Delta will buy the 49 percent shareholding for $360 million, according to a stock exchange filling late yesterday. Singapore Air will book an S$322 million ($264 million) gain from the sale, after accounting for a writedown in its investment in the U.K. carrier controlled by billionaire Richard Branson.
Singapore Air is exiting Virgin after more than a decade as it sharpens its focus on faster-growing Asia-Pacific markets. The carrier has ordered 54 Boeing Co. (BA) 737 planes to double the size of regional unit SilkAir and bought a stake in Virgin Australia Holdings Ltd. (VAH), that nation’s second-largest carrier.
“We are positive on the deal as it helps unlock the hidden value from a long-held asset,” Morgan Stanley analysts Edward Xu and Chin Ser Lee said in a note to investors. The Virgin investment has “yielded limited returns and synergies.”
Singapore Air, which already has more than S$4 billion of cash in hand, may use the sale proceeds for a special dividend, share buyback or investment in other carriers, the analysts said. It could also use the funds as buffer against capital spending plans totaling about S$6.75 billion, they said.
The airline rose 1.1 percent to close at S$10.87, the highest since Sept. 21. The benchmark Straits Times Index gained 0.8 percent.
Singapore Air bought the stake for S$1.65 billion, Germaine Shen, a spokeswoman, said by e-mail.
The investment “has not performed to expectations,” the carrier said yesterday. “The synergies the parties originally hoped for have not materialized.”
The airline expects to maintain commercial ties with Virgin, such as codeshares and frequent-flier tie-ups.
Delta, based in Atlanta, is buying the Virgin stake to increase its presence on lucrative trans-Atlantic routes. The two carriers intend to begin a joint venture on 31 daily round- trip flights between North America and the U.K. taking advantage of Virgin’s base at London’s Heathrow airport, Europe’s busiest.
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