Lead Story: Deal day for Virgin Australia

Virgin Australia has agreed three deals that will shape its future, with Singapore Airlines taking a 10% stake, while Virgin Australia takes majority control of Tiger Airways Australia and buys regional carrier SkyWest.

1st Nov 2012


Virgin Australia has agreed three deals that will shape its future, with Singapore Airlines taking a 10% stake, while Virgin Australia takes majority control of Tiger Airways Australia and buys regional carrier SkyWest.

SIA says its "strategic" stake will be acquired through a placement of new shares by Virgin Australia Holdings. Singapore Airlines will invest a total of A$105.3 million, which will be used by Virgin australia to fund the other two purchases.

Virgin Australia chief executive John Borghetti said: "SIA is an important strategic alliance partner ... and we are pleased to have their support as an investor. We believe this investment demonstrates their confidence in our strategy and it enables Virgin Australia to fast-track its growth plans."

The latter includes taking a 60% stake in troubled low-cost carrier Tiger Australia, in a deal that means it will again be in the budget sector where it started out. It also has some similarities with the Qantas-Jetstar set-up, although Tiger Australia "intends to be operationally independent," says Tiger Group CEO Koay Peng Yen. Under the agreement, Virgin Australia will appoint the CEO, while Tiger Holdings appoints the CFO.

The deal comes shortly after Tiger Australia has been issued with a new air operators certificate that effectively lifts all the restrictions from last year's grounding by Australian regulators.

The deal is valued at A$35 million (US$36.3 million), plus a further A$5 million to be paid if performance targets are met. Tiger Australia will see its fleet grow from 11 aircraft to 35 over five years, with the first eight coming from Tiger's current Airbus A320 orders. Both shareholders will put A$62.5 million into the carrier over the next five years.

The Tiger Group currently has 29 A320s on its orderbooks, of which four more are due to be delivered this fiscal year - three to associate Mandala Airlines and one to Tiger Singapore. The remaining 25 includes the eight due for Tiger Australia, with the balance to be shared between Tiger Singapore , Mandala and the group's other associate, SEAir of the Philippines.

Although it is far behind AirAsia and Jetstar in terms of scale, Koay insists that scale is being built up. "Six months ago, if you wanted to fly Tiger from Bangkok it meant Singapore. Now we have Jakarta and Clark, while FlightCombo opens up the rest of the network and places like Sydney with Scoot," said Koay. FlightCombo enables passengers to buy multiple tickets on Tiger's network as well as low-cost long-haul carrier Scoot.

Koay said that Tiger is "really excited about the Indonesian market," where Mandala operates a fleet of three A320s with a fourth due by the end of the year. This will be increased to seven early next year, with more to follow.

Mandala, which relaunched in April this year, is still in the start-up phase, said Kuay, adding that its benefitting from the collaboration with Tiger Singapore. Aircraft utilisation will be improved as operations are ramped up, he added. He is also anticipating the airline will be able to take advantage of slots as they are freed up at crowded Jakarta Soekarno–Hatta International Airport as weak carriers are forced out of the market.

In the meantime, Tiger Group reported its another quarterly loss for the three months to the end of September, although its S$11 million (US$9 million) loss was an improvement on the S$41 million for the same period last year. Koay said that the carrier planned to return to the black "as soon as possible." Tiger will make a net book gain of around S$120 million from the Tiger Australia deal.

Meanwhile, Virgin Australia has also made an offer to buy Perth-based regional Skywest in a cash and share-swap deal that will use up another A$47 million of the SIA stake proceeds. Virgin Australia says the deal will secure direct operational control of the ATR fleet, allow entry into the lucrative resource industry charter business and fast track growth in Western Australia. The business will be rebranded Virgin Australia.




 

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