Singapore Airlines said to be eyeing larger stake in Virgin Australia

Singapore Airlines said to be eyeing larger stake in Virgin Australia

Singapore Airlines is believed to be eyeing an increased stake in Virgin Australia, above its current 20%, through a bid for the 19.8% shareholding of China's HNA Group.

Nanshan Capital, which also controls about a fifth of Virgin Australia’s shares, is also said to be interested in HNA's stake as the Chinese conglomerate offloads non-core assets to reduce debt, according to people familiar with the matter.

HNA's stake could attract bids from existing shareholders in the company as well as other airlines and investment funds if HNA decides to pursue a sale, the people said, asking not to be identified because the deliberations are private.

While the group is open to offers, it isn’t actively working on selling its holding, one of the people said.

Virgin Australia has a market value of about $1.9 billion after its shares dropped about 20% this year through Thursday, which saw the airline report a pre-tax profit of $109 million – its best result in a decade – but formally declare a $653 million loss due to "accounting adjustments" including deferred tax assets and a $121 million write-down in the value of its international business.

More than 90 percent of Virgin Australia’s shares are controlled by five investors, according to the company’s last annual report. In addition to HNA, Singapore Airlines and Nanshan, they include Etihad Airways with a 21% stake and Richard Branson's Virgin Group at 10%.

A representative for HNA didn’t immediately have a comment. Representatives for Virgin Australia and Singapore Airlines declined to comment on speculation. Nanshan didn’t immediately respond to calls and and email.

HNA is selling off assets after racking up one of China’s biggest corporate debt loads in a global acquisition spree. It sold out of the Hilton Worldwide Holdings Inc. and its stake in NH Hotel Group. The Chinese company also agreed to sell the Radisson hotel chain this year, as well as a stake in aircraft leasing firm Avolon Holdings.

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.
 

36 comments

  • autvlr

    autvlr

    31 Aug, 2018 11:44 am

    If HNA sells out, does that mean the end to Virgin Australia flying to HK? Has the China experiment failed?
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  • CityRail

    CityRail

    31 Aug, 2018 12:13 pm

    Not likely.
    I think the partnership stays, and if HK is profitable, why cutting it?
    I believe HKG is another route after LAX where it is difficult to get Z Class tickets.
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  • autvlr

    autvlr

    31 Aug, 2018 12:38 pm

    I think the question though is whether it is profitable. From what I've heard, loads are very low on this service.
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  • aussiflyer

    aussiflyer

    31 Aug, 2018 01:56 pm

    ABS shows May to have <50% in both directions for VA to HK and picked up marginally in June
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  • CityRail

    CityRail

    31 Aug, 2018 04:26 pm

    Perhaps Cargo might have been able to sustain the route?
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  • Andrew

    andyf

    31 Aug, 2018 09:24 pm

    This is the June Report.
    It shows Virgin outbound to HK at 58.3% and inbound to Aus at 83.9%. I would say that is quite a significant uptick compared to May.
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  • Traveller14

    Traveller14

    31 Aug, 2018 11:41 pm

    True, but fares have dropped so yields are probably depressed. Unprofitable.
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  • Eli

    Eli

    2 Sep, 2018 05:18 am

    Low fares does not mean unprofitable. Love all the yield "experts" on these sites...

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    Hamish1970

  • reeves35

    reeves35

    31 Aug, 2018 11:59 am

    Technically this would require a formal takeover offer from SQ. Having said that, most small shareholders have sold their shares under the buyback scheme and the other existing shareholders (basically EY and SRB) would probably be aware of the offer and have accepted that it would mean SQ would almost be the majority shareholder going forward. EY can't afford to counter-bid and Branson is happy just maintaining his minority presence.

    The only remaining shareholder who may hold out is Nanshan if it is true they are also interested.
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  • Yusef Danet

    Yusef Danet

    31 Aug, 2018 12:15 pm

    I don't see it as the end for the HKG service. If it stands up to funnel PRC traffic onto the (many) HNA group airlines through HKG and whisk them around Aus while they're here, HNA doesn't need to be an owner.
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  • UpUpAndAway

    UpUpAndAway

    31 Aug, 2018 01:32 pm

    What a tight rope of investors , I won't like to be the person walking. All you need is for one to fail and what happens then.
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  • Dan

    DanV

    31 Aug, 2018 02:37 pm

    HNA and EY are already in massive debt. I wouldn't be surprised if EY is next to sell their stake (to repair their own financial sheet) despite them saying otherwise.

