Virgin Australia plans to raise $852 million in fresh capital through a share offer to existing shareholders and shed aircraft as part of efforts to improve its balance sheet.
The company announced the two initiatives on Wednesday, after concluding its capital structure review.
Under the share offer, existing shareholders can purchase one new share for every share they currently hold at a price of 21 Australian cents per share. This is a 28.8 per cent discount to the company’s closing share price of 29.5 cents on Tuesday.
Further, Virgin said Singapore Airlines (SIA), HNA Innovation (a subsidiary of HNA Aviation Group), Sir Richard Branson’s UK-based Virgin Group, Nanshan Group and Air New Zealand have committed to take up their full pro-rata entitlements.
However, Virgin’s other major airline shareholder Etihad Airways has not committed to take up its full pro-rata entitlement.
Abu Dhabi-based Etihad said it was still looking at the capital raising and reaffirmed its commitment to the Australian carrier.
“Etihad Airways is a long-term strategic investor and partner to Virgin Australia. We are fully committed to this partnership and to remaining as a shareholder,” an Etihad spokesperson said in an emailed statement on Wednesday.
“Our comprehensive 10-year commercial agreement is further evidence of our confidence in and support for Virgin Australia, and our commitment to the airline and Australia.
“We will continue to review our option to take up the pro-rata entitlement, and will announce our decision at the appropriate time.”
And should the offer not be fully subscribed, SIA, HNA and Virgin Group have also made binding commitments to contribute to the sub-underwriting of entitlements not taken up by other shareholders.
SIA said in a statement to the Singapore stock exchange it was “confident of the long-term prospects of Virgin Australia and was committed to supporting its long-term growth”.
“The SIA commitment will enable the company to remain as a substantial shareholder of Virgin Australia, and is in line with the company’s intention to ensure that its stake in Virgin Australia is not significantly diluted as a result of the HNA placement and the Virgin Australia entitlement offer,” SIA said.
The $852 million capital raising, when added to the $159 million share placement with HNA Group, brings the total amount Virgin is raising to $1.011 billion.
“As a result of the upcoming equity raising, the Group will have a capital structure that is appropriate for its position as a mature, diversified airline group and will be in a stronger position to deliver sustainable growth,” Virgin Australia chairman Elizabeth Bryan said in Wednesday’s statement.
“We are pleased that Singapore Airlines, HNA Innovation, Virgin Group, Nanshan Group and Air New Zealand will support the Group through their participation in the equity raising.”
Meanwhile, Virgin said it would withdraw an unspecified number of ATR 72 turboprop aircraft, as well as remove all Embraer E190s from its fleet, over the next three years.
This would assist the airline group in “simplifying its business and becoming more scalable and productive”, Virgin said.
The company was targeting improving operating efficiencies in crew and ground operations, as well as in maintenance, engineering, procurement and its supply chain.
“Through the successful implementation of the program, the Group is targeting net free cash flow savings increasing to A$300 million per annum (annualised run rate) by the end of the 2019 financial year,” Virgin said.
Virgin chief executive John Borghetti said: “Our renewed capital structure will strengthen our balance sheet, provide additional liquidity and help fund initiatives to improve earnings and cash flow.”
“Additionally, the new program of operational and capital efficiency initiatives will further deepen our focus on having a low, sustainable cost base. Going forward, we will continue to stay focused on delivering an excellent customer experience to travellers in Australia and around the world.”