Air New Zealand has agreed to sell 19.9% of the total 25.9% stake it holds in Virgin Australia Airlines to Nanshan Group, a privately held Chinese conglomerate. The Kiwi flag carrier revealed it would take a call on its remaining 6% stake in Australia's second-biggest airline, in due course.
In a statement released to the New Zealand stock exchange, Tony Carter, chairman at Air New Zealand said, "We believe Nanshan Group will be a very strong, positive and complimentary shareholder for Virgin Australia. The sale will allow Air New Zealand to focus on its own growth opportunities, while still continuing its long-standing alliance with Virgin Australia on the trans-Tasman network."
Virgin said once the sale, which is subject to regulatory approvals from Chinese authorities, is completed, it would put forward a nomination for a representative on its board of directors. "We look forward to meeting with Nanshan Group over the coming weeks to discuss the proposed acquisition", the Brisbane-headquartered company added.
The deal follows another Chinese conglomerate, HNA Group, announcing in May, that it would acquire a 13% stake in Virgin Australia for A$159m (£81.58m, €104.35m, $117.89m). This deal too is subject to regulatory approvals from Chinese authorities. However, if both the deals get the go-ahead, it would mean that the Chinese companies would together own about a third of the Australian carrier.
For Virgin Australia, whose other shareholders include Etihad Airways and Singapore Airlines, the deal comes as a breather, considering it has a net debt of $1.5bn (£1.04bn, €1.33bn). The deal also comes at a time when Virgin's cash balances have reduced drastically because of the stiff price competition with rival Qantas, especially on domestic routes.
Andy Bowley, analyst at Forsyth Barr, a New Zealand owned investment firm, however, opined that the reason behind the deal was the differences that had cropped up between the Kiwi and Australian carriers. "Air New Zealand felt they were not able to use their stake to influence Virgin's strategy and didn't want to participate in a future capital raising. The sale to Nanshan is a pretty good result for Air New Zealand . . . But overall they lost money on Virgin", Bowley added.