    Pretty much all of EY's investments from the Hogan era have been failures.
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  • Scott Rawlings

    sra35

    31 Aug, 2018 01:58 pm

    SQ obviously gain connecting passengers by having a stake in Virgin but can they ever expect to get a return on their investment in the way of dividends? Will Virgin Australia ever make a profit? Does anyone remember the saying that Ansett was a great airline but a bad business (showing my age I know). Is Virgin really any different?
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  • reeves35

    reeves35

    31 Aug, 2018 03:31 pm

    VA is very different from AN. AN was unprofitable in its core business, being a domestic airline. VA is very profitable in this area already with upside in identified cost savings. It is part of a cosy duopoly and runs an efficient fleet, with an effective cost base and a committed workforce. AN had an aging mixed fleet, inefficient work practices and a bloated cost base.
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  • UpUpAndAway

    UpUpAndAway

    2 Sep, 2018 07:23 am

    When you read between the lines VA is in great shape, never just look at the final line. I’m sure Borghetti is getting several offers with a lot more cash.
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  • Chris Pappas

    Pappy

    31 Aug, 2018 05:10 pm

    SQ wants to get access to the BNE/SYD/MEL to LAX route. The most profitable route in the world. This and their previous Tiger Airways attempt is how they will wriggle into it.
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  • Dan

    DanV

    31 Aug, 2018 08:25 pm

    I don't think it's the most profitable route in the world now considering there's 4 competitors on it (or 3 competitors if you count DL/VA as one carrier as both have an approved JV).

    Can't see the Australia approving 5th freedom rights if SQ wanted to replace VA on the Trans-Pac route. They denied Air Canada fifth freedom rights (in addition to denying SQ fifth freedom) back when it was only QF and UA on the route.
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  • reeves35

    reeves35

    31 Aug, 2018 08:43 pm

    I don't think it has been super-profitable for about 12 years. It was very profitable for QF and UA when they were the only 2 participants but not any longer; it's still good but not the money machine it once was.
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  • Geoff Aire

    Geoffair

    1 Sep, 2018 06:05 am

    Lhr-Jfk most profitable route, Syd-Mel next, don't think trans Pacific in top 10 'though Lhr-Sin is for SQ.
    Makes sense for SQ to develop VA and maybe get JVs where it can.
    Doubt 5th freedoms be approved since even BA didn't get that in past when they actually flew domestically within Australia?
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  • Sam Shue

    Genji88

    1 Sep, 2018 09:07 am

    VA's routes to HKG wasn't due to it, being a profitable route, more as a way to reduce the stranglehold QF & CX have
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  • Glen

    gpr49697

    1 Sep, 2018 10:06 am

    I'd like to see them up their stake and VA to join Star Alliance.
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  • Dan

    DanV

    1 Sep, 2018 01:01 pm

    A larger stake doesn't always guarantee the subsidiary joins the parents alliance (see VS / DL and EI / BA).

    Also the Star Alliance ship has well and truly sailed for VA, since UA and NZ would use their veto to block VA's entry into Star Alliance, unless the future owner gives in to their "alleged" demands that VA "gives up all international flying" and "dump Delta".

    I can't see SQ (or any other potential owner) curtailing to NZ's alleged demands considering SQ has wanted a presence on the Trans-Pac market even though the Australian Government are not willing to give out 5th freedoms.
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  • Russell Jensen

    Rj78

    1 Sep, 2018 12:28 pm

    So would I SQ would be a great match with VA
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  • IntegralMan

    IntegralMan

    1 Sep, 2018 04:12 pm

    This is an interesting development, and a bold move by SQ. VA’s financial performance has only improved after QF started to restrain domestic capacity growth. It could choose to ramp up the pressure and bring VA to its knees if it wished to do so.

    Also, I note that AusBT has not credited the original source of this story (Reuters), I read AusBT every day and am big supporters of its open approach to journalism. However, it’s missed the mark of journalistic ethics on this ocasión.
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  • Martin  Slobodnik

    msport2012

    1 Sep, 2018 05:27 pm

    I fell that there are two possible solutions:

    Option A) DL to purchase HNA’s Stake which inturn would bring them closer together & at the same time bring them closer to VS/AF/KL/AZ = Possible Entrance into SkyTeam.

