The Virgin Australia share register is becoming pretty crowded after the airline revealed yesterday that it was selling a stake to China’s largest private airline operator.
HNA Aviation Group will buy 13% of Virgin Australia in a deal the airline says will help it capitalise on the growing Chinese travel market.
The purchase is part of a spending spree which has seen HNA, the parent, spend more than $US14.2 billion over the past year expanding outside of China into travel, airline servicing, hotels and an attempt to buy one of London’s major airports.
HNA will join the likes of Air NZ (which is looking to sell out of Virgin), Etihad Singapore Airlines and Virgin Group on the register of Virgin Australia.
And Virgin said that HNA would increase its stake in the company to 19.99% over time, which could allow it to buy some of Air NZ’s 26% stake on market.
HNA Aviation is part of the HNA Group and will pay $159 million for its 13% stake in Virgin Australia, worth $159 million.
HNA Aviation Group and Virgin will introduce direct flights between Australia and a number of Chinese cities, as well as co-ordinate code-sharing, frequent flyer programs and lounge access.
Virgin Australia chief executive John Borghetti said the China was Australia’s fastest growing and most valuable inbound travel market, growing at about 18% a year since 2010.
“The alliance will see us leverage the opportunities offered by China as well as the synergies of HNA’s comprehensive aviation supply chain,” Mr Borghetti said in the statement yesterday.
HNA will be able to nominate a director to Virgin’s board.
The company controls Hainan, China’s fourth largest airline.
The deal comes as Virgin undertakes a capital structure review to look at ways to cut debt and optimise its mix of long-term debt, short-term debt and equity to support its rebuild strategy.
The review was launched on the back of growing shareholder concerns about the airline’s financial position.
Virgin took out a $164 million loan in the first half of the financial year as its unrestricted cash balance fell to $544 million from $839 million a year earlier.
That was followed by a $425 million unsecured loan in March from its four major shareholders Air New Zealand, Etihad Airways, Singapore Airlines and Virgin Group.
Air New Zealand, Virgin Australia’s largest shareholder, said in March it would look to sell all or part of its 26% stake in Virgin after it failed to oust its chief executive John Borghetti.
Air New Zealand had sought to replace Mr Borghetti with its own CEO Christopher Luxon, but it failed to receive support from other directors and Mr Luxon resigned from the board.
The Kiwi carrier then appointed bankers to review its share, including the possibility of a sale.
Etihad owns 25.1% of Virgin Australia, Singapore Airlines owns 22.2% and Richard Branson’s Virgin Group owns about 10%.
Virgin shares rose 7.1% to 30 cents, a meaningless rise for small shareholders. The airline is well and truly controlled by other airlines.
HNA has a liking for aviation (naturally given its control of Hainan Airlines). It is also is in talks to acquire 49.99% stake in Air France’s Servair airline servicing subsidiary.
The Financial Times reported overnight:
"HNA Group, which owns two airlines and holds controlling stakes in 10 listed companies, has struck on average nearly one deal a month over the past 12 months as part of a shopping spree. It was also a bidder for London City airport earlier this year but lost out to Ontario Teachers’ Pension Plan.
“Over the past year HNA has paid out at least $US14.2bn, making it one of the top drivers of cross-border Chinese M&A this year. Several of the price tags on its buyouts have not been disclosed.
"Last month HNA said it had agreed to buy Carlson Hotels, owner of the Radisson hotel chain, for an undisclosed amount. That was HNA’s second cross-border deal in April and, including the $6bn buyout of Ingram Micro in January, its fourth this year, according to Dealogic.
“It is understood that a deal for Servair, which is dependent on HNA’s successful acquisition of Gategroup, would see the Chinese company take operational control of Servair."
