Air NZ to exit Virgin Australia at a loss

31 Mar 2016

1

Air New Zealand could write off $NZ120 million ($117 million) of its investment in Virgin Australia if it sold out of the airline.

The carrier made its intention to sell the stake this week public, following concerns about the long-term balance sheet viability of Virgin Australia.

Air NZ reviewed its stake in Virgin Australia shortly after it, and fellow minority shareholders Singapore Airlines and Etihad Airways extended a loan of $425 million to Virgin. Air New Zealand's share of the 12-month emergency line of finance was $131.2 million.

The flagged sale by Air NZ led to speculation that the local aviation industry could be ready for a shake up, with many expecting that Virgin's other minority  shareholders could look to make an attempt to take over the financially struggling Virgin.

The Kiwi aviator's stake was worth $328 million at the close of trade Thursday after a 5.8 per cent increase in Virgin's share price that boosted its shares to 36c.

Air NZ had ploughed $NZ480 million into building up its stake in Virgin, according to analysts at Deutsche Bank.

The carrier first received Foreign Investment Board approval for building a 14.9 per cent stake in Virgin in early 2011 shortly following the formation of its alliance with Virgin and in the three years to 2014, Air NZ increased its stake to 25.9 per cent.

Meanwhile in a separate development, during nearly eight years of the airline's existence Virgin America's ownership structure had attracted as much attention  as its product positioning and positive customer sentiment. In late Mar-2016 reports emerged that the airline had received an interest regarding a potential takeover, which led the company to reach out to potential buyers.

According to commentators, the most logical element of a possible sell-off of all or part of Virgin America was that its long-term investors were finally ready to cash out now that the company had some level of sustained profitability.

With the airline posting three consecutive years of profits, now could be a favourable time. In late March -2016, Bloomberg reported, citing individuals close to the matter, that Virgin America was reaching out to potential buyers after receiving takeover interest.

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