VIRGIN SHRUGS OFF KIWI CARRIER'S PLANNED DEPARTURE
Written on the 31 March 2016 by Nick Nichols
VIRGIN Australia Holdings (ASX:VAH) has shrugged off Air New Zealand's plan to sell its stake in the airline, arguing that the company has markedly evolved over the past five years.
The planned sale by the Kiwi carrier has led to Air New Zealand CEO Christopher Luxon resigning from the Virgin board.
It also comes a year after Luxon said he was 'comfortable' with the company's investment in Virgin, despite concerns over profitability.
Virgin reported a rebound in earnings over the first half of FY16, posting a $62.5 million profit from a $47.8 million loss a year earlier. It was its best bottom-line result since FY10, as costs were trimmed and revenue grew.
However, Air New Zealand chairman Tony Carter has revealed an appetite to opt out of the investment with a view to securing a better place to park the company's money.
Carter says Air New Zealand is not happy with a large minority equity position in Virgin Australia while it turns its attention to its own growth opportunities.
In a statement to the ASX, Virgin highlights the changes to its business over the past five years of Air New Zealand's investment.
"Virgin Australia has undertaken a major transformation program that has seen it evolve from a low-cost carrier to a diversified airline group," it says.
"The group has brought genuine competition to Australian aviation by building a sizeable market share and offering choice to air travellers."
Virgin says its transformation includes a review of its capital structure which was announced earlier this month. Virgin is looking at debt and equity options to enhance its balance sheet to deliver cashflow and profit benefits to the balance sheet.
Earlier this month, Air New Zealand also agreed to provide a new unsecured debt facility to Virgin over the next 12 months.
The $425 million facility is supported by other major shareholders Etihad Airways, Singapore Airlines and Virgin Group.
Luxon says Air New Zealand supports the 'significant transformation that Virgin Australia has undergone over the past five years under John Borghetti's leadership'.
"We look forward to continuing our partnership on the Tasman alliance, providing customers of both airlines with the most comprehensive trans-Tasman network," he says.
Author: Nick Nichols