SYDNEY: Virgin Australia on Tuesday sold 10 per cent of its business to Singapore Airlines while agreeing to buy a 60 per cent stake in Tiger Airways Australia as it upped the ante in its battle with Qantas. In a slew of announcements, the country's second-biggest airline after the Flying Kangaroo also said it was making a A$98.7 million (US$101.9 million) takeover offer for Perth-based Australian regional carrier Skywest.
Virgin agreed to pay A$35 million (US$36 million) for its holding in Tiger, the loss-making subsidiary of Singapore's Tiger Airways, while Singapore Airlines bought its stake for A$105 million. "The transactions overall represent a monumental shift for Virgin Australia which, if approved, will see a more even playing field in Australian aviation," Macquarie analysts said in a note. "They arguably create a replica of Qantas." Virgin chief executive John Borghetti said the deals were designed to accelerate the airline's growth and increase competition in Australia, where the domestic market has long been dominated by Qantas.
The acquisitions of Tiger and Skywest would boost Virgin's presence in the budget and regional markets, "enabling us to fast-track our expansion in these areas and become a stronger competitor".
"These transactions will bring important benefits to Australia, driving growth in jobs, tourism and competition," said Borghetti, adding that he planned to make the carrier Australia's "airline of choice in all markets".
If the Tiger and Skywest deals receive regulatory and shareholder approvals, Virgin will expand its fleet to 139 aircraft and employ more than 9,000 workers.
Australia has a lucrative domestic market and global airlines have been deepening ties with local carriers to access it.
Last month, Qantas and Emirates announced a major global alliance which opens up Qantas's domestic network of more than 50 destinations and nearly 5,000 flights per week to the Dubai-based airline.
Singapore Airlines is a key international competitor to Qantas and CEO Goh Choon Phong said his company taking a stake in Virgin showed "our shared commitment to an alliance that provides a wide range of consumer benefits".
"Singapore Airlines fully supports the ongoing transformation of Virgin Australia, which has already resulted in a more competitive aviation market in Australia," he added.
The Singaporean airline, which paid 42.88 cents a share for an issue of 245.6 million stock, a 6.8 per cent discount to the last trading price, joins Etihad which also has a 10 per cent stake in Virgin.
Richard Branson's Virgin Group and Air New Zealand are other major equity holders.
Borghetti described Singapore Airlines as "an important strategic alliance partner".
"We are very pleased to have their support as an investor," he said.
In the Skywest deal, Virgin made a cash and scrip offer for the airline that operates in regional Australia and Southeast Asia.
Skywest executive chairman Jeff Chatfield said the offer represented a substantial premium to the current share price.
"Based on our advice it is likely that this proposal will take some months to fully play out," he said in a statement.
"Maybe the profit contribution from Virgin Australia may not mean that much, but Virgin Australia can help Singapore Airlines maintain a very strong hold on the Australian market in terms of generating feed from Australia, and that does have a big impact on Singapore Airlines," said Leithen Francis, the editor of Aviation Week.
- AFP/fa/ck/xq
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Roller coaster week for aviation don't you think so? And much of the news being associated with SIA. This move by them makes me feel that they don't want to waste too much time and money into Tiger Australia. What do you think? Now that the Tiger Australia fleet will be expanded by Virgin instead, to 35 by 2018 from the current 11.
Does this mean the A320 orders made by Tiger Holdings will mostly go to the Singapore base, with a number heading to Tiger Mandela? I guess it's a way Tiger Holding achieve a better balance in the books since the Australia base has been pulling down the profits into the red zone.
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