Air New Zealand pays $188.9 million for Virgin stake

Air New Zealand has paid $188.9 million ($A145 million) for its cornerstone stake in Australian airline Virgin Blue.

The 14.9% substantial shareholding was reached last night after Air New Zealand – 75% owned by the government – bought Virgin shares off-market for an average price of 44 cents a share. The acquisition was funded from cash. 

Chief executive Rob Fyfe said there was no intention to lift the stake beyond 14.9% -  the maximum Air New Zealand can hold under Australian rules requiring total foreign ownership in a listed company remains within 49%. Virgin Blue’s UK-based parent company, Richard Branson’s Virgin Group, has a 26% stake in the airline.

The investment in Virgin Blue reinforced Air New Zealand’s strategy to grow its business in Australasia, which is continually evolving as a single aviation market, said Mr Fyfe.

“This investment provides us with an interest in the number two airline in Australia and, through this, access to the opportunities in the growing Australian domestic market,” he said.

“Air New Zealand has no intention of entering the Australian domestic market in its own right.”

The airline would not be seeking representation on Virgin Blue’s board for at least six months, he said.

Air New Zealand’s shareholding in Virgin follows approval for the two airlines to codeshare on the fiercely competitive Tasman route, which will see the airlines work together on services and fares on transtasman flights, with agreement to grow capacity on routes.

Value from the alliance is expected to be demonstrated in the next financial year.

Although the stake in Virgin Blue would have no direct impact on airfares, the airline hoped it would pave the way to explore opportunities to cooperate in other long-haul markets.

Air New Zealand chief financial officer Rob McDonald said Air New Zealand wasn’t considering buying shares in any other airline.

“To be honest, there are not many other dance partners out there for us. There’s very little reason why we’d acquire a stake in an airline outside Australasia,” he said.

Virgin Blue pulled its Pacific Blue aircraft from New Zealand last year, after losing up to $20 million a year on domestic main centre routes.

Shares in Air New Zealand fell 2 cents this morning to $1.42. 

NZ Funds Management chief executive Michael Lang said AIr New Zealand's stake in Virgin Blue cemented the airline as the dominant alliance partner.

"A shareholding in Virgin Blue gives Air New Zealand access to a much larger population in a way that does not require a large capital outlay. I expect, as a result of this purchase, to see a number of changes to Virgin Blue, which will result in the new alliance taking market share from Qantas - a good thing for AIr New Zealand shareholders."