7 Jun 2013

Air New Zealand to increase stake in Virgin Airways

6:39 am on 7 June 2013

Air New Zealand has entered into an agreement to acquire a further 3% shares of Virgin Australia, taking its stake to nearly 23%.

The airline has paid $72 million for the 3% stake, in a deal which needs approval from Australia's Foreign Investment Review Board and the Australian Competition and Consumer Commission (ACCC) which says it will hold public inquiries before deciding.

Air New Zealand says it has a strong belief and confidence in Virgin Australia and the strategy it is pursuing under the leadership of John Borghetti and his team.

The company says it is not seeking a position on the board of Virgin Australia, nor does it have the intention of obtaining control of the airline.

Air New Zealand says it has already applied to the Foreign Investment Review Board to take a further 3% in shares in Virgin which would give it a 26% stake.

Morningstar equities analyst Nathan Zaia says the deal is partly aimed at stopping rival shareholders taking over Virgin, and secures the trans-Tasman partnership.

Mr Zaia says the most-travelled routes for both airlines is between Australia and New Zealand.

"And for Air New Zealand they have got to make sure that anyone travelling into New Zealand on Virgin catches a connecting flight with Air New Zealand and not Jetstar."

Mr Zaia says the move also removes the risk of Virgin trying to come back into the New Zealand domestic market, because it would be competing with one of its biggest owners.

He says it would tie Virgin's hands if they wanted to make any moves to benefit their shareholders because their biggest shareholders now are their competitors.

"The risk I guess could be that someone like Air New Zealand starts pulling the strings in Virgin to benefit itself and it's detrimental to Virgin shareholders." But Mr Zaia says several airlines that own Virgin so they have to be work together.