No shortage of suitors jostling for Virgin's attention

When Air New Zealand chief executive Christopher Luxon and his counterpart at Etihad, James Hogan, last visited Sydney about a month ago, the pair were almost within earshot of each other.

Luxon was spruiking a tourism deal at the "Toaster" building overlooking Circular Quay, while Hogan was a few hundred metres away at a high-end hotel, briefing investors. On this occasion, they did not manage to catch up.

But Luxon had met Hogan, an Australian who has steered Etihad for almost seven years, for the first time several weeks earlier at an airline conference in Cape Town.

The pair have every reason to be sizing each other up. Besides their code-share agreements, Air New Zealand and Etihad are bedfellows in Virgin Australia. And it is their common shareholdings in Australia's second-largest airline that is again exercising minds.

In the short term, it has become a race to stake out their positions on Virgin's register. So far, Air New Zealand has been quickest to cement a 23 per cent stake (and lobby for approval to buy another 3 per cent), followed by Singapore Airlines at 20 per cent. In their wake, Etihad is doing its utmost to build on its 11 per cent holding.

But it is the long-term game that is sending strategists into overdrive.

Macquarie Equities analysts believe two of the three airline shareholders - or all three - could eventually launch a takeover offer for Virgin. However, the analysts are quick to emphasise the three airlines first need to improve their relationships before a takeover offer could become a reality.

The most likely parties in any deal-making are Air New Zealand and Singapore Airlines.

To date, Etihad has pursued a strategy of buying cornerstone stakes in airlines around the world, including Virgin, Air Berlin and Air Seychelles, as it attempts to narrow the gap with its nemesis, Emirates.

But in considering whether any takeover could get off the ground, industry insiders point to the substantial hurdles, including regulatory ones such as approval from the Foreign Investment Review Board.

Any push would also require a significant increase in capital investment and management time to gain control of an airline in a notoriously volatile sector.

While a takeover raises the potential rewards, it increases significantly the level of risk for predators in an industry littered with carcasses of failed airlines. In the case of Air New Zealand, memories of Ansett's demise still weigh heavily on the minds of its executives more than a decade on.

Even if two of the three airlines could agree to a deal, they would still need buy in from the other carrier left watching on the sidelines because of its blocking stake.

At present, the dance around Virgin is finely balanced.

The three airline shareholders appear willing to give Virgin chief executive John Borghetti time to focus on taking the fight to Qantas, and the difficult task of turning Tigerair Australia into a profitable airline. Takeover possibilities or not, it is shaping up to become an almighty tussle.