Air New Zealand Ltd. bought 14.9 percent of Virgin Blue Holdings Ltd., Australia’s second-largest airline, to expand in the continent’s growing air travel market and cement an alliance with the carrier.
The airline paid 44 Australian cents a share, the equivalent of Virgin Blue’s closing price yesterday, or A$145 million ($143 million) for the stake, it said in a statement today. It has no plans to buy more than 14.99 percent and will not seek a place on Virgin Blue’s board for at least six months.
Air New Zealand 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. The airline announced that it acquired a major stake in Virgin Blue after the market closed yesterday. It bought more shares off-market overnight, according to the statement.
“This is simply an investment in Virgin Blue that reinforces Air New Zealand’s strategy to grow its business in Australasia, which is continually evolving as a single aviation market,” Rob Fyfe, chief executive officer of the Auckland-based carrier said in today’s statement. “The Tasman alliance with Virgin Blue was a key step in this strategy.”
The purchase was made from existing cash resources, according to the statement. The airline won approval from the Australian Foreign Investment Review Board to buy as much as 14.99 percent, it said yesterday. That should keep foreign ownership of Virgin Blue within the statutory limit of 49 percent, Air New Zealand said. Branson’s Virgin Group owns 26 percent of Virgin Blue, according to the statement.
“Closer ties between airlines always makes sense given that the industry is littered with stories of too much capacity,” said Jason Teh, who helps manage about $3.1 billion at Investors Mutual Ltd. in Sydney. “A large stake in Virgin allows Air New Zealand to probably get a board seat and obviously allow them to influence board decisions.”
Virgin Blue fell 2.3 percent to 43 Australian cents at the 4:10 p.m. close of trading in Sydney, giving it a market value of A$950 million, according to Bloomberg data. It has slumped 34 percent in the last 12 months. Air NZ, New Zealand’s biggest airline, fell 1.4 percent to NZ$1.42 in Wellington at the 5 p.m. close of trading.
The purchase “allows us to participate in any upside we see that Virgin Blue will be able to create in the market in coming years,” Fyfe said on a conference call with reporters today. “We think there is some quite significant upside.”
Return to Australia
The investment marks a return to Australia for Air New Zealand, 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 New Zealand to save its flag carrier from collapse.
Air New Zealand subsequently attempted to form an alliance with Qantas amid 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 New Zealand, 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.