Virgin Australia chairman to step down

Virgin Australia chairman Neil Chatfield said on Tuesday (Oct 28) he would leave after seven years spent guiding the airline through a turbulent time in the challenging domestic market.

Chatfield, who joined the board of Australia's second largest carrier in May 2006 and became the firm's chairman in 2007, said he believed it was the right time to step down. "I believe the board, CEO and executive team are in a strong position to successfully guide the company into the future," he said in a statement.

Virgin has been engaged in a bruising war with rival Australian carrier Qantas over the domestic aviation market. The battle saw both Virgin and Qantas record annual net losses in August of A$355.6 million (US$313 million) and A$2.84 billion respectively.

Virgin - which is majority owned by Singapore Airlines, Air New Zealand and Etihad - took full control of budget carrier Tigerair Australia earlier in October when it paid A$1 for the remaining 40 per cent it did not already own.

Chatfield said he had would stay in the job until a replacement is found.

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Virgin takes full control of Tigerair Australia for US$0.88

Virgin on Friday (Oct 17) took full control of budget carrier Tigerair Australia, buying the remaining 40 percent it did not already own for A$1 (88 US cents) from its Singapore-listed parent.

Virgin Australia purchased a 60 percent stake in mid-2013 for A$35 million and said Tiger Holdings had agreed to sell the rest of the carrier, which has struggled to reach profitability, for the tiny sum, effectively ending their joint venture. Tiger will continue to licence its brand to Virgin.

Virgin Australia chief John Borghetti said the acquisition would allow it to fly to a number of new short-haul international destinations, providing growth opportunities for the business, while accelerating Tiger's drive for profitability.

"Given the ongoing subdued consumer demand in the Australian domestic market, the growth of the Tigerair Australia domestic fleet is likely to be reduced," he said. "Under this proposed transaction, we will benefit from the economies of scale and achieve profitability ahead of schedule by the end of 2016, by leveraging the resources of the wider Virgin Australia Group."

Tiger, the local subsidiary of Singapore Airlines' Tiger Airways, has a history of poor financial and operational performance.

The move, which is subject to Foreign Investment Review Board approval, comes after a difficult 12 months for Australian airlines as intense battle for market share saw both Virgin and Qantas suffer heavy losses. Virgin posted a full-year net loss of A$355 million, while Qantas suffered a record loss of A$2.8 billion.

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Qantas unable to justify 5,000 job losses: unions

Union leaders on Friday said Qantas boss Alan Joyce could not justify why he needs to cut 5,000 jobs during crisis talks as the carrier stepped up pressure on the government to help stem massive losses.

After a posting a A$235 million (US$210 million) loss in the six months to December 31, Joyce met union heavyweights to detail his decision to axe the jobs and freeze wages following complaints of no consultation and threats of strike action.

But Australian Council of Trade Unions secretary Dave Oliver said his explanation was not good enough.

"The company was not able to justify how they came up with the 5,000 jobs number," he told reporters.

Australian and International Pilots Association president Nathan Safe said "there's still a lot of uncertainty and a real lack of clarity".

Transport Workers Union national secretary Tony Sheldon added: "The company has come to the table without the capacity to say what they're actually up to and how this is going to save one single job in the future."

The heavily unionised Flying Kangaroo was crippled by a series of rolling staff strikes in 2011 that culminated in Joyce grounding the entire fleet for two days, stranding tens of thousands of passengers worldwide.

Qantas's drastic restructuring, which also involves deferring delivery of new aircraft, is part of a plan to save A$2 billion over the next three years as it battles record fuel costs and fierce competition from subsidised rivals.

Its major domestic competitor, Virgin Australia, is also suffering, posting its own first-half net loss of A$83.7 million on Friday, blaming its battle with Qantas for domestic market share and economic uncertainties.

Virgin chief John Borghetti urged the government to think carefully about the consequences if it helped bail out Qantas.

"Providing a financial facility to the detriment of the rest of the industry -- as I hope our government and opposition agree -- is wrong. Two wrongs don't make a right," he said.

