Virgin to buy back $700m Velocity stake

Written on the 16 September 2019 by Business News Australia

Virgin to buy back $700m Velocity stake

Virgin Australia (ASX: VAH) is on a flight path to taking back Affinity Equity Partners' 35 per cent stake in its Velocity Frequent Flyer program by the end of the year.

The announcement comes just over two months after the Asian firm signalled plans to exit its stake in a program that is currently majority owned by Virgin.

"The Group confirms that it has entered into a term sheet with Affinity to buy back its 35 per cent minority investment for $700 million," Virgin said today.

"Completion of this transaction is subject to certain conditions, including the finalisation and execution of long form documentation, funding and the Group receiving Foreign Investment Review Board approval in respect of the acquisition."

The airline had previously indicated it "remains committed to the long-term growth of the Velocity business" and planned to remain a majority investor.

VAH shares have not really budged since the announcement this morning. The company has fallen on hard times over the past 12 months with shares hitting a 10-year low at $0.15 earlier this month.

The airline posted an underlying loss of $71.2 million in FY19, weighed down by adverse market conditions in the second half, new route investments and higher fuel costs.

The disappointing results led Virgin to announce it would be slashing 750 jobs in an attempt to save around $75 million.

On a more positive note, the business reported an increase in total revenue of 7.6 per cent to $5.8 billion for the full year.

"The group is responding to these challenges with a series of immediate improvement initiatives to streamline operations and reduce costs," the company said in its results announcement in late August.

"These include a simplified organisational structure, organisational rightsizing program, fleet and network capacity review and a group-wide review of supplier contracts.

"These initiatives are being implemented whilst the group's ongoing strategic review is undertaken to improve business performance."

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