Virgin Australia’s ownership in spotlight

Virgin Australia’s ownership in spotlight
By Anne Majumdar


Virgin Australia’s ownership is under the spotlight after the airline’s biggest shareholder, Air New Zealand, flagged a full or partial sale of its 26 per cent stake.

In a surprise move, Air NZ said it is considering its shareholding in Virgin as management focus on the Kiwi airline’s growth opportunities.

Air NZ chairman Tony Carter said on Wednesday the carrier doesn’t want a large minority equity position in Virgin as it focuses on its own prospects.

The airline’s 26 per cent stake in Virgin is worth around $342.5 million, based on Tuesday’s closing share price.

Air NZ chief executive Christopher Luxon said his company supports Virgin’s transformation from a budget carrier to a diversified airline group over the past five years under boss John Borghetti’s stewardship.

But as Virgin embarks on the next phase of optimising its balance sheet and capital structure, Air NZ will undertake a review of its investment, including possible alternative uses of capital.

“We look forward to continuing our partnership on the Tasman alliance, providing customers of both airlines with the most comprehensive trans-Tasman network,” Mr Luxon said in a statement.

As a result of Air NZ’s review, Mr Luxon is resigning from Virgin’s board, effective immediately.

Virgin acknowledged Air NZ’s announcement and said it will continue its transformation and its capital structure review, announced on March 21, aimed at improving profitability.

Last week, Virgin tapped its four biggest shareholders for a $425 million loan.

Etihad Airways is Virgin Australia’s second biggest shareholder with a 24 per cent stake. Singapore Airlines holds the third biggest stake, at 15.6 per cent, while Virgin Group has a 10 per cent shareholding.

At 1500 AEDT, Virgin shares were down three cents at 34.5 cents, valuing the company around $1.2 billion.

The airline posted a net profit of $45.7 million in the half year to December – a major turnaround from $53.1 million net loss 12 months earlier.

The result included a $33.8 million benefit from lower oil prices, partially offset by a $19.2 million impact from the Bali volcanic flight disruptions in November.

Virgin said in February it expects to see a similar gain from further oil price falls in the second half of fiscal 2016. Mr Borghetti flagged an annual profit but stopped short of providing specific guidance.

Air NZ has retained investment banks First NZ Capital and Credit Suisse to advise on its Virgin shareholding options.

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