Virgin puts Tiger CEO on standby
Virgin Australia has a chief executive ready in the wings for Tiger Australia if the competition watchdog approves its bid on Wednesday to take a controlling staking in the budget airline.
The Australian Competition and Consumer Commission has indicated its decision this week could go either way, after chairman Rod Sims last month emphasised the complexity of the deal.
If approved, it will return Australia's aviation industry to a duopoly.
Industry insiders expect the deal to scrape over the line, but with conditions attached. Should conditions on the level of flight capacity be too onerous, it raises the prospect of Virgin dropping its bid to take a 60 per cent stake in the loss-making airline.
A rejection of the deal by the regulator would be the biggest blow to Virgin since chief executive John Borghetti took the reins almost three years ago.
He has already selected a new chief executive for Tiger, which has been rudderless since Andrew David stepped down early last month.
It would be a setback to his plans to set up a dual-brand airline group, which would enable Virgin and Tiger to take on Qantas and Jetstar with the advantage of a lower cost base.
Mr Borghetti, who returns this week from holidays in Europe, has shown he can persuade regulators to change their minds.
After taking the reins in 2010, he successfully lobbied US regulators to reverse their opposition to an alliance with Delta Air Lines for flights between Australia and the US.
But his threat to walk away from the latest deal if the regulator forces it to stick to increasing Tiger's fleet from 11 to up to 35 planes over five years caught some by surprise.
Airline executives say such bold statements are unusual while a regulator is considering a deal.
The Singapore parent of Tiger Australia has also played a game of brinkmanship by intimating that without the green light, it will pull its operations out of Australia.
Mr Borghetti and his team decided against setting up Virgin's own budget airline to take on Jetstar because of the cost and longer lead time in starting from scratch.
Macquarie Equities analysts believe Virgin will gain approval on the basis of the argument that Tiger is a "failing business", although they concede there is some risk the deal will be rejected.
But Commonwealth Bank analyst Matt Crowe has said there is a "significant risk" the regulator will block the deal unless it gets a binding agreement from Virgin to boost Tiger flights - a condition Mr Borghetti says he is unable to give.
The competition regulator had been due to hand down a decision on March 14 but postponed it to this Wednesday after requesting more details from Virgin.