Singapore Airlines Ups its Stake in Virgin Australia
8th Apr 2016
Air New Zealand is out of Virgin Australia, but another major shareholder is lifting its stake in the Australian airline. Singapore Airlines announced this Wednesday to the Singapore Stock Exchange that it has increased its stake in VA from the previous 22.91 per cent to 23.11 per cent.
The Singaporean airline decided to physically settle a series of equity swaps it had entered into with Virgin Australia at a cost of 46.72 cents per share, or a total of $3.18 million.
According to analysts, Singapore Airlines could be going for a full takeover of Virgin Australia, especially after the gap the departure of Air NZ left. Associate professor in aviation management at the University of Sydney Rico Merkert said:
"Singapore would be a natural fit in terms of the network and complimentary routes. It would also gain more control over the airline. I think that is important, Singapore Airlines has tried before to get into Australia and had fairly serious talks with Qantas at one stage."
What's interesting is that Singapore Airlines opted to settle the swaps over shares it has in the Australian airline physically and not settle them by cash. This move, according to Citi's credit desk, increased both Singapore Airlines' part in any future types of shareholder financial support in Virgin and its shareholding in the Australian airline.
"So if one wanted to draw a 'loose' conclusion from last night's announcement, it's that Singapore Airlines does not seem to have objections to injecting further cash into Virgin."
Singapore Airlines is the one of the four major shareholders in Virgin Australia, behind Air New Zealand, which owns 25.9 per cent (although it has recently flagged a full or partial sale of its stake in the company), Etihad Airways with 25.1 per cent and ahead of Richard Branson's Virgin Group, which has a 10 per cent stake in Virgin Australia Holdings
Recently, Virgin Australia secured a $425 million loan from its four biggest shareholders. The loan included $117 million from the Singaporean carrier.
Now it remains to be seen what Air NZ will do with its stake. One option is to sell its stake to a carrier in China, but Singapore Airlines could see this as a threat to its Asian business.