In a report in Crikey,If the Air NZ purchase of 14.9% of Virgin Blue is a blocking move to prevent, say, Etihad from acquiring a significant interest in the carrier, it may well be thwarted by ?unintended consequences?.
One of them could be the division of Virgin Blue into a purely domestic Australian company, in which 100% foreign ownership is allowed, and the devising of an international arm in which the owners of Virgin Blue also own 51%, thus retaining its status in terms of air traffic treaties as an Australian flag carrier controlled by entities recognised as Australian.
However while such a structure is a fascinating conjecture (and one that was used by Ansett to set up Ansett International, in the unprofitable glory days of that brand before a different Air New Zealand 100% purchased and destroyed what was already a very badly run airline) the immediate story is that the NZ carrier is now sitting on a ?can?t lose? minority stake.
Air NZ stands to add value to its balance sheet from a well run and expanding Virgin Blue just by being a 14.9% minority owner, or by selling it for a better price to a more ambitious investor, keeping in mind that sovereign funds like those of the UAE states or Singapore are not airlines in their own right, and can probably finesse their way to significant holdings other than up front ownership of up to 49% of an Australian flag carrier.
They can for example, own the fleet, or the engines, or key debt instruments, yet not necessarily, too many shares, or even any shares at all.
And in any event, the numbers will change if Richard Branson sells down his equity to, say 10% of Virgin Blue from his 26% equity But then again, he might buy a higher stake.
Second-guessing Branson is risky business.
While the Virgin Who (and what) tease continues Qantas is expanding its Jetstar brand into a trans-border low cost franchise throughout Asia, and has began a longer term migration of its assets to a Singapore base which will host a substantial fleet of Australian registered Jetstar branded wide body jets in the near future.
Those changes represent the biggest medium term challenges to the future of Virgin Who and Air New Zealand that have yet emerged, and will require something more than re-branded jets and cabin changes if both are to survive or prosper beyond the end of this decade.
VBA Price at posting:
28.5¢ Sentiment: Buy Disclosure: Held
