Virgin Australia may soon lose Air New Zealand as its biggest shareholder.
The New Zealand national carrier today announced it is exploring options for its 26% slice of Virgin Australia, including a possible sale of all, or part, of its shareholding.
Christopher Luxon, CEO of Air New Zealand, resigned from the board of Virgin Australia, effective immediately. Air New Zealand has retained First NZ Capital and Credit Suisse to advise it on options.
Virgin shares are in a trading halt on the ASX.
At $0.38 a share, the last price they traded at, the Air New Zealand holding is worth $348.5 million.
The airline initially paid about $145 million for 14.9% of Virgin Australia in 2011 and has been gradually increasing its stake ever since. It last bought Virgin shares in 2014.
A sale could net Air New Zealand as much as $100 million in profit as well as freeing up more capital to invest in its own capacity.
The airline is doing well, carrying more passengers, opening new routes, building revenue and getting the benefit of lower fuel costs.
Last month it posted a 154% increase in half year profit to $NZ338 million on a 12% rise in revenue to $NZ2.7 billion.
Luxon says Air New Zealand is supportive of the significant transformation that Virgin Australia has undergone over the past five years under John Borghetti’s leadership.
“We look forward to continuing our partnership on the Tasman alliance, providing customers of both airlines with the most comprehensive trans-Tasman network,” Luxon says.
However, Air New Zealand doesn’t want a large minority equity position in Virgin Australia as it focuses on its own growth opportunities.
Virgin has returned to profit, with better returns per seat, after a long battle with Qantas. Last month it posted a $62.5 million half year profit, , its first since 2010, compared to a loss of $47.8 million the year before.
Earlier this month Virgin announced a 12-month $425 million loan from its major shareholders Air New Zealand (26%), Etihad Airways (24%), Singapore Airlines (23%) and Virgin Group (10%).
Virgin found out about the review in a note from Air New Zealand’s chairman Tony Carter to Elizabeth Bryan, the chairman of Virgin Australia.
Air New Zealand intends to coordinate the review of its investment in Virgin Australia with the airline’s broader capital structure review.