Virgin Australia has moved a step closer to completing the partial sale of its Velocity frequent flyer program and boosting its balance sheet by $336 million after the Foreign Investment Review Board (FIRB) gave the deal the green light.
FIRB had “no objections” to the proposed transaction, Virgin said in a statement on Thursday.
“The transaction still remains subject to certain conditions and Virgin Australia expects the transaction to complete by the end of October,” Virgin said.
“Once complete, the transaction will enable Virgin Australia to accelerate the growth of Velocity Frequent Flyer and fast track its strategy to become one of the world’s leading loyalty programs.”
The airline announced in August it had agreed to sell a minority 35 per cent stake in Velocity to fund managers Affinity Equity Partners for $336 million.
Virgin chief executive John Borghetti said Velocity’s growth was “only just taking off” and the deal would “turbocharge its development”.
“With Affinity comes also enormous capability in data analytics and systems. That is very important,” Borghetti said on August 29.
“The strategic relationships that Affinity Partners is going to bring to the deal, we couldn’t buy that. It will give us a truly what I would call eventually a new standard of loyalty program that far exceeds our current boundaries both geographically and from a strategic point of view.”
Velocity currently has about 4.5 million members and was targeting 7 million members by the 2016/17. Qantas’s frequent flyer scheme has about 10.1 million members.
Offloading 35 per cent of Velocity was expected to boost liquidity and reduce Virgin’s lease-adjusted balance sheet gearing by about eight per cent.
“Critically important, going forward, optimising the balance sheet will be central to our strategy,” Borghetti said.