Virgin Australia: Air New Zealand, Etihad & Singapore Airlines take bigger stake
By David Flynn, December 12 2013
An even larger part of Virgin Australia will sit in the hands of Air New Zealand, Etihad Airways and Singapore Airlines in the new year, intensifying Qantas' arguments that Australia's two airlines are playing to different rules.
Following Virgin's call for $350 million of additional capital by issuing an additional 925 million shares, Air New Zealand will see its stake increase from the current 23% to 24.5%, although the Kiwi carrier had earlier flagged that its shareholding "could increase to as much as 25.5%" depending on the deal's uptake.
Etihad and Singapore Airlines both expect their slices of the Virgin Australia pie to grow to 21.2% , an increase of just over 1% each, reports The Sydney Morning Herald, although raising their stakes above the 20% mark will require Etihad and Singapore Airlines to gain approval from Australia's Foreign Investment Review Board.
The three foreign airlines will collectively hold 66.9% of Virgin Australia and each will take a seat on Virgin's board.
Added to the 10% founding foothold of UK’s Virgin Group, over three quarters of Virgin Australia will be under foreign ownership. And that, Qantas maintains, is much too much.
Qantas: a "virtual takeover" of Virgin
Qantas will no doubt be quick to trot out its line that this represents a "virtual takeover of Virgin Australia by foreign airlines" and draw a comparison against the current Qantas Sale Act which caps foreign investment of Qantas at 49%, with total ownership by foreign airlines limited to 35% (any single airline is restricted to 25%).
Behind Qantas' concerns is the notion that an injection of foreign cash will underpin Virgin’s continued assault on Qantas’ domestic routes. This could in turn delay efforts to bring Qantas’ international arm back into profitability, to the delight of Virgin's three partner airlines.
Qantas is now facing a loss as high as $300 million in the six months from July to December this year, with predictions of a record 'loss before tax' of $868 million for the full 2013-2014 financial year.
Its financial position has been further undermined by a downgrading from the medium-risk 'investment' category to the high-risk 'junk' status which is likely to increase the airline's borrowing costs, leasing and exchange rate hedging.
Read: Qantas faces record $868m loss, slumps to 'junk' status
Qantas CEO Alan Joyce has promised that "all options are on the table" as the airline looks to reduce costs and raise capital through asset sales.
The former will include axing over 1,000 jobs over the coming year and accelerating an aggressive cost-cutting campaign to recoup $2 billion over three years.
One-off moves to raise cash could include selling back the long-term leases on Qantas' dedicated terminals at Sydney, Melbourne, Brisbane and Perth airports – which it's estimated could return up to $1 billion to the coffers – and selling off the lucractive Qantas Frequent Flyer scheme, which analysts value at between $1.5-2.5 billion.
Read: What if Qantas sold its frequent flyer program?
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David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.
28 Oct 2011
Total posts 645
VA...a truely australian airline...lol...all you VA flag wavers are well n truely being sucked in..VA is just another 'franchise'/'brand' to be bought/sold/owned by its highest bidders...its a business that just happens to be based in australia....for now!! lol
Qantas - Qantas Frequent Flyer
09 May 2011
Total posts 362
I agree. I know I'll be voted down for saying this but they should remove 'Australia' from their name. They are no more Australian than McDonalds.
19 Jan 2012
Total posts 427
Don't think we're sucked in by claims of being Australian! It's simple maths- VA
Service levels by VA now exceed QF in business class due to senseless cost cutting by QF.
QF have one of the worst value FF schemes in the world.
QF management is blatantly incompetent.
I travel QF or VA according to the cost/benefit (fare, point earn rates, etc). At the moment it happens to be QF due to 10 point per dollar vouchers and double status and getting the front seat as a P1, but by end Jan it'll probably be VA that gts my business...
..the airlines treat me likewise - in a ruthless business fashion with little respect for loyalty (VA is actually better than QF at recognising loyalty).
...nothing to do with some vacuous sentiment about Australian....
..besides as long as you have HRH QE2 as your head of state you ain't really a standalone nation...!!!
