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Etihad gets greenlight for 10% stake in Virgin Australia

By David Flynn     Filed under: Etihad, John Borghetti, Virgin Australia, James Hogan

Etihad Airways will be permitted to take a 10% stake in Virgin Australia, following approval by the Australian Government for the Abu Dhabi flag-carrier to double its existing 4.99% slice of Virgin.

The equity stake will be capped at a maximum of 10%  per cent stake by the Foreign Investment Review Board (FIRB).

Last month Etihad paid an estimated A$37.5m for an initial 3.96% slice in Virgin Australia’s domestic operations, and even then Etihad CEO James Hogan admitted that "At a point in time, we would like to take it to a minimum of 10 percent, if we get the necessary approvals."

Air New Zealand has a 19.99% stake in Virgin Australia, putting it only second to Sir Richard Branson’s 26% shareholding.

The Etihad and Air New Zealand stakes were made possible after Virgin Australia separated its international and domestic operations, a move aimed at encouraging precisely this type of foreign investment.

Hogan says the stake is in line with Etihad’s strategy to invest in airlines it believed were of value to it from a network perspective.

“We’re keen to have a strong minority stake that strengthens our partnership with Virgin Australia” he told The Australian last month.

“We’re committed to the partnership. We think John Borghetti has done a great job. He’s repositioned the airline strongly, our partnership is driving considerable benefits for both of us on the kangaroo route and this just ties us in.”

Etihad's partnership with Virgin Australia already includes codesharing flights and reciprocal 'earn and burn' on their respective frequent flier programs, with the airlines also planning to open shared international lounges at Sydney and Melbourne International Airports.

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About David Flynn

David Flynn is the editor of Australian Business Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

 

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1 on 7/6/12 by AusFlyer

So now all those people that now fly Virgin instead of Qantas are giving money to the already cash-rich Etihad and helping send money out of Australia instead of supporting Australian business. Nice one. 

Wonder how valid people's arguments against Qantas sending work off shore is going to be now... 

1 on 7/6/12 by Al

Come on AusFlyer, 4% or even 10% of Virgin is not going to mean that Aussies are forking loads of cash over to Etihad. AirNZ has 20% of Virgin Australia but do you make the same claim there? Anyway, Qantas is hardly 'supporting Australians' of late, and Virgin is the airline now one bringing jobs back from overseas call centres and opening new maintenance facilities in Sydney and investing is Aussie jobs.

Sorry mate but Etihad's tiny stake is not to make big profits, that'd be like saying Gina Rinehart is buying a stake in Fairfax because she wants a free copy of the SMH each day! Etihad's in this not because it is after a new stream of profits, it barely needs it, but because it sees Virgin doing well, it wants it to continue succeeding and a financial stake affords better chances for a real partnership.

1 on 7/6/12 by AusFlyer

Sorry Al... But. a quarter of Virgin is foreign owned if you include AirNZ's stake.  So it's not just 4%. Etihad will increase their stake if they are able to in the near future. 

Believe what you want, but it's hypocritical to have a go at Qantas trying to make their business work by doing things overseas but accepting that it's okay for Virgin to have overseas ownership. 

Whats Gina Rinehart got to do with anything? Of course Etihad are in it for the profits. 

2 on 19/7/12 by Windy

Etihad hasn't even made break-even yet, so any comment about benefits going to someone is slightly far-fetched.

1 on 20/7/12 by Michael

I believe Etihad announced a profit earlier this year, albeit a modest $14m, for 2011.

1 on 20/7/12 by Windy

I stand corrected then. 

It doesn't change the fact that Qantas has benefited from protection by the government, and still hasn't managed to get things right.  Air NZ has turned around, even Garuda has managed to reinvent itself.  Qantas is clearly trying to.

1 on 20/7/12 by Michael

The steadily declining international market share and profits of Qantas international indicates a distinct failure of the government protection you mention - not sure what form this takes?

Not sure what you're basing the Air NZ comment on as EBT for H1 2012 were down 71%, and net profit after tax down $60m to $38m (suffering many of the external factors affecting most airlines), NZ also slipped in the Skytrax awards (widely regarded) from 7th last year to 17th doesnt look quite 'turned around'. Garuda on the other hand has indeed turned around (from a low base) with massive state investment in new a/c and product and service enhancements.

3 on 19/7/12 by calvinykw

Well I used to support Qantas before they became arrogant.  I will support any organisation if the provide a great product and service. Virgin well done on the re-branding and the excellent service you provide at every turn.  If Virgin is to be 100% own so what.  The reaspon Qantas in now int th pitts is becuase they fail to provide a service that the public wants.  All they need to do is LISTEN.

@AusFlyer, Without foreign investment Australia will not be where it is today.  

1 on 22/7/12 by spinoza

You speak of qantas as though it is a person. Companies act the way they do not because of upbringing but because of their operating environment. In the domestic market they had limited competition for many years, making them sluggish and susceptible to real competition. However they are also subject to higher costs union labour than virgin.

internationally it is even more difficult for them to compete, against airlines with cheaper labour, fuel, and more geographically favorable locations. 

In this context listening to your suggestions may not help it get out of its predicament. 

4 on 19/7/12 by DrTGanguly

It may not please everyone, but Qantas do provide a great service to many Australians.  The take home message to Nick Xenaphon and the Gov't needs to be that tearing up the Qantas Sale act will work well for all.  Imagine a situation where both major carriers haveequal access to foreign investment.  I agree with all respondants that foreign investment is good for airlines.  VA are employing Australian's, but QF employ thousands more across the companies of the Qantas Group.  Allowing freedom in their business would enable JV and oportunitues (esp. for QF Int.) that would in tunr support the need for jobs in Australia.  It should be pointed outt hat current QF job losses relate to network size, modernization and rationalisation, NOT offshoring.The profit comments are true, but in fairness if the investment leads to growth then everyone benefits, and surely the inc. in international passengers will benefit the local ecconomies. 

5 on 20/7/12 by jad01

Such a small stake isn't such a big deal, besides Etihad isn't short on cash. I'd be a little more concerned if Air NZ increased their stake given their track record of buying out Australian carriers.

6 on 21/7/12 by johnnysfo

Cleary we all know that AUSFLYER is an adamant Qantas supporter and anything to do with Virgin and it success does not go well with Ausflyer at all. There seem to be a love/hate relationship here and cleary the love for Qantas and the hate for Virgin is very clear to all here. Send money out of Australia instead of supporting Australian business....hmmmmm well from what I see the parent company Qantas off shot Jetstar is doing what Ausflyer is saying and setting up shops all over asia and hiring cheaper staff to work unsfae hours so they can make more profits so how Australian is that Ausflyer?! you do the math.

Great move Virgin and well deserved one at that;-)

1 on 22/7/12 by spinoza

All this "foreign" vs "Australian" crap is quaint and moronic. If companies need to offshore, outsource, find foreign investors, to stay competitive, to maximize shareholder returns (a part of which should involve improving customer satisfaction) then the govt and the media and the uneducated public should get out of the way. 

A Vietnamese job is just as valuable as an Australian job, and foreign capital is just as good as Australian capital. 

The main issue in aviation is over regulation and governments and the public insistence that countries need a national carrier. Qantas does have a point that they aren't on a level playing field considering the foreign ownership regulations that apply to it and not virgin...

 

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