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Jan. 20 (Bloomberg) -- Air New Zealand Ltd. bought a “substantial shareholding” in Richard Branson-backed Virgin Blue Holdings Ltd. to bolster ties with Australia’s second-biggest carrier.

The airline intends to buy as much as 14.99 percent, it said in a statement today. That would cost about A$146 million ($145 million) based on the last traded price. It has no plans for a takeover, it said without elaborating on how much of Virgin Blue it now owns. It plans to make another announcement before markets open tomorrow.

Virgin Blue surged 10 percent in Sydney trading before today’s statement. Air NZ last month won approval to cooperate with the Brisbane-based carrier on flights across the Tasman Sea as it competes with Qantas Airways Ltd. and Emirates Airline.

A stake will “strengthen the alliance,” said Will Seddon, who helps manage about $350 million at White Funds Management Pty in Sydney. “It gives them a level of control over Virgin.”

Air NZ has won approval from the Australian Foreign Investment Review Board to buy as much as 14.99 percent, the carrier said. That should keep foreign ownership of Virgin Blue within the statutory limit of 49 percent, Air NZ said. Branson’s Virgin Group owns 26 percent of Virgin Blue, according to the statement.

Cements Relationship

“This investment cements the emerging relationship between our two airlines,” Air NZ Chief Executive Officer Rob Fyfe said in the statement. It “demonstrates the confidence we have in Virgin Blue both as an entity and as a partner.”

Virgin Blue has been told by Air NZ about its approval from the Investment Review Board, it said in a statement.

Brisbane-based Virgin Blue closed at 44 Australian cents, giving it a market value of A$972 million, according to Bloomberg data. It has slumped 30 percent in the 12 months. Air NZ, New Zealand’s biggest airline, rose 0.7 percent to NZ$1.44 in Wellington. The Auckland-based company announced the stake purchase after markets closed.

The investment marks a return to Australia for Air NZ, which previously controlled Ansett Holdings Ltd. The failure of Ansett in 2001 eventually forced the New Zealand government to buy a controlling stake in Air NZ to save its flag carrier from collapse.

Air NZ subsequently attempted to form an alliance with Qantas as it faced rising competition from Middle Eastern carriers, such as Emirates, which operate long-haul planes across the Tasman. That plan was dropped in 2006 following objections from Australia’s antitrust regulator.

Virgin Blue has sought alliances with Air NZ, Abu Dhabi-based Etihad Airways and Delta Air Lines Inc. to expand its international network. CEO John Borghetti is also seeking to lure business passengers from Qantas amid rising competition for leisure travelers from Qantas’s low-cost unit Jetstar and Singapore Airlines Ltd.-backed budget carrier Tiger Airways Holdings Ltd.

To contact the reporters on this story: Shani Raja in Sydney at; Angus Whitley in Sydney at

To contact the editor responsible for this story: Neil Denslow at

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