Virgin Australia's Largest Shareholder Air NZ Considers Exit

  • Virgin got A$425 million loan from shareholders on March 21
  • Air New Zealand's stake is currently worth $262 million

Virgin Australia Holdings Ltd.’s largest shareholder said it’s considering exiting the airline, days after the Australian carrier tapped its biggest investors for fresh funds.

Air New Zealand Ltd., which owns a 25.89 percent stake in Virgin Australia worth about A$343 million ($262 million) as of Tuesday’s closing price, said it will sell some or all of its shares, according to a statement to the stock exchange Wednesday.

Air New Zealand and three other major shareholders this month agreed to loan A$425 million to Virgin Australia as the Brisbane-based airline reviewed its balance sheet. A possible fracture in the ownership structure follows a 23 percent slide in Virgin Australia shares this year. The stock fetched more than six times as much in 2007.

“Eventually, there’s a point when investors start to question if you’re throwing too much money at an airline,” said Oliver Lamb, Sydney-based managing director at Ailevon Pacific Aviation Consulting. Several other carriers might be interesting in acquiring Air New Zealand’s stake, including a Chinese airline, Lamb said, without naming potential buyers.

Virgin Australia shares dropped 6 percent to 35 cents at 2:45 p.m. in Sydney after resuming trading. The stock was worth A$2.32 in February 2007. Air New Zealand climbed 0.7 percent to NZ$2.87 in Wellington.

Capital Assessment

Air New Zealand will assess other uses for the capital tied up in Virgin Australia, the Auckland-based carrier said. Its chief executive officer Christopher Luxon resigned from Virgin Australia’s board with immediate effect.

“Air New Zealand does not want a large minority equity position in Virgin Australia as it focuses on its own growth opportunities,” it said in the statement. A spokeswoman for the airline declined to comment beyond the statement.

After three consecutive annual losses, Virgin Australia is expected to post a profit in the 12 months ending June 2016 following a slump in fuel prices, according to analyst estimates compiled by Bloomberg.

Virgin Australia’s foreign backers have rankled Qantas Chief Executive Offer Alan Joyce, who has said his main domestic rival was able to run at a loss with the help of its foreign-sourced capital. The two airlines waged a fare and capacity war that led to ballooning losses at Qantas two years ago.

Etihad Airways PJSC owns around 24 percent of Virgin Australia and Singapore Airlines Ltd. has almost 23 percent, according to data compiled by Bloomberg. Virgin Group owns a stake of about 10 percent. Singapore Airlines said in a statement that it’s committed to providing the shareholder loan to Virgin Australia.

Virgin America Inc., the airline backed by U.K. billionaire Richard Branson, is reaching out to potential buyers about a sale of part or all of the company, according to people familiar with the matter.

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