Virgin plays down Rex speculation
Virgin plays down Rex speculation
Sydney Morning Herald
Matt O'Sullivan
February 16, 2009
VIRGIN BLUE's boss, Brett Godfrey, doubts the Singaporean investors behind the domestic airline Regional Express will add to their stake in Australia's second-largest carrier in the short term.
The emergence of Rex's chairman, Kim Hai Lim, and a non-executive director, Thian Soo Lee, on Virgin's register with a 3 per cent stake late last year triggered speculation about links between the two carriers, ranging from closer operational ties to a full-blown merger.
Virgin has been silent on the investment for months but Mr Godfrey told the Herald that the Singaporeans had spoken to the airline before they bought the small stake.
"We have a relationship, but that's probably as far as it will go for now, I guess," he said.
"I don't think they'd pick it up at 30c a share, the whole 1 billion shares outstanding [in Virgin], but I think they have bought so far about $10 million to $15 million worth. It would be an interesting takeover though, wouldn't it?"
Virgin Blue has an interline agreement with Rex, which links the two carriers' networks for travellers to and from smaller regional centres.
Asked about the likelihood of a closer relationship, Mr Godfrey said: "We do a lot of talking and meetings because we are complimentary in a lot of things we do. We talk to them a fair bit - I am not saying for anything other than code-sharing."
The Singaporean investors swooped on Rex in 2002 to buy a 30 per cent holding, which has since been increased to a controlling stake of more than 55 per cent. Mr Lim, whose own stake in Rex amounts to 21 per cent, and Mr Lee (7 per cent) also share interests in a Singaporean biomedical company.
Although Virgin's market value is just $273 million, foreign ownership restrictions are a hurdle to the Singaporeans building a big stake in the airline.
Under Australian laws, the airline can be fully owned by foreigners and operate domestically but would have difficulty flying international routes. If Virgin were more than 50 per cent foreign-owned, it would have to spin off its long-haul carrier, V Australia. It is already 25 per cent foreign-owned due to the British billionaire Sir Richard Branson's stake.
Virgin Blue will unveil its first-half earnings later this month when Mr Godfrey will also detail capital management plans. It will not follow Qantas's lead in raising capital to cushion itself against a decline in passenger demand, partly because Sir Richard is unwilling to have his stake diluted.
Virgin's share price has fallen almost 88 per cent since the start of last year. The stock closed up 1c at 26c on Friday.