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Chinese suitors eye Virgin Aus as consolidation nears

May 31, 2016 Headline News No Comments Email Email

egtmedia59The pending sale by Air New Zealand of its stake in Virgin Australia (currently 25.9%) is said to have attracted Hainan Airlines, China Southern Airlines and  Cathay Pacific.

That’s the word from Hong Kong’s South China Morning Post, which cited the Australian Financial Review but added that Cathay chief executive Ivan Chu had described the speculation on Virgin as “groundless”.

Cathay’s chairman, John Slosar, however, forecasts that economic headwinds will soon usher in a global wave of airline industry consolidation.

Slosar outlined what he sees as continuing industry trends. These included “industry consolidation, the emergence of Chinese airlines as international brands, and investment into data analytics”, the South China Morning Post reported.

On the Virgin Australia front, China Southern, largest Chinese carrier in the China-Australia market, is seen as a logical buyer by analysts, as is Hainan, the flagship carrier of the acquisitive HNA Group.

Analysts say owning part or all of Australia’s second-largest carrier would give network access to the Chinese airlines and let them cash in on the growing number of Chinese tourists taking short flights within Australia.

Virgin Australia’s other major shareholders are Etihad (which owns 25.1%) and Singapore Airlines (which owns 23.11%). The Sydney Morning Herald noted last month that Singapore Airlines has the financial muscle to bid for the rest of Virgin Australia, but is unlikely to do so unless a Chinese rival, say China Southern or China Eastern, makes an offer.

The paper quoted aviation experts saying the remainder of Virgin would cost about AUD 1.5 billion, “including an expected recapitalisation of the carrier”.

Speculation on possible buyers for the Air NZ stake has mentioned Chinese carriers, Singapore Airlines, Delta Air Lines and possibly United Airlines. Etihad has hinted it is unlikely to be interested.

Delta Air Lines, Virgin Australia’s trans-Pacific alliance partner, could buy up to 19.9%, under the rules.

Virgin’s domestic arm can be wholly foreign owned but the international side must remain majority Australian-owned to retain the carrier’s international traffic rights. No fewer than 51% of shares must stay in Aussie hands.

Written by Peter Needham

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