Chinese Tighten Virgin Australia Grip, Nipping Singapore Air

Nanshan to Buy Virgin Australia Stake From Air N.Z.
  • Nanshan to pay 18% premium for 20 percent stake in airline
  • Deal subject to regulatory approval by Chinese authorities

Chinese companies strengthened their grip on Virgin Australia Holdings Ltd. as a second conglomerate bought a stake in the carrier, handing a blow to key shareholder Singapore Airlines Ltd.

Nanshan Group will buy 811 million shares, or about 20 percent of Australia’s second-largest airline from Air New Zealand Ltd., the Auckland-based carrier said Friday. At a purchase price of 33 Australian cents apiece, the sale would value the stake at about A$268 million ($199 million). Nanshan’s assets stretch from aluminum to property and include the two-year-old Qingdao Airlines.

HNA Group, the owner of Hainan Airlines Co., last month said it plans to buy 13 percent of Virgin Australia and struck a code-share alliance with the Brisbane-based airline. While the Australian carrier is now better placed to tap the Chinese travel market, its disparate shareholders -- among them Etihad Airways PJSC -- may be harder to manage.

“It’s not a marriage made in heaven,” said Neil Hansford, chairman of Strategic Aviation Solutions, a consultancy firm north of Sydney. “You’ve got two sophisticated legacy-type carriers in Singapore and Etihad mixing with startup Chinese. I think it would be a very difficult board table to sit around.”

Capital Review

Singapore Airlines in an e-mail declined to comment and a spokesman for Etihad in Sydney had no immediate comment. The sale is subject to regulatory approvals from Chinese authorities. Air New Zealand was advised by First NZ Capital and Credit Suisse.

Virgin Australia shares climbed 7.1 percent to 30 Australian cents, valuing the carrier at about A$1.04 billion, after Air New Zealand said Nanshan plans to support the outcome of Virgin Australia’s current capital review. Nanshan is buying the Virgin Australia shares at an 18 percent premium to its Thursday closing price.

Air New Zealand shares jumped as much as 3.9 percent in Wellington and Singapore Air shares were little changed in the city-state.

Unique Shareholding

If the deal is approved, Nanshan Group will hold almost as much as the other partners, making Virgin Australia’s shareholding unique with four airlines as key supporters.

Based in Longkou in China’s Shandong province, the Nanshan Group also has interests in fabric and garments, real estate, finance, education, tourism and healthcare, according to its website, which mentions Shandong Nanshan Aluminum Co. as its sole listed unit.

Last month, billionaire Chen Feng’s HNA Group said it wants to raise its holding to 20 percent over time. After issuing new shares to HNA Group, Singapore Air was to hold 20.1 percent stake and Etihad 21.8 percent, according to the Australian carrier. After the Nanshan transaction, Air New Zealand will be left with 102 million shares, or the equivalent of a 2.5 percent holding in Virgin Australia.

Phone calls, seeking comments, to the offices of both Nanshan and HNA groups, during non-business hours weren’t answered because of a public holiday in China.

Remote Parts

Last month, Singapore Air Chief Executive Officer Goh Choon Phong described the Australian market as “very important.” He said Virgin Australia was “commercially very important,” partly because the airline could reach remote parts of Australia more easily than Singapore Air. “We are happy with our stake currently,” Goh said at the time.

Singapore Air, which uses its Changi Airport hub to connect passengers to China and Southeast Asia, has benefited from the Virgin Australia partnership by tapping corporate flyers and reaching Australia’s domestic market. Now the city-state’s flag carrier may risk losing some of that traffic to HNA and Nanshan. After HNA bought the stake, Virgin Australia said it plans to start direct flights to and from China next year and fly some of those visitors on its network at home.

“This is going to impact SIA’s operations,” said Shukor Yusof, founder of aviation consultant Endau Analytics. “Australia is a huge market for SIA, and SIA has been under pressure from many different fronts and many different airlines.”

Mainland Visitors

Last year, more than 1 million Chinese travelers visited Australia and by 2020, the number will climb to 1.5 million, according to Virgin Australia.

Air New Zealand, which had been considering selling all of its 26 percent stake in Virgin Australia, said in a statement the sale would allow it to “focus on its own growth opportunities.” The carrier’s alliance with Virgin Australia on routes between the two nations would continue, it said.

Virgin Australia said in a separate statement that it looked forward to meeting with Nanshan in coming weeks and would consider an expected request for board representation.

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