Virgin Australia Arranges AUD$425 Mln Loan Facility

Virgin Australia has tapped its major shareholders for a AUD$425 million (USD$320 million) loan facility, a step that is expected to help it cut its reliance on the bond market for funds.

The loan facility goes some way to address investor concerns that its cash reserves have declined sharply in the wake of a five-year revamp aimed at broadening its services beyond the discount carrier market.

The US bond market, which Virgin Australia has previously tapped, has also become more expensive due to a sharp weakening of the Australian dollar over the past three years.

The one-year facility was secured with Air New Zealand, Richard Branson's Virgin Group, Singapore Airlines and Etihad Airways, which together own 83 percent of the company.

Last month, the airline swung to a half-year profit and forecast a return to full-year profitability as it attracted more higher-spending corporate passengers.

But the airline also revealed that its unrestricted cash reserves shrank to AUD$543.7 million as of December 31, down by a quarter from a year earlier.

Chief executive John Borghetti said the loan facility will give the company additional flexibility in the short term. It will be subordinated to Virgin Australia's existing debt, and split between the four shareholders proportionally to their Virgin stake.

Air New Zealand is the airline's biggest shareholder with a 26 percent holding, while Etihad has 24 percent, Singapore Airlines 23 percent and Virgin Group 10 percent.

The measure will, however, likely fuel complaints by rival Qantas that Virgin competes unfairly since Qantas, as the national carrier, has its foreign ownership restricted to 49 percent.