Virgin invests in Skywest

[BPA]

This coud be interesting.

Virgin Australia Holdings (VAH) today announced that it has made an investment in Skywest Airlines Ltd. (Skywest, ASX:SXR) in order to capitalise on opportunities in regional Australia by supporting further growth of VAH and Skywest’s regional partnership.
Should this investment and associated rights be converted to equity VAH will own approximately 10% of Skywest on a fully diluted basis.

Virgin Australia Chief Financial Officer Sankar Narayan said: “This investment highlights our belief in the growth potential of the Australian regional market and strengthens our partnership with Skywest.

“We have grown our regional operations significantly since launching our regional network with Skywest in October 2011, with the commencement of new services to Emerald, Gladstone and Port Macquarie. These services have been highly popular with the flying public and are already among our best performing regional routes.

“The fleet of four new ATR aircraft that we are using to operate these services will increase to 12 by the end of the 2013 financial year, and there is plenty of opportunity to further expand our regional footprint.

“We have also recently received draft final approval from the ACCC to provide an integrated offering with Skywest to corporate customers so that we can cater to increased demand from the resource industry. The investment announced today will further cement this relationship”, Mr Narayan said.

The investment will be made by way of an A$8 million convertible facility with Skywest. The facility is convertible by VAH into ordinary shares in Skywest at a conversion price of A$0.45 per Skywest share with a maturity date of 15 April 2015 and a coupon rate of 7.5% per annum.

In addition, Skywest has agreed to grant VAH a first tranche of 4 million warrants at a grant price of A$0.05 per warrant with a conversion price of A$0.45 per warrant along with rights to participate in future share issues during the term of the facility to avoid dilution. Subject to Skywest shareholder approval and there being no objection under Australia's foreign investment policy Skywest intends to grant an additional tranche of 2.41 million warrants to VAH on the same terms. The warrants have a maturity date of 15 April 2015. If the facility and all warrants are converted by VAH, then VAH would hold an equity stake of approximately 10% in Skywest on a fully diluted basis.

[Beyond tha Threshold]

Would this now give them a seat on the the board so that they can keep a closer eye on 'their' ATR operation?

Beyond.

[KRUSTY 34]

Good grief! Correct me if I'm wrong, but wasn't the Skywest/Virgin gig financed almost entirely by the West Australian entity? Reading that drivel, one could be forgiven for thinking it was all about DJ!

Getting a little nervous are we, about having the brand associated with a company that may be a tad over stretched?

[whataloadofrubbish]

With the end of the financial year approaching perhaps Virgin is looking for a tax deduction...
:)

[Rudder]

What it is is a loan paying a vey good interest rate with an option to convert the funds to shares (I assume at a discount) if they are worth converting. Hard to say if is a good sign or not. That would depend on who approached who in the first place.

[Roger Greendeck]

Krusty,

It is my understanding that the aircraft are leased and as the ATR's are in turn operated as a wet lease Virgin is funding the operation. Skywest are, of course, providing the resources such as staff but the only reason a company has staff is to turn a buck.

Given that it is a Virgin press release rather than a joint one it is not really surprising that they focus on how this affects their company.

[airdualbleedfault]

A good investment ? Considering XR just lost a big chunk of their FIFO to QF/Network and Alliance .

[WhyGen]

Considering QF yet again prostituted themselves and went for the contract well below cost even after paying $30m for Network Aviation, I'd say the VA/Skywest partnership is a far better investment than anything Qantas. No doubt they'll blame that loss on their international operations too.
I believe the latest VA/Skywest deal is very positive for both companies.

[Transition Layer]

Considering QF yet again prostituted themselves and went for the contract well below cost

Assuming you work for Skywest (or another operator) how on earth would you know what 'below cost' is for Qantas? Every operator's costs would be different, would they not?

[WhyGen]

You're right, I don't, although you have to admit Qantas' operating costs would have to be a lot higher than the likes of Skywest, Alliance etc.

[Transition Layer]

I tend to agree but with Network and maybe Qantaslink getting the majority of the flying, you'll probably find their costs are more closely aligned with that of Skywest.

[LMFAO]

WHYGEN

Exactly what I think all GEN Y's should do. Close the mouth, sit back and learn as you are making a complete fool of yourself.

Qantas obviously have to get into the mining game and sometimes doing it for cos or less t is what is required in order tocreate future business.

[piston broke again]

LMFAO troll - do yourself and everyone else a favour and bugger off. You think your opinion counts for anything? It counts for diddly...

