Virgin Australia: Air New Zealand, Etihad & Singapore Airlines take bigger stake

Virgin Australia: Air New Zealand, Etihad & Singapore Airlines take bigger stake

 

An even larger part of Virgin Australia will sit in the hands of Air New Zealand, Etihad Airways and Singapore Airlines in the new year, intensifying Qantas’ arguments that Australia’s two airlines are playing to different rules.

Following Virgin’s call for $350 million of additional capital by issuing an additional 925 million shares, Air New Zealand will see its stake increase from the current 23% to 24.5%, although the Kiwi carrier had earlier flagged that its shareholding “could increase to as much as 25.5%” depending on the deal’s uptake.

Etihad and Singapore Airlines both expect their slices of the Virgin Australia pie to grow to 21.2% , an increase of just over 1% each, reportsThe Sydney Morning Heraldalthough raising their stakes above the 20% mark will require Etihad and Singapore Airlines to gain approval from Australia’s Foreign Investment Review Board.

The three foreign airlines will collectively hold 66.9% of Virgin Australia and each will take a seat on Virgin’s board.

Added to the 10% founding foothold of UK’s Virgin Group, over three quarters of Virgin Australia will be under foreign ownership. And that, Qantas maintains, is much too much.

Qantas: a “virtual takeover” of Virgin

Qantas will no doubt be quick to trot out its line that this represents a “virtual takeover of Virgin Australia by foreign airlines” and draw a comparison against the current Qantas Sale Act which caps foreign investment of Qantas at 49%, with total ownership by foreign airlines limited to 35% (any single airline is restricted to 25%).

Behind Qantas’ concerns is the notion that an injection of foreign cash will underpin Virgin’s continued assault on Qantas’ domestic routes. This could in turn delay efforts to bring Qantas’ international arm back into profitability, to the delight of Virgin’s three partner airlines.

Qantas is now facing a loss as high as $300 million in the six months from July to December this year, with predictions of a record ‘loss before tax’ of $868 million for the full 2013-2014 financial year.

Its financial position has been further undermined by a downgrading from the medium-risk ‘investment’ category to the high-risk ‘junk’ status which is likely to increase the airline’s borrowing costs, leasing and exchange rate hedging.

Read: Qantas faces record $868m loss, slumps to ‘junk’ status

Qantas CEO Alan Joyce has promised that “all options are on the table” as the airline looks to reduce costs and raise capital through asset sales.

The former will include axing over 1,000 jobs over the coming year and accelerating an  aggressive cost-cutting campaign to recoup $2 billion over three years.

One-off moves to raise cash could include selling back the long-term leases on Qantas’ dedicated terminals at Sydney, Melbourne, Brisbane and Perth airports – which it’s estimated could return up to $1 billion to the coffers – and selling off the lucractive Qantas Frequent Flyer scheme, which analysts value at between $1.5-2.5 billion.

 

Australian Business Traveller

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