Virgin Australia has announced that China’s largest private airline operator intends to buy a 13 per cent stake in Virgin Australia. The deal worth $159 million, will see China’s HNA eventually grow the stake to 19.99% of Virgin Australia. In addition to the equity stake, Virgin Australia and HNA also announced a strategic alliance, that may see Virgin operate services between Australia and China.
To get some idea of the size of the HNA Group, the group controls Hainan – China’s fourth largest airline. It also has investments in other airlines, such as Hong Kong Airlines. The group flies over 77 million passenger a year on 700 routes between 200 destinations within China and abroad.
The equity investment in Virgin Australia will take place as a share placement – effectively creating new shares in Virgin Australia. The deal comes while Virgin undertakes a capital structure review, looking at ways to cut debt and optimise its debt positions. As such, the agreement provides Virgin Australia with a much-needed capital injection.
Under the deal, HNA will be invited to nominate a director, and will join the likes of Singapore Airlines, Etihad Airways and the Virgin Group in the Virgin Australia boardroom.
Separately, Air New Zealand is reviewing its own 26% holding in Virgin, and these shares do not appear to be involved in the current deal. It is still not clear what will happen with this stake, although there are suggestions around that some of the existing partners may take the opportunity to increase their own stakes.
New Routes?
According to an announcement on the ASX, under the new alliance, Virgin and HNA will “look to introduce direct flights between Australia and China and co-operate on commercial functions including code-sharing, frequent flyer programs, lounge access and promotion of tourism and business travel.”
A report in The Age points to the possibility of Virgin operating its own aircraft between Australia and China. There was a suggestion of 8 flights a week utilising a mix of Virgin and HNA aircraft, beginning next year. The exact routes being contemplated have not been disclosed.
