Virgin Australia pounces on Tiger

PUBLISHED : Tuesday, 30 October, 2012, 10:24am
UPDATED : Tuesday, 30 October, 2012, 10:24am


Virgin Australia on Tuesday said it has sold 10 per cent of its business to Singapore Airlines while agreeing to buy a 60 per cent stake in low-cost carrier Tiger Airways Australia.

In a slew of announcements, the country’s second-biggest airline after Qantas also said it was making a A$98.7 million (US$101.9 million) takeover offer for 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.

“Singapore Airlines is an important strategic alliance partner of Virgin Australia and we are very pleased to have their support as an investor,” Virgin chief executive John Borghetti said in a statement.

“We believe this investment demonstrates their confidence in our strategy and it enables Virgin Australia to fast track its growth plans.”

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 also hold interests in the Australian carrier.

Singapore Airlines CEO Goh Choon Phong said the acquisition 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.

News of the Singapore deal came as Virgin Australia announced it had bought a 60 per cent stake in Tiger Airways Australia.

As well as the upfront fee, Virgin will also pay Tiger’s Singaporean parent A$5 million if it achieves certain financial performance targets within five years.

The deal will allow Tiger to expand its capacity in Australia, increasing its fleet from 11 aircraft to 35 by 2018, and offer more attractive offers to customers, the two companies said.

“This transaction enables Virgin Australia to access the budget market and enables Tiger Australia to expedite its growth, providing greater competition to this important market segment,” Borghetti said.

“By partnering with Tiger Airways, we can use our expertise to leverage Tiger Australia’s competitive cost base and build a sustainable budget carrier.”

In a further shake up of the domestic market, Virgin made a cash and scrip offer for Skywest, which operates in regional Australia and Southeast Asia.

Skywest executive chairman Jeff Chatfield said the offer, which is subject to regulatory and shareholder approvals, represented a substantial premium to the airline’s share price.

“The proposal will only proceed in the absence of a superior offer,” he said in a statement.