[WhyGen]

Wise old LMFAO. Why the hostile response?
For your info, I am not generation "Y"; far from it in fact.
So, who's making a fool of themselves?
I agree that sometimes a company has to go in below cost to get their foot in the door. My point was, considering their recent track record of not paying dividends and downgrading profits, is it smart for Qantas to embark on any below cost ventures?

[teggun]

WhyGen, I think you will find that Transition Layer is correct that Network/QLink will be doing the majority of this flying and there costs would have to be on par or better than Skywest, especially Network.

[airdualbleedfault]

How the hell does anyone here know anyone's costs and how much the contract went for ?
Maybe FMG were sick of the 320 breaking down and seeing Alliance and Network aircraft in cloudbreak all the time ?
Maybe QF won the contract with reliability, FF points, business lounges, seemless travel worldwide and a huge fleet ( compare to Skywest ) to chose from?
Did any of you armchair experts consider that ?

[Cactusjack]

I heard a whisper that some transitional problems have been occurring in Perth and some 'ramp mischief' is being investigated by the Regulator?

[dirty deeds]

What about this for an idea?

VA invest in Skywest, why? ATR's yes, partly!

Bigger picture, High Capacity AOC, A320's on AOC, I am sniffing a LLC is in the making???????

QF:

Mainline
Qantas Link
Network
JETSTAR.............!

VA:

Mainline
Pac Blue
Alliance
Skywest
.........................?????????????

VA is where QF was 5 years ago, yet it will be QF in two years!!!!!!!!! Mainline doing City Connect, the rest done by outsourced or LLC coverage. VA have the benefit to apply all this with lessons learnt from a management team that have seen what works and what doesn't!

I hope I am wrong!

[d_concord]

Its a loan, plain and simple. They haven't invested anything at this point. It attracts 7.5% interest and is convertible into shares at a later date should Virgin choose to do so. And that won't happen unless the shares are above 45 cents. Why would you! I don't think they will do it anyway. That option would have been open now.

I could be wrong but I believe they had a recent capital raising. Question needs to be asked is why did they have to get a further loan and from their major customer at that to top that up so soon.

I could speculate a number of reasons. Personally, I just think they needed the money and Virgin have too much to loose by not backing them now they have put the ATR egg in that basket.

Good luck to them. But I very much doubt that there is any foundation to the conspiracy reason as to LCC as per the previous post.

[dirty deeds]

All valid points!

Conspiracy theory, absolutely!

Dixon buying Impulse for a rainy day????????

No conspiracy theory there!!!!!!

[KRUSTY 34]

I reckon you're close to it d_concord.

Have a look at the Skywest annual report. Yearly profit in the order of $12mil. and now with an under utilised A320 to pay for, amongst other things.

Slick accounting, special leasing deals, and pushing money around, cannot divert from one inescapable fact.... Someone has to pay for it. in Skywest's case, that's around $300 mil when you factor in 18 aircraft and all the ancillary start up costs.

A $300 mil debt for a company earning around $12 mil a year? Hope I'm wrong, but that would scare the Cr@p outa' me! :uhoh:

[Chadzat]

You're wrong Krusty. Skywest only owns a few F50's. The rest are leased through a seperate holding company. Skywest has minimal debt.

Virgin loan is for Skywest to offer galactic space tourism.

........

Or just to speed up ATR expansion.

[KRUSTY 34]

I'm assuming your post is "tounge in cheek" Chadzat.

At least I hope it is! :confused:

[Roger Greendeck]

Slight thread drift but I don't think that you will see Virgin spliting their operations into different airlines any time soon. They have just spent lots of time, money, and effort smashing together three different operations because, amongst other things it was inefficient.

If there was to be corporate merging down track my guess, and it is only a guess, is that they would absorb Skywest rather than split off some of their existing business to it.

[d_concord]

Hi DD,

Could be a valid point. Another might be that Impulse were a competitor and it was cheaper (and quicker) to take them out than loose money competing with them. QF also needed to break the legacy work conditions. VA don't have the same problem I would suggest.

The competitor bit is the issue. Accepting your point made re Impulse and the reason for the takeover. Skywest are not a competitor and Virgin can have Skywest do whatever they need without the need to take them out as well as have the benefit of walking away if they desire.

Seeing this is a rumour network. Rumour has it Skywest were wandering around Canberra earlier this week trying to drum up business with a past shareholder and director of a recently failed airline. If true... not at all clever..:ugh::ugh: