In what could be an unprecedented strategy to propel its business, Virgin Australia divested a 10 per cent stake to Singapore Airlines Ltd., effectively collecting enough funds that will enable it to get a 60 per cent hold of Tiger Airways Australia and full control of Perth-based regional carrier Skywest Airlines Ltd.
Airline travellers taking Virgin Australia this weekend may have to expect come in early at the airport and expect some disruptions as the airline carrier effects a new check-in and booking system.
"The transactions announced today are in line with Virgin Australia's strategy to become the airline of choice in all markets, in order to diversify our earnings and drive growth opportunities for the business," John Borghetti, Virgin Australia CEO, said in a statement.
"The acquisition of Tiger Australia and Skywest provides Virgin Australia with a strong presence in the budget, fly-in/fly-out and regional markets, enabling us to fast-track our expansion in these areas and become a stronger competitor."
Singapore Airlines Ltd. will pay an equivalent A$105 million ($108 million) for the 10 per cent stake that Virgin Australia divested. On the other hand, Australia's second-ranked carrier will pay Tiger Airways at least A$35 million for the 60 per cent acquisition.
"Singapore Airlines fully supports the ongoing transformation at Virgin Australia, which has already resulted in a more competitive aviation market in Australia,'' Goh Choon Phong, Singapore Airlines chief executive, said.
The arrangement Singapore Airlines with see Virgin Australia growing its fleet to 139 aircraft and over 9,000 employees, boosting growth plans, Mr Borghetti noted.
"The alliance is important to both Singapore Airlines and Virgin Australia as it fills significant gaps in each of our networks," the Singapore air carrier said in a filing.
"This transaction enables Virgin Australia to access the budget market and enables Tiger Australia to expedite its growth, providing greater competition to this important market segment," Mr Borghetti said.
While the move to acquire all of Skywest Airlines is still pending approval of the Securities Industry Council of Singapore and the Australian Competition and Consumer Commission (ACCC), Virgin Australia, which already owns 10 per cent of the Perth-based air carrier, nonetheless had reached an agreement in-principle with Skywest Airlines shareholders, valued at $99 million.
Although Skywest Airlines would become part of the Virgin Australia brand under the agreement, it would still be able to retain its Air Operator's Certificate.
"They're going to give Qantas a run for their money," analyst Simon Fitzgerald told Bloomberg News. "Borghetti is making really well thought-through strategic moves with this company. He's not sitting back waiting for things to happen."
"The transactions overall represent a monumental shift for Virgin Australia which, if approved, will see a more even playing field in Australian aviation," according to Macquarie analysts in a note. "They arguably create a replica of Qantas."
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