australian market overall, given Qantas’ hold over the domestic aviation market for the past 20 years, he added.

Air NZ, majority-owned by the New Zealand government, last week said it was looking at a full or partial sale of its Virgin stake to focus on growth opportunities.

Singapore Airlines – which already counts Australia as its second biggest market after Singapore – was tight-lipped on its plans.

“At this stage, we have no information to provide on this subject, beyond reiterating what was announced on 21 March, that we have committed to providing a shareholder loan to Virgin Australia in the context of their capital structure review,” a company spokesperson said.

“Anything else would be speculative at this point.”

Bell Potter analyst John O’Shea expects the stake to be snapped up by Singapore Airlines or a Chinese airline, such as China Southern, China Eastern or China Air.

Should a Chinese airline buy the Virgin stake, it would be bad news for Qantas as it would change the dynamics of the industry, he added.

Mr O’Shea said he couldn’t rule out Etihad increasing its stake in Virgin but thinks it unlikely.

He also thought businessman and Virgin founder Richard Branson was a long shot, given the entrepreneur’s history of selling down his stake in Virgin Australia, which he launched in 2000.

Mr Harbison also doesn’t expect Etihad to increase its 24 per cent stake: its management’s busy enough with 29 per cent and 24 per cent equity interests in Air Berlin and Jet Airways, respectively.

An Etihad spokesperson declined to comment, noting only that its 10-year commercial agreement with Virgin, together with its shareholding and a seat on the board reflected its commitment.

“We fully support Virgin Australia’s strategy and management team. Our relationship has enabled both airlines to significantly improve network reach and to deliver strong revenues from codeshare operations,” the spokesperson said.

Air NZ chairman Tony Carter said the airline doesn’t want a large stake in Virgin, which is reviewing its capital structure after transforming from a budget carrier to a diversified airline group.

An Air NZ spokeswoman on Tuesday declined to comment on what interest it has had so far.

In February, Virgin swung to a net profit of $45.7 million in the first-half 2015/16, helped by a $33.8 million benefit from lower oil prices.

Virgin shares closed unchanged at 36 cents on Tuesday.

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