"It is not our place to tell government what to do, but any government or opposition should think very carefully before it decides to pick winners in an industry."

Joyce wants the Qantas Sale Act, which limits foreign ownership in the airline to 49 per cent, changed so it can access more capital, while appealing for the government to guarantee the carrier's debt.

"Having a national airline is a national interest," said Joyce, who pointed to the carrier previously rescuing Australians in Egypt and Bali during times of turmoil.

"We are there at times of defence needs and there is a national interest for us."

While Canberra said it was open to pushing for changes to allow majority foreign ownership -- a move opposed by the Labor opposition and the Greens which can block it in the upper house Senate -- it appears to be backing away from a debt guarantee.

"Airlines are providing essential services but there is more than one airline, and what you do for one business, you have to be prepared to do for all like businesses," Prime Minister Tony Abbott said Friday.

"That's the issue that we face with the request for a debt guarantee or a line of credit for Qantas."

Joyce said Qantas only wanted "a fair go" on a level competitive playing field and that any debt guarantee would just be a standby facility to be used in an emergency.

"The best way to guarantee the security of Australian jobs is to have a profitable, fit Qantas that can compete in the current environment," he said.

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Virgin Australia posts big first-half loss

Australian budget carrier Virgin slumped to a first-half net loss of A$83.7 million (US$75 million) on Friday, blaming intense competition, subdued demand and economic uncertainties.

The results follow major domestic rival Qantas on Thursday announcing a A$235 million loss over the same six month period to December 31. To cope, Qantas will axe 5,000 jobs and defer aircraft deliveries.

There was no similar drastic action by Virgin Australia, the country's second-biggest airline, despite a significant hit to its bottom line after a A$23 million profit in the same period last year.

"The result reflects the tough trading conditions across the entire industry for the first half of financial year 2014," said chief executive John Borghetti.

"The Australian aviation market continues to be impacted by the significant capacity growth which occurred during the 2013 financial year, compounded by weak economic conditions and the inability to recover the cost of the carbon tax."

The airline said the country's controversial tax -- a levy on each tonne of carbon pollution -- added A$27 million to its costs.

Its underlying pre-tax loss -- the airline's preferred measure of financial performance -- was A$49.7 million.

Virgin, which is majority-owned by state-backed Singapore Airlines, Air New Zealand and Etihad, said that while revenue jumped 6.4 per cent to A$2.2 billion, costs increased 4.5 per cent.

The airline declined to provide any full-year guidance.

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Emirates rules out financial lifeline for Qantas

Emirates president Tim Clark said he is carefully watching developments at alliance partner Qantas, but ruled out throwing a financial lifeline to the embattled Australian flag carrier, in comments reported on Monday.

Earlier this month, Qantas forecast a half-year loss of up to Aus$300 million (US$269 million) and said it would axe 1,000 jobs, leading to a credit downgrade from Standard & Poor's, which cut its rating to "junk" status.

Qantas blamed its predicament on record fuel costs and fierce competition from subsidised rivals, particularly Virgin Australia, which is majority owned by state-backed Singapore Airlines, Air New Zealand and Etihad.

Chief Alan Joyce has been lobbying the government to relax the Qantas Sale Act, which limits foreign ownership in the national carrier to 49 percent, arguing the cap hurts its ability to compete, particularly against Virgin Australia.

But even if the government decides to lift the foreign ownership restrictions, which it has indicated is possible, Clark said he would not be pumping in any cash.

In an emailed statement to the West Australian newspaper, published Monday, Clark said he "would watch it (the situation) carefully" but Emirates did not have the "bottomless pit of cash" Virgin Australia's partner Etihad Airways had.

"So no, equity is not on the table," Clark said.

Emirates formalised an alliance with Qantas earlier this year, seen as vital to the sustainability of the Australian airline.

It allows both carriers to combine operations for an initial period of five years, including coordinating ticket prices and schedules.

The deal also opened up Qantas's lucrative Australian domestic network of more than 50 destinations to Emirates customers.

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Australia PM backs lifting Qantas foreign ownership limit

Australia's Prime Minister Tony Abbott has suggested he may support lifting foreign ownership restrictions on Qantas, saying the embattled carrier's push for a level playing field was not unreasonable.

