Virgin Australia's board faces a rebuke from small shareholders for its handling of a $350 million capital raising which they claim rewards its major airline investors Air New Zealand, Etihad and Singapore Airlines.
Ahead of the annual meeting in Brisbane on Wednesday, the Australian Shareholders Association has joined influential proxy adviser CGI Glass Lewis in urging shareholders to vote against Virgin's executive-pay report.
The peak body for retail shareholders will also cast its proxy votes against the re-election to the board of David Baxby, the former investment banker who was Richard Branson's right-hand man until June. Sir Richard's Virgin Group still has a 10 per cent stake in the airline.
The ASA had intended to support Mr Baxby's re-election but said it had changed its mind because the directors had "deliberately maximised the prospect" of retail shareholders not taking up their rights to buy new Virgin shares.
Virgin's "non-renounceable" entitlement offer means shareholders cannot sell the "right" to buy the new shares. Instead, they have to decide whether to buy the new shares or forfeit the chance to do so.
The association pointed out that those new shares not bought by retail investors will be allocated to the three major shareholders - Air New Zealand, Singapore Airlines and Etihad - at a discount to the market price. It will allow them to boost their cornerstone stakes in Virgin, which has offered each a board seat.
The ASA said Mr Baxby had "some form when it comes to not protecting the interests of retail investors", citing Virgin's heavily discounted capital raising in 2009 when many small shareholders lost out.
"The Virgin directors are clearly anticipating a retail shortfall as they have already entered into commercial arrangements with their three largest shareholders to allocate the shortfall," it said.
The airline has reclassified Mr Baxby as an "independent director" since he left Virgin Group. The latter is still represented on the airline's board by Josh Bayliss.
The association is also opposed to Virgin's remuneration report because it believes the pay and bonuses for the senior executives were "neither sufficiently transparent nor aligned with shareholders' interests".
It believed the hurdles that executives had to clear to gain long-term bonuses were "too low".
But unlike CGI, the shareholders association has decided to support the approval of 2.87 million share options to chief executive John Borghetti because it would prefer him to be rewarded in shares rather than cash.
It pointed out that Virgin will pay Mr Borghetti cash for meeting long-term targets if the share-options package is not approved by shareholders on Wednesday.