The worm begins to turn!
Tesna risk cuts appeal of Virgin
By MARK TODD
SYDNEY
Monday 10 December 2001
Sir Richard Branson's budget airline Virgin Blue may struggle to get its much-vaunted $1 billion sharemarket float off the ground should the Lew/Fox Tesna consortium win the remains of Ansett.
Major institutions, while prepared to consider investing in a participant in a duopoly, were reluctant to risk funds on a carrier in a three-airline market. Fierce competition played a large part in forcing Impulse Airlines from interstate routes in May and in the collapse of Ansett in September.
"A Virgin Blue float would be difficult to get away if Tesna is successful in acquiring Ansett," said Macquarie Equities transport analyst Ian Myles.
Fund managers expressed similar views but were more abrupt in their assessments. One, when asked whether he would buy into Virgin should Tesna enter the market, replied: "Absolutely not. It would be ridiculous."
The potential for another outbreak of cutthroat competition would make a Virgin float too risky a proposition. Investors cited similar reasons for passing over plans by Impulse for a public offer and ASX listing late last year.
Currently, Virgin Blue and Qantas have almost the entire domestic market to themselves. However, Solomon Lew and Lindsay Fox's Tesna consortium has struck a $3.6 billion agreement to take over Ansett's interstate routes and buy the operator's terminals.
Tesna is waiting for the Federal Court to approve the government's proposed $195 million loan to Ansett's administrators to cover employee redundancies. A ruling is due on Tuesday and the administrators hope to close the sale by the end of January.
However, Virgin Blue was adamant investors would at some stage next year get the opportunity to invest in the airline, most likely towards the end of 2002.
Chief executive Brett Godfrey is believed to have promised, in recent presentations to large investors, pre-tax earnings in excess of $30 million for the year ending March 31, 2002.
"The float would still go ahead," a Virgin Blue spokeswoman said.
"Virgin is proving very successful, and Sir Richard has always said he'd give the public a chance to invest once the risk was removed."
Virgin plans to have 16 planes flying before the new year and 25 in the sky in 2002.
Chris Corrigan's Lang Corp has teamed up with Virgin Blue to make a tilt at Ansett's terminals. If successful, Lang will take a 51 per cent interest in Virgin for $300 million.
The Virgin Blue spokeswoman said the airline was aware it would reach capacity at its own facilities within about 12 to 18 months should it fail to acquire the Ansett terminals.
"Other options are being looked at" should the terminals go to Tesna, she said