Qantas has been lobbying the government to relax the Qantas Sale Act which limits foreign ownership in the national carrier to 49 per cent.

The struggling airline argues the cap hurts its ability to compete, particularly against domestic rival Virgin Australia, which is majority-owned by state-backed Singapore Airlines, Air New Zealand and Etihad.

"Where we can be helpful we will certainly try to be helpful but as I understand it, what Qantas wants is to be unshackled," Abbott said in an interview in the Australian Financial Review published on Saturday.

"They want to be able to compete with Virgin on a level playing field. Now I don't think that's an unreasonable request on their part, but that's a matter for the parliament as well as the government."

Earlier this month, Qantas flagged a half-year loss of up to A$300 million (US$269 million) and said it would axe 1,000 jobs as it struggles under the weight of record fuel costs and fierce competition from subsidised rivals.

The announcement saw Standard & Poor's downgrade the airline's credit rating to "junk" status, cutting it from BBB-, the lowest investment grade, to BB+ and placed it on a credit watch with negative implications.

The AFR said Qantas apparently sought a government guarantee in the short-term to protect its credit rating but no agreement had been reached.

Abbott has previously indicated that government assistance was unlikely, saying: "If we subsidise Qantas, why not subsidise everyone?"

"If we subsidise everyone, that's just a bottomless pit into which we will descend and if we offer a guarantee to Qantas then why not offer a guarantee to everyone?"

But the long-term fix of removing the foreign ownership restrictions would be opposed by the Labor opposition which argues that with the airline's share price hovering around A$1, the 'flying kangaroo' would be vulnerable to an equity raid.

Chief executive Alan Joyce has stressed that the airline is not seeking "an anti-competitive handout or bail out" but said the carrier was "hand-cuffed" by the Qantas Sale Act.

Qantas claims domestic rival Virgin Australia is waging a campaign to weaken it in the lucrative domestic market with cheap seats underwritten by foreign cash injections.

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Australian government cool on stake in Qantas

Australian Treasurer Joe Hockey has indicated he would resist the government taking a stake in Qantas, in comments reported on Saturday, after calling for a debate on the national carrier's future.

A government buyback of 5 or 10 per cent of Qantas has been suggested as a measure to help the airline if there is to be no lifting of current foreign ownership restrictions on it, but Hockey appeared cool on the idea.

"Of course, the government is very, very reluctant to own an airline," the Treasurer told The Weekend Australian newspaper.

Qantas claims that it operates on an uneven playing field against rival Virgin Australia, which is now majority-owned by state-backed carriers Singapore Airlines, Air New Zealand and Abu Dhabi-based Etihad.

Qantas claims that Virgin's financial backing means it can set uncompetitive low prices to win customers from it while it, under the Qantas Sale Act dating from 1995 when the airline was privatised, can only have 49 per cent foreign ownership.

Hockey last week called for a debate on whether these restrictions should be lifted.

"The first question is: do Australians want to retain a national carrier and do they want to retain shareholding restrictions on our national carrier?" he said on Friday.

"If the answer to both those questions is yes, as I said yesterday, there is a price that needs to be paid.

"We will carefully consider all the options, but the fact of the matter is these issues need to be dealt with.

"I am not someone that is prepared to kick the can down the road on issues. If decisions need to be made, they will be made."

The debate has triggered a sharp response from Virgin Australia, which has urged the government to give the airline the same assistance as provided to Qantas.

"Virgin Australia has succeeded against the odds, in a very difficult marketplace, with a major and dominant competitor three times its size that appears intent on flushing it out of the market," Virgin Australia's chief John Borghetti said.

"If any government support was given to the dominant player, we would expect the same level of support."

Transport Minister Warren Truss said the government was "not prepared to fund a market-share battle between our major airlines" but it was keen to ensure Qantas was commercially viable.

"I think all Australians want the red kangaroo to continue flying around the world and particularly in our own country," he said.

