The likelihood that two of Virgin Australia's three largest shareholders will eventually privatise the country's second-largest airline is increasing every time they boost their stakes, Macquarie analysts say.
Speculation about possible ownership scenarios have intensified in the wake of Etihad last week achieving its goal of increasing its stake in Virgin to 19.9 per cent.
Air New Zealand, which is the largest shareholder, also has regulatory clearance to boost its stake from 23 per cent to 26 per cent.
In a detailed report on likely scenarios, the Macquarie analysts say Air New Zealand and Singapore Airlines, which has a 19 per cent stake, are the most likely to pair up to acquire Virgin in the medium term.
However, the analysts emphasise that while the two airlines are the "most likely combination due to overlapping strategic interests", they would first have to form a tighter alliance.
Etihad achieved its ownership target last week after buying part of the stake in the Australian airline owned by Richard Branson's Virgin Group. It left the latter with a 10 per cent stake, which still gives the English entrepreneur the chance to play kingmaker in any deal to take Virgin private.
"With the free float of Virgin halving over the past 12 months, clearly the probability of Virgin being privatised at some stage is looking more likely with every incremental stake being acquired," the Macquarie analysts said.
They point out that it would be difficult for any one of the three airlines to make a takeover play for Virgin in isolation because of the significant combined blocking stake of the other two.
"A greater likelihood ... is a combination of two airlines making a bid for Virgin, either squeezing out the third or reducing it to a minority shareholder," the analysts said.
They believe Air New Zealand and Singapore Airlines are the "most natural fit" of the three shareholders. "The most likely prelude to any combined ownership approach on Virgin would be an improved relationship and partnership between Singapore Airlines and Air New Zealand."
But the analysts warn that Virgin could face boardroom ructions if the three major shareholders "moved to a 30-40 per cent shareholding over time without any pair of airlines working in tandem".
So far, the three airlines have not publicly pushed for a seat on Virgin's board.