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Virgin Australia Holdings (VAH) is selling 10 per cent of its shares to Singapore Airlines in an arrangement which will see it acquire 60 per cent of Tiger Australia, plus, under a separate agreement, 100 per cent of Perth-based Skywest.
“The transactions announced today are in line with Virgin Australia’s strategy to become the airline of choice in all markets, in order to diversify our earnings and drive growth opportunities for the business,” Virgin Australia CEO John Borghetti said in a statement.
“The acquisition of Tiger Australia and Skywest provides Virgin Australia with a strong presence in the budget, fly-in/fly-out and regional markets, enabling us to fast-track our expansion in these areas and become a stronger competitor.”
Under the deal to acquire 60 per cent of Tiger Australia, Virgin Australia and Tiger have committed to invest a further $62.5 million to fund expansion at Tiger Australia.
“This transaction enables Virgin Australia to access the budget market and enables Tiger Australia to expedite its growth, providing greater competition to this important market segment,” Borghetti said.
Under the terms of the agreement, Tiger Australia will retain its own Air Operator’s Certificate and will have a separate board and management team. Branded as Tiger Airways, the airline will continue to operate its fleet of A320 aircraft.
It is envisaged the Tiger Airways fleet will grow to 35 aircraft by the end of 2018. It currently operates 11 aircraft. The first $20 million for new A320s will be funded by Tiger Airways, while a second tranche of $30 million will be invested by Virgin Australia. The remaining $12.5 million of the total $62.5 million transaction will be funded proportionately.
Singapore Airlines’ $105 million deal for the 10 per cent stake in Virgin Australia will see it acquire 245,577,511 shares in VAH at 42.88 cents per share.
Singapore Airlines CEO Goh Choon Pong said: “This major development demonstrates the importance and strength of the partnership between our two airlines, and our shared commitment to an alliance that provides a wide range of consumer benefits. Singapore Airlines fully supports the ongoing transformation at Virgin Australia, which has already resulted in a more competitive aviation market in Australia.”
The third component of today’s equity announcements by Virgin Australia rests with its proposed 100 per cent purchase of Western Australia’s Skywest.
While subject to the approval of the Securities Industry Council of Singapore and the ACCC, in-principle agreement has been reached with Skywest shareholders in a transaction valued at $99 million. Virgin Australia already holds a 10 per cent stake in Skywest, which it acquired last April.
The move gives Virgin much greater exposure to the presently lucrative FIFO and regional markets, and builds on the regional network partnership between Virgin Australia and Skywest that has seen Skywest operate ATR 72 turboprops on regional routes for Virgin Australia since October 2011. Virgin Australia and Skywest also already have an extensive codesharing partnership.
Under the arrangements announced today, Skywest would become part of the Virgin Australia brand but would retain its own AOC.
The airline carries around 800,000 passengers a year across regional Western Australia on FIFO and scheduled services that also link Darwin, Melbourne and Denpasar in Bali.
The deals, regulatory approval pending, would see the Virgin Australia Group expand to 139 aircraft and more than 9,000 employees.
Oliver Cooksey
says:Wow…wasn’t expecting Virgin to buy tiger, skywest though was bound to happen soon. This pretty much changes the whole aviation ssector for good. Can’t wait to see Skywests fleet in VA colours, especially the A320.
Ron
says:Congratu-bloody-lations! This is huge, & awesome!
Kind of reminds me of that scene in “Pretty Woman” where she goes into the shop but they wont serve her. Then she goes back later, all dressed up, & tells them off. I can picture John Borghetti now emailing the board of directors at Qantas….”I applied for CEO but you wouldn’t appoint me….big mistake…huge!”
VA will no doubt also give Tiger more credibility, enhance its safety reputation, & give it the valued “Australian (majority) owned” appeal, rather than a “what’s Singapore Airlines doing in Australia?” feel, with the A320 identical product to Jetstar at the budget end.
I am just in awe.
NJP
says:Congratulations Virgin!
You now have a solid QF/JQ business model now show QF how to do a decent international long-haul service and soon you’ll have 65% of the market like QF once had
NJP
says:Forgot to ask but how long till we get A330’s on SYD/MEL/BNE routes?
Dan
says:Now I know why Virgin has changed it’s call sign to “Velocity”
Boris
says:Wow, on the surface, this is excellent news… but in the long run, we are going back to a true duopoly. Having Tiger kept the two of them in check. Now lets see how long it will take for the ticket price etc to be near identical to each another with no real difference!
Hey, we do need some one to land us on our legs after this announcement 😉
Any one else with similar thoughts?
Michael
says:Ron that is a fantastic reference!
I don’t think it will become a duopoly. QF are too intent on their “65% line in the sand”
Gavin
says:How will this affect wages and working conditions?? I hear it is not so crash hot at tiger? Do you think things will improve now ??
Dave
says:Gavin, think QF/JQ. Both are separate identities under different management , with, in the case of JQ, lower wages and operating costs.
VA and TT will run the same way, with TT using it’s own AOC , and having it’s own Board members.