Air NZ pumps more cash into Virgin Australia

File photo / Greg Bowker

Air New Zealand will spend up to A$116 million (NZ$130 million) buying into a rights
issue by Virgin Australia to maintain its shareholding in the Australian carrier to 25.5 per cent.

Virgin this morning announced a $A350 million capital raising and its other airline shareholders, Singapore Airlines and Etihad which hold just under 20 per cent, will also be taking up the offer on a pro-rata basis.

Air New Zealand holds 22.9 per cent stake of Virgin Australia and has regulatory approval to increase that to 25.99 per cent.

Air New Zealand said it would take up its full entitlement under the rights issue and sub-
underwrite the issue with the other major shareholders.

It said that if additional shares were available from the underwriting, its shareholding could increase to as much as 25.5 per cent, a stake that would be worth about A$265
million at Virgin's current share price.

Virgin suffered a $A98 million loss in the last financial year and is having to spend heavily to hold on to inroads it made in the business market in Australia where demand has been hit by a weaker domestic economy.

The airline will use the funds to reduce debt.

Air New Zealand started investing in Virgin in 2011 to give it access to the Australian domestic market and rationalise its transtasman operations.

"The additional investment by Air New Zealand of between A$81 million and A$116 million will strengthen the Virgin Australia balance sheet and enable the continuation of its strategy as it enhances its market position and improves business performance
following a period of substantial change and growth,'' said Air New Zealand chief executive Christopher Luxon.

The rights issue means a loan facility of A$38 million from Air New Zealand will not be utilised.

The Government plans to sell down its 73 per cent stake in Air New Zealand to 51 per cent and today's announcement is not expected to affect that process which could
happen soon.