Qatar Rule out Buying Air NZ Stake in Virgin Australia

9th May 2016

The number of potential airlines to buy out all or part of Air New Zealand's 25.9 per cent stake in Virgin Australia is now minus one as Qatar Airways CEO Akbar Al Baker ruled out that possibility, saying the carrier would only invest in "successful" airlines.

This makes Singapore Airlines the most likely airline to step in Air New Zealand's place. This carrier has recently increased its stake in Virgin Australia from 22.91 per cent to 23.11 per cent and could now add another 25.9 per cent.

Mr Al Baker explained why he doesn't think buying Air NZ's stake and investing in Virgin Australia would be a good business move for his company:

"No. We only buy into successful carriers. You know their results. I don't know what their problem is, you would have to ask Mr John Borghetti (Virgin Australia CEO) and you would have to ask his shareholders what is the problem.

The Gulf carrier emerged as one of the most likely options to buy all or part of Air New Zealand's stake largely because of Mr Al Baker's proclivity to buy into airlines and thus expanding Qatar Airway's reach. However, it seems the same will not happen when it comes to VA.

One of the reasons why Qatar Airways will not consider buying into Virgin is the fact that the latter must now raise one billion dollars in new capital to repair its balance sheet.

On Monday, the Australian carrier also downgraded its profit outlook for the full year and revealed it will cut passenger capacity by 5.1 per cent for June. This means the airline will post a loss in the second half, bringing its pre-tax full-year underlying profit somewhere between $30 million and $60 million.

Paul Butler, analyst for Credit Suisse said:

"Following the profit warning on Monday, we cut FY16 profit before tax by about 60 per cent and FY17 by 37 per cent. Pending capital structure review, we maintain the view that a $1 billion equity raising is required to strengthen the balance sheet to handle the risk of higher fuel prices and improve competitive position with Qantas."