06 Feb 2013
Total posts 14
This kind of thinking is why I will never support small Australian businesses. Personally, I prefer QF, but I will always buy goods overseas and mail order as much as I can. People like PLATY make me see that I should always go for the cheapest deals on products, quality foreign cars etc. I'm more than happy to send as much of my wages off shore as much as I can if I get a better deal OS. If everyone else did the same, then we could prove to these little Aussie battlers how terrible they are. (insert non existant emoticon)
19 Jan 2012
Total posts 427
The point is that if QF (and many other suppliers) didn't price gouge the very Australians that they are trying to appeal to to save their sorry backside due to gross mismanagement we wouldn't have to look overseas to get a deal.
Qantas - Qantas Frequent Flyer
07 Aug 2013
Total posts 248
Who cares if virgin isn't fully Australian owned...qantas has been ripping off Australians for years- virgin has made air travel within Australia more competitive and fair.
28 Oct 2011
Total posts 645
so why should people care if QF isnt fully australian owned?
Qantas - Qantas Frequent Flyer
05 Feb 2013
Total posts 54
I don't know. You tell me.
Some image of a bygone Australia held by people like Barnaby Joyce and Bob Katter, where Qantas is Australia's connection to the rest of the world, and where we have to do things for ourselves because we're surrounded by "primitives". Of course, they don't understand why Qantas needs to fly to strange foreign places like Shanghai either; When they could put on more services to good Australian places like Mount Isa or Armidale instead. They'd probably like to amend the Qantas Sale Act to include a requirement to fly at least 51% Australian made aircraft too.
EK
07 Jun 2013
Total posts 18
I wouldn't really call Shanghai a "strange foreign place" when China is becoming the world's largest tourism source market.
Qantas - Qantas Frequent Flyer
05 Feb 2013
Total posts 54
I wouldn't call Shanghai a strange foreign place either. As you say China will be one of the largest travel markets. But in the bygone era in which the "Australian Icon" brigade wish to live everyone in Shanghai was reading their Little Red Book and beating Capitalist Roaders.
Perhaps I should have put inverted commas around "strange foreign place" to make it clear that was a view I was ascribing to the iconistas.
Virgin Australia - Velocity Rewards
01 Mar 2012
Total posts 177
No one should care. I find the whole Australian Icon premise rather strange. If they feel they need forgein capital, let them access it.
Qantas - Qantas Frequent Flyer
05 Feb 2013
Total posts 54
How much is it worth to Qantas to have the foreign ownership cap removed? It should be a straight forward commercial negotiation. The shareholders aquired shares from the taxpayers knowing the terms under which the airline would operate. The price of the shares at the time of privitisation reflected the fact that various restrictions were imposed upon Qantas.
The board (and presumably the shareholders too) now believe that the restrictions significantly impacts the business. So Qantas now need to buyout the taxpayers. From Alan Joyce's public statements it seems the restrictions are a significant impediment to the business, so Qantas is surely willing to pay a significant amount to buyout the restrictions it accepted as part of the sale.
Don't get me wrong. I'd like to see a strong Qantas, and a Qantas free of ownership restrictions. I just don't want to see Qantas being released from previously agreed conditions without suitable financial remedy to the other party (the taxpayers).
19 Jan 2012
Total posts 427
Unfortunately such thinking is rare. The handout mentality is alive and well in corporate Australia and the taxpayer treated as a mug (undervaluation of Telstra at sale, constant handouts to the rural sector, underwriting financial sector risk in the GFC without payback, backing down from accountability for vehicle cost tax breaks, etc) and taxpayers mostly ill informed thanks to highly effective PR machinery of vested interest groups and a mostly lacklustre and uncritical media.
There was the mining industry complaining about being taxed whilst sitting on BILLIONS OF DOLLARS of taxpayer funded handouts.
The best outcome here is for the government to call Joyce/Clifford's bluff and tear up the sale act whilst continuing to prevent QF from sneaking in overseas crews. Unfortunatelty, if the first 100 days of Abbott is anything to go by, they are unlikely to muster a competent response.
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