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Australia mulls scrapping foreign ownership rules on Qantas

Australian Treasurer Joe Hockey on Thursday raised the prospect of allowing majority foreign ownership of national carrier Qantas in the face of increasing overseas support for rival Virgin Australia.

Qantas chief executive Alan Joyce has been lobbying politicians in recent weeks about what he claimed was no longer a level playing field in the nation's skies.

His main gripe is that Virgin Australia is now majority-owned by state-backed carriers Singapore Airlines, Air New Zealand and Abu Dhabi-based Etihad and that with their financial clout it is able to set uncompetitive low prices to win customers from Qantas.

Joyce wants the Qantas Sale Act to be re-examined. Restrictions imposed by the Qantas Sale Act when it was privatised in 1995, limits foreign ownership in the national carrier to 49 per cent.

Hockey admitted that growth in Qantas was impeded in part by those restrictions and said it was time for a public debate about whether to ease them or whether to keep the airline in Australian hands.

"The market has changed but still the restrictions are in place," Hockey told Fairfax radio.

"It's an issue that Australians need to debate.

"And if Australians understandably say 'no, we think it should remain not only Australian-owned but Australian-controlled, and we need to have a national carrier', and I think there are many good reasons for that as well, then we've got to accept we may have to pay a price for that."

That could involve the government providing funding for Qantas, which was "a burden the taxpayers may have to pick up".

Prime Minister Tony Abbott joined the debate saying he wanted the airline to "remain an Australian icon".

"I'm happy to look at a range of measures to help ensure that happens," Abbott told reporters.

Qantas shares closed 3.8 per cent up at A$1.23 in a flat market

The Labor opposition made clear it favours the airline remaining Australian.

"I believe the national carrier is an important part of Australia's national security, it's an important part of Australia's independence," Labor leader Bill Shorten said.

Virgin Australia is already 63 per cent owned by Singapore Airlines, Air New Zealand and Abu Dhabi-based Etihad and under a recently announced capital raising plan foreign ownership could rise to 80 per cent.

Joyce has claimed the overseas carriers are working to destabilise Qantas with the domestic sector, its key money spinner which has helped prop up its under-performing international network.

Virgin has called the allegations "offensive" and reportedly called the lawyers in to determine whether there were grounds to sue Joyce for defamation.

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Qantas, Virgin row turns ugly

Virgin Australia chief John Borghetti on Wednesday lashed out at "offensive" allegations made by Qantas in an escalating row over foreign ownership, with reports that lawyers had been called in.

It follows Qantas chief Alan Joyce this week blasting what he called a "virtual takeover" of Virgin Australia by foreign airlines, claiming they were working to destabilise the national carrier.

On Tuesday, Qantas launched an online campaign against a capital raising by Virgin that could leave 72 percent of the carrier in the hands of Singapore Airlines, Air New Zealand and Abu Dhabi-based Etihad.

Joyce, who was in Canberra Wednesday to lobby politicians, said it would result in an "unfair playing field".

He claimed the foreign backing allowed Virgin to run at a loss by setting uncompetitively low prices to win customers from Qantas, an allegation Borghetti denied.

"To say that Virgin Australia is driven by a strategy of uncompetitively low prices and irrational behaviour is offensive and absurd," he told the company's annual general meeting in Brisbane.

"The airline is run rationally with good management and a view to creating a long-term sustainable and profitable business."

He added: "We have embraced change and competition and adapted our business to it."

Borghetti is so furious that he is seeking legal advice on whether there are grounds to sue Joyce for defamation, Fairfax Media reported, although the airline could not immediately confirm this.

Singapore Airlines, Air New Zealand and Etihad already own 63 percent of Qantas' main domestic rival.

Joyce wrote to Prime Minister Tony Abbott and all state governments this week demanding they "fully examine the motives behind the virtual takeover of Virgin Australia by foreign airlines, and to prevent destabilising of the domestic aviation industry, local tourism and jobs".

Qantas said the situation was compounded by the disadvantage it experienced from the restrictions imposed by the Qantas Sale Act when it was privatised in 1995, which limits foreign ownership in the national carrier to 49 percent.

