Rivals on notice as Air NZ lifts stake in Virgin Australia
In yet another shake-up of Virgin's share register, the government-controlled Air New Zealand raised its stake to 23 per cent. The Kiwi airline bought a 3 per cent stake in Virgin for about $72 million and is seeking approval to raise it by a further 3 per cent under so-called creep provisions.
The purchase makes Air New Zealand the largest shareholder, followed by Singapore Airlines at 20 per cent and Richard Branson's Virgin Group at 13 per cent. Sir Richard has made it clear he plans to reduce his stake in the long term.
Etihad is also believed to have applied to the Foreign Investment Review Board to raise its holding in Virgin from 10 to 20 per cent.
Air New Zealand reiterated that it did not intend to seek a board seat, nor was it interested in launching a takeover bid. Any push for a board seat will spark a race among the three airlines for representation.
While Singapore Airlines has said it is not interested in using creep provisions to raise its stake further, the latest move by Air New Zealand may make it reconsider its position.
Macquarie analysts said there was no need for Virgin to remain listed in the longer term if the cornerstone shareholders were to "formulate a comprehensive agreement" between them to own it.
Virgin has alliances on various routes with each of its airline investors.
Air New Zealand will need approval from FIRB and the competition regulator to creep further up Virgin's share register to 26 per cent.
It comes as a company founded by billionaire Stanley Ho bought a third of Jetstar Hong Kong, which will result in the shareholdings in the budget airline of Qantas and China Eastern falling to 33 per cent each.
Qantas hopes the emergence of a local investor on the register will bolster the chances of Jetstar Hong Kong gaining regulatory approval to launch flights.
Its launch date has already been delayed from June to the end of this year, and could be even further away due to a review of airline policy by Hong Kong's Transport Bureau.
Macquarie said it was better for Qantas to share the risks and rewards of Jetstar Hong Kong with a local partner.
"Losing a third of the longer-term profitability is a greater outcome than not seeing the project get approved at all ... which was a real possibility," they said.
Frequently Asked Questions about this Article…
Air New Zealand raised its holding in Virgin Australia to 23% by buying an additional 3% stake for about $72 million, and is seeking approval to increase by a further 3% using so‑called creep provisions.
After Air New Zealand’s purchase, the largest shareholders are Air New Zealand at 23%, Singapore Airlines at about 20% and Richard Branson’s Virgin Group at roughly 13%, with Etihad believed to be seeking to raise its holding as well.
Air New Zealand has reiterated it does not intend to seek a board seat or launch a takeover bid; however, any push for board representation could spark a contest among the airline shareholders.
In this article creep provisions refer to the mechanism Air New Zealand is using to seek approval to raise its stake by a further 3% (potentially to 26%), a move that can alter control dynamics and prompt other investors to reconsider their positions.
Macquarie analysts suggested there may be no need for Virgin to remain listed long term if the cornerstone shareholders reach a comprehensive agreement to jointly own it, which could imply a potential path to private ownership.
The move by Air New Zealand is expected to prompt Etihad and Singapore Airlines to consider bolstering their holdings—Etihad is believed to have applied to increase from 10% to 20%, while Singapore Airlines has said it won’t use creep provisions for now but may reassess.
Air New Zealand will need approval from Australia’s Foreign Investment Review Board (FIRB) and the competition regulator to creep further up Virgin Australia’s register to 26%.
Separately, a company linked to billionaire Stanley Ho bought a third of Jetstar Hong Kong, reducing Qantas and China Eastern’s stakes to 33% each; Qantas hopes a local investor will help Jetstar Hong Kong secure regulatory approval, which has already delayed the launch.
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