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Chinese buy-in makes Virgin Australia a complex mix

June 14, 2016 Headline News No Comments Email Email

egtmedia59China, Australia’s biggest trading partner, has secured a big slice of Virgin Australia.

In a double-whammy, two Chinese conglomerates have bought into Australia’s second-biggest airline, potentially owning a total of about 40% of Virgin Australia and perplexing existing shareholder Singapore Airlines, a major competitor with Chinese carriers, which owns 23.11%.

China’s Nanshan Group will buy about 20% of Virgin Australia from Air New Zealand, the NZ flag carrier said on Friday. The deal is worth about AUD 260 million. Nanshan’s wide range of commercial assets include two-year-old Qingdao Airlines, owner of a fleet of new A320 jets, 10 of them at last count.Virgin Australia B777-300ER at Los Angeles Airport

Chinese billionaire Song Suowen, who controls the Nanshan Group, is reported to already own the Pullman Hotel at Sydney Airport and the Riverside Oaks golf course, bordering the Hawkesbury River near Sydney.

HNA Group, the largest private airline operator in China and owner of Hainan Airlines, plans to buy 13% of Virgin Australia and to raise its holding eventually to 20%. That deal, worth about AUD 159 million (for the initial 13%), was announced recently with some joy by Virgin, along with a code-share alliance.

Virgin Australia plans to begin daily services between “a major Australian gateway airport” and both Beijing and Hong Kong from 1 June 2017, the flights to be operated with A330-200 aircraft configured with 275 seats.

If the deal is approved by Chinese regulators, the Nanshan Group will hold nearly as much of Virgin Australia as the other partners (Etihad and Singapore Airlines), making Virgin Australia’s shareholding complex and potentially volatile, with five major airlines in the mix if you count Richard Branson’s Virgin Group holding of 8.7%. Etihad owns 25.1% of Virgin Australia.

Independent Senator Nick Xenophon has called on Australia’s Foreign Investment Review Board (FIRB) to review the deals.

China is Australia’s biggest trading partner in goods and services. It is over twice as big as Australia’s second-biggest trading partner (Japan). In 2014-15, trade with China accounted for 22.7% of Australia’s total trade in goods and services.

Written by Peter Needham

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