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Qantas blasts "predatory" rivals

Qantas chief executive Alan Joyce has demanded the government halt what he described as a "virtual takeover" of Virgin Australia by foreign airlines, saying they were working to destabilise the national carrier.

Singapore Airlines, Air New Zealand and Abu Dhabi-based Etihad already own 63 percent of Qantas' main domestic rival and under a A$350 million (US$328 million) capital raising proposal announced last week, that could increase to as much as 72 percent.

In a searing letter to Prime Minister Tony Abbott and all state governments, seen by the Australian Financial Review, Joyce charged it was the "final act" by "predatory" state-owned airlines to cripple Qantas both domestically and internationally.

Joyce's ultimate fear is that the capital raising, "supported and largely underwritten by three foreign governments'', was part of a strategy of subsidising Virgin so it could continue to undercut Qantas on profitable domestic routes.

The domestic sector is a key money spinner for the airline and it has helped prop up its underperforming international network.

In his letter, Joyce said the move by the three airlines had "all the characteristics of predator behaviour (to) substantially weaken a major competitor, Qantas Group, and recoup the costs at a later date", the newspaper reported.

Qantas confirmed in a statement on Monday that a letter had been sent "to express concerns, as the national carrier, about potentially damaging shifts in Australia's aviation industry".

"Virgin Australia's proposed capital raising could see its foreign ownership rise to more than 80 percent without the need for any further regulatory approval," the statement said.

"Despite this, the airline would retain all the traffic rights given to Australian carriers.

"If wholly privatised, Virgin Australia's ability to receive potentially unlimited capital from its government-backed owners would seriously distort the domestic aviation market for the benefit of foreign interests.

"The decision of these shareholders to invest in Virgin Australia's loss-making strategy highlights that these airlines aren't subject to the same commercial realities as Qantas."

It demanded Canberra "fully examine the motives behind the virtual takeover of Virgin Australia by foreign airlines, and to prevent destabilising of the domestic aviation industry, local tourism and jobs".

Qantas said the situation was compounded by the disadvantage it experienced from the restrictions imposed by the Qantas Sale Act when it was privatised in 1995, which limits foreign ownership in the national carrier to 49 percent.

Joyce said the government should urgently revisit the "outdated policy framework".

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Air New Zealand boosts stake in Virgin Australia

Air New Zealand said Thursday it had boosted its stake in Virgin Australia to 23 per cent and was considering buying more, but denied any plans to seize control of the discount carrier.

The airline said it had purchased an additional three per cent and informed Australian regulators it wanted to buy another three per cent, which would take its total stake to 26 per cent.

"The additional interest affirms Air New Zealand's strong belief and confidence in Virgin Australia and the strategy it is pursuing under the leadership of (Virgin chief) John Borghetti and his team," it said in a statement.

"Air New Zealand is not seeking a position on the board of Virgin Australia nor does it have the intention of obtaining control of Virgin Australia."

The Auckland-based flag carrier has a long-standing alliance with Virgin Australia to cooperate on trans-Tasman routes, where Australia's Qantas is their main rival.

It said Australia's competition watchdog had told it that public hearings would be held into the airline's plans to increase its Virgin Australia shareholding.

Virgin Group chief Richard Branson last month said he would be open to the possibility of selling his remaining stake in Virgin Australia.

Branson's group, which founded Virgin Australia as a rival to Qantas in 2000, holds about 12.5 per cent of the airline.

Abu Dhabi-based Etihad Airways and Singapore Airlines also have major stakes in the carrier, which is now Australia's second-largest airline.

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Hmm, it seems that everyone wants a piece of the airline other than the owner Richard Branson himself. Is he growing jaded of the aviation industry? Monetary returns compared to investment amount doesn't tally? Only he himself knows why he's "giving up" on the airline.

Branson open to total sale of Virgin Australia

Virgin Group chief Richard Branson has aired the possibility of selling his entire stake in budget carrier Virgin Australia, saying the airline's branding is more important to him than ownership.

Branson, who founded Virgin Australia as a rival to Qantas in 2000, sold a 10 per cent share to Singapore Airlines last month, leaving him with 13 per cent.

The British billionaire refused to rule out selling his remaining stake, telling reporters "we will see" when asked about his future plans for the Australian carrier.

"I'm not too worried about whether we sell down most of our stakes," Branson said in remarks published by Australian media Wednesday.

"The 13 per cent is pretty strategic in that it could be very valuable to a player one day, but it's not that important from the Virgin Group's point of view."

Asked whether he would sell for the right price to fellow major stakeholder Etihad, Branson said: "We would cross that bridge if it came."

He said the "most important thing is the branding" -- the long-term royalties contract with the airline to use the Virgin name.

If Branson's latest 10 per cent sale to Singapore Airlines gets the nod from Australia's Foreign Investments Review Board, it will make the Asian carrier one of Virgin's top three stakeholders alongside Virgin Group and Air New Zealand.

Abu Dhabi-based Etihad also holds a significant share, giving Virgin Australia hefty financial clout to contend domestically with Qantas.

Branson said it was remarkable that so many firms had an interest in Virgin, the second-largest carrier in Australia which has a lucrative air market due to its vast size and booming dollar.

Last year, Qantas and Emirates announced a major global alliance that opens up the Australian firm'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 it also recently sealed a deal for Virgin to buy a majority stake in Tiger Airways Australia, its loss-making local budget subsidiary.

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He wants out? The only reason I can think of it is that it isn't making enough money for him. I rather him selling his losing F1 team than his stake in this airline.

Singapore Air May Seek Asia Deals After Virgin Stake Sale

Singapore Airlines Ltd. (SIA) could revisit plans for China or India investments after adding to aviation’s biggest cash pile through the possible sale of a stake in Virgin Atlantic.

The carrier has $3.4 billion of net cash, according to data compiled by Bloomberg, enough to buy eight Airbus SAS A380s at list prices. That means it could use funds from a Virgin stake sale for investments in the world’s two most populous nations or to pay a special dividend, said Paul Yong, director of research at Singapore-based DBS Vickers Securities.

“They’d be looking at mergers and acquisitions with or without this deal,” he said. “But if it does go through, their war chest will be beefed up significantly.”

Singapore Air said this week it’s in talks to sell its 49 percent share of Virgin Atlantic as competition from Middle East carriers and slower growth in Europe and the U.S. hit long-haul travel. The carrier is instead focusing on growth in the Asia- Pacific region, buying a stake in Virgin Australia Holdings Ltd. (VAH) and adding new planes for regional routes.

The Virgin sale “seems to point to some further corporate activity,” said Andrew Orchard, an analyst with CIMB Securities Hong Kong Ltd. “They don’t need the cash.”

China Eastern

The airline could look to raise its stake in Virgin Australia or try to revive plans for an investment in China Eastern Airlines Cop., he said. Singapore Air tried to buy a stake in the carrier with parent Temasek Holdings Pte. about five years ago. The offer was ultimately vetoed by the Shanghai- based airline’s minority shareholders.

Singapore Air, the world’s second-biggest by market value, can’t comment on potential investments while the Virgin stake sale is being discussed, said Germaine Shen, a spokeswoman. The airline is “very open” to investment opportunities in growth areas, including India, China and Southeast Asia, Chief Executive Officer Goh Choon Phong told investors last month.

Delta Air Lines Inc. is interested in buying the Virgin Atlantic stake, possibly with partner Air France-KLM Group, two people familiar with the matter said this week. The U.K. carrier’s billionaire founder Richard Branson will probably retain a majority share, Virgin Atlantic Chief Executive Officer Steve Ridgway said Dec. 3.

Singapore Air may look again at China Eastern or possibly China Southern Airlines Co. because of the country’s travel growth, DBS Vickers’s Yong said. The carrier already has a stake in China Eastern-controlled China Cargo Airlines. China Eastern Chairman Liu Shaoyong has repeatedly said that the carrier is still open to selling a stake to a strategic investor.
India Investments

Singapore Air could also look for a deal in India following a recent loosening of foreign-investment rules, Yong said. The country’s passenger numbers could triple to 452 million a year by 2020, according to a March study by CAPA Centre for Aviation and SITA.

Still, Indian carriers have struggled to turn rising demand into profit because of price wars, high fuel taxes and competition from state-owned Air India. Kingfisher Airlines Ltd., which has said it’s seeking overseas investors, halted flights in October because of a cash shortage.

“You wouldn’t need much cash to be buying your way into India, but you’d probably be buying more trouble than it was worth,” said Peter Harbison, executive chairman of CAPA Centre for Aviation, which advises airlines.

Jet Airways (India) Ltd., the nation’s biggest carrier, is close to selling a 24 percent stake to Abu Dhabi-based Etihad, raising about 16 billion rupees ($290 million), an Indian government official said this week. He declined to be identified, citing rules. Etihad is assessing possible investments in one or two Indian carriers as well as looking at China, CEO James Hogan said in a Dec. 3 interview.

Singapore Air in 2000 made a joint bid with Tata Group for a 40 percent stake in Air India. It abandoned the effort about 10 months later, partly because of political opposition.

Virgin Australia

The Singaporean carrier is more likely to boost its stake in Virgin Australia than investing in India, Harbison said. The airline bought 10 percent of Virgin Australia, the nation’s second-biggest carrier, for A$105 million ($110 million) last month to help provide traffic for its hub.

“I’d be surprised if they didn’t go to 20 percent,” Harbison said. Branson’s Virgin Group holds 24 percent of Brisbane-based Virgin Australia, Air New Zealand Ltd. owns 19 percent and Etihad holds 9 percent, according to data compiled by Bloomberg.

Overseas Failures

Singapore Air’s previous overseas investments have failed to pay off. The airline bought the Virgin stake for 600 million pounds in 1999, or about $970 million at the time. It subsequently wrote off goodwill amounting to about 96 percent of the purchase price, according to spokeswoman Shen.

The carrier bought a 25 percent of Air NZ in 2000. That investment was written down after the New Zealand carrier sought a government bailout following the collapse of Australian unit Ansett Holdings Ltd. The stake was later sold.

Singapore Air has traditionally maintained a net cash position, with more cash in hand than debt. It’s only failed to achieve this in its year-end accounts three times since 1990, according to data compiled by Bloomberg. The last time was in the year ended March 2004. Japan Airlines Co. (9201) has the second- biggest net cash position among carriers worldwide with $775 million, about a quarter of Singapore Air’s tally, the data show.

The size of the cash holding has depressed Singapore Air’s return on equity, a measure of profitability. It had the fourth- lowest among the 27 carriers worth more than $1 billion that made a profit last year, according to data compiled by Bloomberg.

Special Dividend

The airline may use some of its cash for a special dividend. It gave shareholders an 80 Singaporean cents extra payout last year, and one of 54 cents in 2007, according to data compiled by Bloomberg. It also span off its ground-handling unit by giving stock to investors in 2009.

“If they have excess cash flow it should go back to the shareholders,” said Kelvin Lau, an analyst at Daiwa Capital Markets HK Ltd. “They are not really running out.”

Singapore Air may also decide to use its money to help fund existing growth plans rather than for overseas deals, said CIMB’s Orchard. It provisionally ordered five A380s and 20 A350-900s, worth $7.5 billion at list prices in October. Regional arm SilkAir agreed to order 54 Boeing Co. 737 planes in August to more than double the size of its fleet.

Long-haul budget arm Scoot Pte., which began flights this year, is also holding orders for 20 Boeing 787s. The unit joined regional low-cost affiliate Tiger Airways Holdings Ltd., SilkAir and the main Singapore Air business in the company’s portfolio.

“They’ve got four carriers as it is, so their hands are pretty full,” Orchard said. “Do they really want another transaction at this time?”

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The big headache here for SIA is to decide how to use that extra cash after selling their stake in Virgin Atlantic. Reinvest in India and China, or mind its own business, literally, and focus on its own portfolio in Scoot, SilkAir and Tiger Airways?

Singapore Airlines buys 10% stake in Virgin Australia

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.