In a dramatic series of moves yesterday, Virgin Australia’s biggest shareholder, Air New Zealand, disclosed that it is considering selling some or all of its 25.9% stake in the Aussie carrier.
Air New Zealand’s chief executive, Christopher Luxon, resigned from Virgin Australia’s board immediately as a result of the momentous announcement.
When a shareholder with over a quarter of a company’s shares makes an announcement like that, it creates ripples. Trading in Virgin Australia shares was halted and that airline’s shares dived 8% when trading re-commenced.
The broadcaster reported that Air New Zealand “looks determined to at least substantially reduce its holding” in Virgin Australia.
Rather than keeping a large minority holding in Virgin Australia, Air New Zealand has its own growth opportunities to pursue. If it released the funds locked up in its Virgin Australia shareholding, it would have plenty of other uses for the money.
The New Zealand flag carrier, highly profitable, recently launched service to South America. It operates nonstop service to five North American destinations from Auckland, including daily flights to San Francisco, twice-daily flights to Los Angeles, and five weekly flights to Houston.
Luxon said Air New Zealand would remain a close partner of Virgin Australia operationally, regardless of the shareholding.
Other minority shareholders in Virgin Australia are Singapore Airlines and Etihad.
As the Sydney Morning Herald pointed out, even if Air New Zealand exits its stake in Virgin Australia at a significant loss, investors can rest assured it won’t be as disastrous as Air New Zealand’s previous Australian investment: Ansett.
“That one went so well it required a massive bailout by the Kiwi government when Ansett collapsed in September 2001,” the Herald remarked.
Written by Peter Needham