Virgin Australia confirms privatisation discussions

Virgin Australia confirms privatisation discussions

Virgin Australia has confirmed holding board-level discussions about privatising the airline, with chairwoman Elizabeth Bryan acknowledging for the first time the airline has explored privatisation options.

"The board has held discussions about privatisation, however there is no outcome to report to the market at this stage," Bryan admitted at the company's annual general meeting held today in Brisbane.

PREVIOUS | Rumours continue to swirl that Virgin Australia could be privatised before the end of 2018, in an effort to help the airline rebound from its lacklustre financial straits. But what exactly would privatisation mean, in this instance?

First up, privatisation would see the remaining 'free float' of shares in parent company Virgin Australia Holdings – the shares not held by the airline's largest corporate investors and available to change hands on the market – bought up.

Virgin's current web of ownership sees an estimated 8.6% of its stock earmarked as free float, according to Bloomberg data.

Etihad Airways and Singapore Airlines hold respective 21% and 20% stakes in the Qantas challenger; a further 40% is evenly split between China's HNA and Nanshan Group, while Sir Richard Branson's Virgin Group has another 10% in its corner.

That 8.6% slice could be brought back within the fold through a management buyout; by having existing shareholders increase their stakes under 'creep' provisions; or through one shareholder taking up a majority stake in the airline.

Any of those three measures would remove Virgin Australia from the ASX stock listing.

This in turn would prevent the need for public financial reports – which the airline currently files every three months – and provide Virgin with breathing space to execute its ongoing 'cutting the costs and flying back into profit' strategy without the running commentary and market scrutiny which comes from trading in the public eye.

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.
 

23 comments

  • grumpytravel

    grumpytravel

    31 Jul, 2017 09:12 am

    Sounds like re-arranging  deck chairs on the Titanic to me.
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  • Chris McKellar

    krisdude

    31 Jul, 2017 09:42 am

    If VA is withdrawn from the ASX by it majority shareholders it will allow Etihad Airways, Singapore Airlines, HNA, Nanshan Group and Virgin Group to operate their privately owned Australian based domestic carrier to suit their own interests which will be Qantas worst nightmare. 
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  • Boof

    Boof

    31 Jul, 2017 10:49 am

    There is a challenge to going private that the board and current owners will struggle to overcome. Currently there is a small holding company that is 100% Australian owned by those 8.6% retail shareholders through the ASX. It's this holding company that gives access to all international traffic rights. VA can be 100% foreign owned but fly domestic routes only. 

    Interesting times ahead...
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    Townsend

  • Alex_upgrade

    alex_upgrade77

    31 Jul, 2017 04:00 pm

    Very interesting indeed.
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  • moa999

    moa999

    31 Jul, 2017 04:20 pm

    Agree this is the biggest issue.

    The current structure is imho a little cute - if International is a separate company with separate (50+% Australian) shareholders it should also report and be managed separately.

    Removing the ASX listing makes the structure even more difficult to legitimise
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  • John Townsend

    Townsend

    31 Jul, 2017 09:48 pm

    Compulsory Acquisition of the 8.6% retail shareholders will not be a problem by the existing shareholder group (assuming the do it collectively) following which Etihad, SQ, HNA, Nanshan and Virgil can attack then Qantas without any public disclosure.   Personally, I don't have a problem with that.    Free market forces prevailing
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  • Martin Doyle

    Martin Doyle

    31 Jul, 2017 10:11 pm

    Privatisation was thankfully rejected by two major shareholders some months ago, as was reported at the time. 

    I would be surprised if this privatisation rumour was being spread mischievously by people wanting to make a dollar. 
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  • Martin Doyle

    Martin Doyle

    31 Jul, 2017 10:15 pm

    I meant to say 'would not' be surprised. 
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  • Boof

    Boof

    1 Aug, 2017 10:45 am

    It may not be a problem from a cash perspective, but it will stop VA flying any route outside Australia. Until they can work out how to get around that there will be no privatisation. Check the IASC filings, QF lodge questions about the current ownership structure all the time. 
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  • David Robertson

    David Robertson

    31 Jul, 2017 10:51 am

    Privatisation would be a Godsend for Virgin Australia but they really need this to come with one last injection of capital to really become a more consistent competitor to Qantas, because Virgin still seems a bit 'hit and miss', sometimes it's premium Virgin Australia and other times it's low-cost Virgin Blue. My wishlist: EY to dump its shares, SQ to pick those up along with the free float to take it to pretty much 50% ownership and bring VA into Star Alliance.
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  • Mavers

    Mavers

    31 Jul, 2017 01:52 pm

    VA into Star Alliance would be goodbye to Delta and hello United, but that's the only real major change.
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  • Dan

    DanV

    14 Nov, 2017 12:46 pm

    Would be difficult to join Star when they are basically frenemies with NZ, hostile rivals with UA (a distant #3 behind DL and AA), and SQ being coy over their future in their shareholding’s since VA’s hookup with the Chinese based HNA and Nanshan groups.

