-- Singapore Airlines to lift stake in Virgin Australia to
19.9%
-- Stake deal is worth $125.8 million
-- Virgin Australia is closest challenger to Qantas in domestic
market
(Adds company comments, details of transaction.)
By Gaurav Raghuvanshi and Ross Kelly
SINGAPORE--Singapore Airlines Ltd. (C6L.SG) said Wednesday it
will spend US$125.8 million to nearly double its stake in Virgin
Australia Holdings Ltd. (VAH.AU), intensifying its challenge to
dominant carrier Qantas Airways Ltd. (QAN.AU) in the Australian
market.
The deal to buy Virgin Australia shares from Richard Branson's
Virgin Group will raise the Singapore flag carrier's stake to
19.9%, just below the 20% level that would have triggered a
mandatory offer for the entire company under Australian rules.
Singapore Airlines bought an initial 10% stake in Virgin Australia
less than six months ago.
"It does not give them any more control (over Virgin Australia)
but it does reinforce the importance that they place to that
market," said Shukor Yusof, director at Standard and Poor's Equity
Research in Singapore. "Singapore Airlines never gave up on
Australia despite the setbacks they faced over the past decade and
they want to stick around and grow their business there."
With its sunny climate and pristine beaches, Australia is one of
the world's top tourist destinations, attracting over 5.5 million
visitors in the year to June 30, 2012, increasingly from
fast-growing Asian economies such as China. The country's booming
economy is also stimulating demand for domestic travel.
Singapore Airlines Chief Executive Goh Choon Phong said the deal
is another example of the airline's "deep commitment to the
important Australian market."
"It also demonstrates our support for the ongoing transformation
of Virgin Australia, which has created a more competitive aviation
market in Australia," he said.
Virgin Australia is the country's second-largest domestic
airline operator. With the investment from Singapore Airlines and
its recent acquisitions of smaller carriers Tiger Airways Australia
Pty. Ltd. and Skywest Airlines Ltd., Virgin Australia is best
placed to launch the first serious challenge in a decade to
Qantas's market leadership.
Virgin Australia recently started putting business-class seats
on domestic aircraft. Meanwhile, Singapore Airlines has been
seeking permission from Australian authorities to fly to the U.S.
west coast from cities such as Sydney and Melbourne, but hasn't
been granted the rights.
It remains to be seen how the Singaporean airline's increased
stake will change the dynamic with Virgin Australia's other
shareholders. Air New Zealand Ltd. (AIR.NZ) owns 19.99% of Virgin
Australia, while Etihad Airways also owns shares. Wednesday's deal
will reduce the Virgin Group's holdings in Virgin Australia to
12.5% from 22.4%.
"We don't comment on changes to our share register other than to
say that we believe that this is a further demonstration of
confidence in our strategy," a Virgin Australia spokeswoman said in
a statement after the deal announcement.
Under the deal disclosed Wednesday, Singapore Airlines will buy
255.5 million Virgin Australia shares held by the Virgin Group at
48 Australian cents a share. The acquisition will have to be
approved by Australia's Foreign Investment Review Board.
Write to Gaurav Raghuvanshi at gaurav.raghuvanshi@dowjones.com
and Ross Kelly at ross.kelly@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires