conerstone stake

Air NZ considers buying into Virgin Blue
MATT O'SULLIVAN
July 16, 2010

Air New Zealand is believed to be considering taking a cornerstone stake in Virgin Blue to cement its relationship with Australia's second-largest airline.

Sources said last night that the government-backed Air New Zealand was looking to buy a stake of up to 15 per cent in Virgin Blue, after the two airlines appeared to have won indicative support from regulators for their proposed joint venture on services between Australia and New Zealand.

''It is a logical first step from their point of view to put some equity, or hurt money, into the game,'' one said. ''It's always on the cards when you are trying to form an alliance.''

A strategic stake is seen as giving Air New Zealand a foot in the door for the next wave of consolidation in the aviation industry, which is emerging from one of its worst downturns.

Virgin Blue and Qantas are often seen as likely candidates in the longer term for tie-ups with airlines in the burgeoning Asian market.

Sources said an additional source of equity made sense for Virgin Blue, which is facing intense competition on domestic routes, while its fledging long-haul-offshoot, V Australia, is burning cash. The airline issued a profit warning in late May.

Air New Zealand said last night that it was not a shareholder in Virgin Blue and would require Australian Competition and Consumer Commission and Foreign Investment Review Board approval to take a 15 per cent shareholding. It dismissed suggestions that it would act as early as today to take a stake.

However, it did not respond to questions about whether it would rule out buying a strategic stake.

Virgin Blue and Air New Zealand announced plans in May for a revenue-sharing alliance, in an effort to bolster their defences against Qantas and Jetstar's push into the trans-Tasman market. They want to collaborate on route and product planning, code-sharing and frequent flyer program benefits.

Although the planned alliance has met opposition from New Zealand airports, which fear it will reduce flights and raise fares, analysts have said it has a high chance of winning approval from the ACCC and the Ministry of Transport in New Zealand.

Shares in Virgin Blue closed unchanged at 31.5 yesterday, giving it a market value of $696 million.