Delicate balancing act for Virgin

It's game-on over at Virgin Australia where jostling among the major shareholders is set to move to a new level.

Gulf-based carrier Etihad has been given clearance from the Foreign Investment Review Board to increase its holding from 10 per cent to 19.9 per cent.

The move comes hot on the heels of another of Virgin Australia's alliance partners, Air New Zealand, moving from 20 per cent to 23 per cent while seeking approval to bolster its stake to 26 per cent.

And only two months ago another pivotal Virgin partner, Singapore Airlines, moved from 10 to 20 per cent in a controversial acquisition, having picked up the stake from Virgin's founder, Sir Richard Branson.

The fourth alliance partner, Delta, is the only member of the Virgin Australia family that appears to see no benefit in taking an equity interest.

At this stage Virgin Australia's board has made no offers to give any of the alliance shareholders a board seat, but it may be only a matter of time before the stakeholders start agitating.

Etihad boss James Hogan, in Australia on a financial roadshow, said on Thursday the equity stake was about "having skin in the game ... you have an interest in the business ... you have an interest in the development of the business".

There are practical reasons such as joint sourcing and collaboration on systems that go some way to explaining the shareholdings. But this stalking goes well beyond this.

It is a poorly kept secret that Hogan was less than amused that Branson sold a 10 per cent stake to Singapore Airlines. And given the free float in Virgin is small (around 34 per cent) Hogan's first port of call would have to be Branson. Sources have suggested that Etihad had been in talks with Branson for a year when Singapore snatched the 10 per cent stake.

Branson still has 13 per cent, and told me last month, "It's always nice to have big airlines lining up for your shares". The battle for Virgin is really only between two key partners, Etihad and Singapore, both sovereign airlines and the former in the middle of a major expansion in size and routes.

While Hogan said much of his focus was on India and Europe (where another new alliance will be announced over the coming weeks), the leapfrogging of their stakes in Virgin appears clearly to be about who can get more influence in the Australian-based airline.

The issue is that the two airlines (while part of the larger Virgin Australia) compete with each other for traffic to Europe. And neither wants the other to have a larger stake in the Virgin game.

Hogan recognises the two are in competition but says he is happy enough to compete within this alliance family. Presumably he would rather it be in a level shareholder playing field.

Either has the ability (in theory) to make a takeover offer for Virgin. But in practice these big blocking stakes would render it useless. This makes it hard to see an end game to what appears to be more akin to a Cambodian Peace Pact.

And it raises the question as to what Air New Zealand is doing in the middle. It is now the largest shareholder but appears to have cordial relations with all the parties, and as such has a key role in how this game plays out.

Both Etihad and Singapore will be seeking to ally themselves with the Kiwi neutrals. Meanwhile, Virgin boss John Borghetti has to play the diplomat. He needs them both to gain a route network in Asia, Europe and the Middle East. He doesn't want them around the boardroom table and has managed to hold them at bay so far.

The only left-field solution to keeping the peace could be a deal between Singapore and Etihad, and there have been whispers that the two may have been talking. Hogan would not confirm this.