Air NZ Mulls Selling Out Of Virgin Australia

March 30, 2016

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Virgin Australia's biggest shareholder Air New Zealand said it may sell its 26 percent stake in a sign that backers of Australia's No. 2 carrier are growing impatient with its slow profit turnaround.

The move came nine days after Air New Zealand publicly supported Virgin's request for a AUD$425 million (USD$324 million) cash loan from its four biggest shareholders.

Virgin has been cutting costs to help its recovery from a price war with larger Australian rival Qantas, but it has been slower to show the benefits, revealing this year that its cash reserves at December 31 were down by a quarter from a year earlier.

"This just suggests that Air New Zealand are saying 'that's it, we're not going to put any money in," said an aviation analyst who asked not to be named.

A Virgin Australia spokeswoman said the potential sale did not put Air New Zealand's portion of the loan, about AUD$110 million, in doubt.

The timing of the sale announcement is likely to unsettle investors worried about Virgin's reliance on major backers to prop up its share price. The airline is 83 percent controlled by Air New Zealand, Singapore Airlines, Etihad Airways and Richard Branson's Virgin Group.

"One of the things that's held the share price up is the fact that those guys have been sitting on the register, and if they all disappear it becomes a very different scenario," the analyst said.

An Etihad spokesman said the airline was committed to its quarter stake and board seat in Virgin Australia. A Singapore Airlines spokesman said the company was committed to its loan to Virgin.

In a statement, Air New Zealand said it hired investment banks First NZ Capital and Credit Suisse to advise on its options for the Virgin shareholding, including a possible sale of all or part of it. It added that its chief executive Christopher Luxon, would resign from Virgin Australia's board, effective immediately.

"Air New Zealand does not want a large minority equity position in Virgin Australia as it focuses on its own growth opportunities," it said in the statement.

In a statement, Virgin Australia said it was aware of the potential sale and board resignation, and that it "continues with its transformation, including the review of its capital structure" which involved the cash loan.