Adele Ferguson |
July 20, 2009
Article from:
The Australian
VIRGIN Blue is courting a Middle East airline to become a "cornerstone" investor as it pursues options to recapitalise the business in the face of increased competition and the severe industry downturn.
Speculation is building that Virgin Blue, Australia's No2 airline, will be forced to seek additional capital either through an equity raising or by inviting new investors on to its register.
It is believed the company has held talks with one Middle East airline, possibly its new code-share partner Emirates, which is owned by the government of Dubai. Other potential solutions to its capital needs could include a partnership with private equity firms or with Air New Zealand.
Virgin Blue has firmly denied plans to merge or tie up with Air New Zealand, although a spokeswoman did not respond to calls to comment on a potential alliance with a Middle East airline.
Some analysts believe Virgin Blue does not need to raise extra funds in the medium term. Responding to reports of a planned $400 million rights issue, Virgin Blue last week said "the board has not approved any such transaction".
But the airline confirmed that "given the prevailing macro-economic conditions" it "assesses capital management initiatives as appropriate".
British Airways said on Friday it would raise pound stg. 600m ($1.2 billion) "to ensure it has strong liquidity consistent with the current difficult trading conditions".
The key to getting any recapitalisation deal across the line is British billionaire Richard Branson, the Virgin Blue founder who retains 25.5 per cent of the airline. It is understood that Sir Richard has not yet been convinced of the need to do a deal.
Any potential equity injection into Virgin Blue could dilute his stake, unless he opts to take up his full entitlement under a rights issue.
Virgin Blue is losing money on its new V Australia service across the Pacific, with its New Zealand business hit by the decision by the Qantas-owned Jetstar to start domestic flights there last month.
The airline, which is being hurt like the rest of the industry by the financial crisis, swine flu and rising oil prices, is expected to post a loss when its full-year results are handed down next month.