Chinese tighten Virgin Australia grip, squeezing Singapore Airlines

SYDNEY — Chinese companies strengthened their grip on Virgin Australia Holdings as a second conglomerate bought a stake in the carrier, handing a blow to key shareholder Singapore Airlines (SIA).

Nanshan Group will buy about 20 per cent of Australia’s second-largest airline from Air New Zealand, the Auckland-based carrier said in a statement on Friday (June 10). Nanshan’s assets stretch from aluminium to property and include the two-year-old Qingdao Airlines.

HNA Group, the owner of Hainan Airlines, last month said it plans to buy 13 per cent of Virgin Australia and struck a code-share alliance with the Brisbane-based airline. While the Australian carrier is now better placed to tap the Chinese travel market, its disparate shareholders — among them Etihad Airways — may be harder to manage.

“It’s not a marriage made in heaven,” said Mr Neil Hansford, chairman of Strategic Aviation Solutions, a consultancy firm north of Sydney. “You’ve got two sophisticated legacy-type carriers in Singapore and Etihad mixing with start-up Chinese. I think it would be a very difficult board table to sit around.”

Singapore Airlines in an e-mail declined to comment and a spokesman for Etihad in Sydney had no immediate comment. The sale is subject to regulatory approvals from Chinese authorities. Air New Zealand was advised by First NZ Capital and Credit Suisse.

CAPITAL REVIEW

Virgin Australia shares climbed 7.1 per cent to 30 Australian cents after Air New Zealand said Nanshan plans to support the outcome of Virgin Australia’s current capital review. Nanshan is buying the Virgin Australia shares for 33 Australian cents apiece, 18 per cent more than the closing price Thursday.

Air New Zealand shares jumped as much as 3.9 per cent in Wellington and SIA shares were little changed.

If the deal is approved, Nanshan Group will hold almost as much as the other partners, making Virgin Australia’s shareholding unique with four airlines as key supporters.

Last month, billionaire Chen Feng’s HNA Group said it wants to raise its holding to 20 per cent over time. After issuing new shares to HNA Group, SIA was to hold 20.1 per cent stake and Etihad 21.8 per cent, according to the Australian carrier.

REMOTE PARTS

Last month, Singapore Air Chief Executive Officer Goh Choon Phong described the Australian market as “very important”. He said Virgin Australia was “commercially very important”, partly because the airline could reach remote parts of Australia more easily than SIA. “We are happy with our stake currently,” Mr Goh said at the time.

SIA, which uses its Changi Airport hub to connect passengers to China and South-east Asia, has benefited from the Virgin Australia partnership by tapping corporate flyers and reaching Australia’s domestic market. Now the city-state’s flag carrier may risk losing some of that traffic to HNA and Nanshan. After HNA bought the stake, Virgin Australia said it plans to start direct flights to and from China next year and fly some of those visitors on its network at home.

“This is going to impact SIA’s operations,” said Mr Shukor Yusof, founder of aviation consultant Endau Analytics. “Australia is a huge market for SIA, and SIA has been under pressure from many different fronts and many different airlines.”

MAINLAND VISITORS

Last year, more than 1 million Chinese travellers visited Australia and by 2020, the number will climb to 1.5 million, according to Virgin Australia.

Air New Zealand, which had been considering selling all of its 26 per cent stake in Virgin Australia, said in a statement the sale would allow it to “focus on its own growth opportunities”. The carrier’s alliance with Virgin Australia on routes between the two nations would continue, it said.

Virgin Australia said in a separate statement that it looked forward to meeting with Nanshan in coming weeks and would consider an expected request for board representation. BLOOMBERG