    All of that however is moot when VA has repeatedly stated that they’re not interested in joining airline alliances due to existing hookups (e.g the Long standing Delta and Etihad hookups) and rivalry with certain star members.
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  • UpUpAndAway

    UpUpAndAway

    31 Jul, 2017 11:04 am

    Blind Freddy could have picked this but what about the back door reporting of VA through Singapore Airlines requirements.
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  • Travelator

    travelator

    31 Jul, 2017 12:42 pm

    Remember Ansett everyone?
    Member who gave thanks

    grumpytravel

  • StudiodeKadent

    StudiodeKadent

    31 Jul, 2017 01:43 pm

    If anyone's going to buy the remaining float, I'd suggest it would be Delta, but who knows? 
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  • John Odlum

    John Odlum

    31 Jul, 2017 05:29 pm

    Virgin needs to get off the ASX and get out of the constant scrutiny and get one last chance to do what it's been promising to do and get it right and stop trying to be a halfway competitor against Qantas.
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  • Martin Doyle

    Martin Doyle

    31 Jul, 2017 08:56 pm

    The federal government needs to protect small shareholders and stop always approving the creeping foreign ownership of Virgin Australia. Qantas shareholders are protected with their 50% foreign limit; yet Australian shareholders of Virgin Australia are disadvantaged by not having the same 50% foreign ownership limit. 

    As a shareholder in Virgin Australia I feel threatened with being gobbled up because I know the federal Treasurer is as week as water. 
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  • ausdt

    ausdt

    31 Jul, 2017 10:24 pm

    You should be very thankful that these foreign airlines opened their wallets to pump capital in to save the day, otherwise your equity which is still worth something would probably have been wiped out completely. In a choice between being gobbled up for something or losing everything for nothing, I know which one I'd choose
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  • Charles

    SteveCF

    1 Aug, 2017 04:57 pm

    Ok, so they go public? Sure they don't have to report earnings to the ASX etc... but this doesn't boost the bottom line, it just takes pressure and exposure away. I've said it before, they took a big bet to go into premium airline territory, almost made it but have fallen short. The extra investment required I think was just a bridge too far.

     I think the questions they need to really evaluate is their international operations and what impact this is having on there domestic business and perhaps work on regaining focus. But I'm just an armchair CEO like everyone else here!

    No member give thanks

  • Jeffrey ONeill

    sydboy007

    1 Aug, 2017 10:49 pm

    Maybe they'll be a dumping ground for excess aircraft from the investors?  A few extra wide bodies via sweetheart deals could provide virgin with a lot off opportunities.  Then again the investors may not like the extra competition due to a lot of overlap. Maybe extra flights to the USA if there's the demand.
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  • travel

    travel

    8 Nov, 2017 05:03 pm

    Why didn’t “they” (whoever they may be) buy out the Mum and Dad investor’s years ago?

    From where I sit, Virgin Australia finally has a business model and structure that can start to create value and “they” decide they want to buy out their loyal, long suffering group of Mum and Dad investors.

    Sir Richard Branson and his cohort of airline investors have had a wonderful time destroying the value of the shareholdings these Mum’s and Dad’s had in the company.

    My quick back of the envelope numbers suggest VA will turn the profit corner in a similar manner to that of QANTAS. As such a buyout and privatisation of the airline could see the retail investors loose the opportunity to see their shareholdings increase by 350%.

    Is this just another case of "they" simply using the Mum and Dad investors as play things, are they being milked once again and what will the terms of the buy-back be?

    Let’s just hope the shenanigans of the past are over and this airline (whoever "they" may be) now has the ethical fortitude to treat all of its shareholders equally.

    My buying decisions and hopefully that of others will be based upon it.

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  • UpUpAndAway

    UpUpAndAway

    9 Nov, 2017 02:14 pm

    Virgin isn't a stock for Mum and Dad investors, it's in a tough market and needs investors in the same space rather then someone who is after a get rich quick stock.
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  • Mark Brewer

    Mark Brewer

    9 Nov, 2017 03:46 pm

    Why is it that after all the losses and underperformance Borghetti is still the Captain?
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21 Jul, 2019 10:36 am

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