Air New Zealand looks set to lose money if it goes ahead with selling its 26 per cent stake in Virgin Australia after hiring investment bankers to review the shareholding.
The Auckland-based airline today said it's hired First NZ Capital and Credit Suisse to advise on options for its stake, including a potential sale of all or part of its Virgin shareholding, with chairman Tony Carter saying the airline doesn't want a large minority equity stake in Virgin so it can focus on its own plans. Chief executive Chris Luxon left the Virgin board effective immediately.
Grant Williamson, a director at Hamilton Hindin Greene in Christchurch, said it was good to see Air New Zealand run the ruler over its Virgin investment, particularly when airline stocks were performing well in a period of cheap oil.
"It's probably not a bad time to be reviewing that holding," Williamson said. "I would much prefer them to focus on their own opportunities."
The national carrier's Virgin stake is worth A$347.1 million at the airline's trading price of 38 Australian cents before the announcement, which translates to $386.7 million at the current cross-rate. That will leave Air New Zealand facing a loss having spent A$373 million building up and maintaining the Virgin stake since 2011, a period when the kiwi dollar was relatively weak against its Australian counterpart. In New Zealand dollar terms, Air New Zealand's Virgin acquisitions totalled $484 million, according to its annual reports.
It's probably not a bad time to be reviewing that holding.
Air New Zealand and Virgin formalised an alliance in 2010 with codesharing agreements on trans-Tasman and connecting flights and reciprocal frequent flyer and lounge access deals. The tie-up was first mooted in response to Qantas Airways' two-airline strategy where its low-fare Jetstar unit operates domestically in New Zealand and links to longer-haul flights on its parent.
Earlier this month Virgin's cornerstone shareholders - Air NZ, Etihad Airways, Singapore Airlines and Virgin Group - committed to providing A$425 million of one-year funding to allow the airline to review its mix of debt and equity and consider operational initiatives to boost Virgin's cashflow and profitability. Air New Zealand's share of the loan was A$131.2 million.
It wasn't made clear whether the loan will be used to repay debt.
Virgin took out a US$125 million loan in the first half of its financial year following a decline in its free cash flow to A$544 million from A$839 million a year earlier.
Air NZ shares rose 1.4 percent to $2.89 while Virgin's fell 3.3 percent to 36.25 Australian cents.