    Option B) SQ to purchase HNA’s stake as reported. This combined with the probability the EY will join *A and SQ is already a powerful member would then = Possible Entrance into *A despite UA&NZ veto

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  • kimshep

    kimshep

    2 Sep, 2018 01:42 pm

    So, you completely dismiss:

    the third option of Nanshan buying a larger stake, which would presumably please the Chinese government more than SQ?

    the fourth option of an aggressive DL buying a (new) stake for partnership? Particularly, given DL's recent expansion in Asia.

    a fifth option of Branson expanding his existing stake to avoid becoming increasingly marginalised in a carrier which he had a substantial bankroll?

    a sixth option of a new investment from a (non-EY/QR/EK) Middle Eastern player with a bit of cash and a desire to secure some Aussie gold?

    a seventh option of .. anyone else who may be interested or in partnership mode?

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  • 1Adventure

    1Adventure

    1 Sep, 2018 09:42 pm

    Well, let’s all hope that SQ does buy the HNA stake. As for alliances I do not believe VA will join *A as their is way to much bad blood. Also SQ wouldn’t need them to join *A as they would be able to apply for a JV in their own right which has greater benefits that an alliance. I see the below unfolding within the next 12 months.
    1. SQ buying further share of VA to further ringfence through traffic to Asia, India and Europe.
    2. VA will not join *A but actually join Skyteam, despite that many Australians don’t care for Skyteam...it is has strength in its key markets and VA will become a regional jewel. SQ will be fine with this as it will drive overall performance for VA as a solid investment. (2 slices of the pie)
    3. Delta will look to buy any additional shares to protect their JV and retain their influence and protect their investment in the Virgin brand (VA JV & VS ownership) as long as VA does not bleed cash.
    4. SQ will increase stake to protect their share from the future extra long haul services from QF. VA could look to do Europe and have a JV with SQ/LH whilst benefiting from Skyteam demand.
    5. VS will announce that it is joining skyteam by Q1, 2019 when it completes its IT enhancements with DL/AF/KL and launch of new flyclub partnership/benefits.
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  • Chris McKellar

    krisdude

    2 Sep, 2018 09:55 am

    I agree with most of your comments. If SQ does purchase HNA shares, it will mean that SQ is protecting its patch in Asia and Europe, South Pacific and Australian domestic services. It will also give them co-share options on VA's Australia/USA services.

    With regards to Alliances, I don't see VA joining any Alliances, as there is not requirement to do so.
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  • moa999

    moa999

    2 Sep, 2018 10:11 am

    Also note that due to takeover laws designed to protect minorities, any of the existing large shareholders can't just buy one of the others stakes without making a full or partial takeover bid
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  • Russell Jensen

    Rj78

    2 Sep, 2018 09:33 pm

    lets hope they will do it
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  • deva22

    deva22

    2 Sep, 2018 09:37 pm

    Why is everyone so obsessed with VA joining an alliance? It seems to me that alliances aren't the best way to manage airline partnerships as the airline in question doesn't get complete control over their friends vs enemies. E.g. QF/CX competing on the same routes. If I had an airline, I'd want to partner with specific airlines based on their locations mainly and then other factors like common customer base appeal.

    Sure, I get that pax love alliances, but it doesn't necessarily make sense for the business to pursue it.
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  • Russell Jensen

    Rj78

    2 Sep, 2018 10:01 pm

    im more for VA to be taken over by SQ
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  • Rod Harmer

    Rod H

    3 Sep, 2018 09:38 am

    If SQ goes ahead and it is approved by the FIRB then it will be really great for VA. ( I am presuming this would have to go before the FIRB ) I would dearly love to see VA start to boom and show " Rat Air " that they are a really serious good competitor. Go VA!!!!!!!!
    P.S I don't work for them or have any type connection , just a very satisfied passenger.
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  • reeves35

    reeves35

    3 Sep, 2018 11:31 am

    I assume it would be pretty much waved through by FIRB. It is the transfer of already foreign held shares, Singapore is a preferred AU trading partner and there are few, if any, local investors who would be interested in significant airline investments. If you want to make serious money in aviation in AU, buy an airport not an airline.
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  • Jazzop

    Jazzop

    4 Sep, 2018 02:28 pm

    If SQ did purchase HNAs share and possibly EYs, then what would they prefer, Air NZ in Star or VA? Is that possible? Considering how NZ and QF are getting closer, I wouldn't be happy if I was SQ or UA.

    Also what about DL? Wouldn't they be interested?
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  • Dan

    DanV

    4 Sep, 2018 02:52 pm

    The other (very very less likely) alternative: SQ leaving Star and joining SkyTeam with VA.

    Saying that I can't see SQ or NZ leaving *A. The door however has pretty much shut on VA joining *A courtesy of NZ (the ugly breakup and the allegations coming out of that) and UA (DL's competitor).
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26 May, 2019 11:31 pm

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