Qantas attacks Air NZ plan

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

Australian carrier claims it is being undermined by three foreign airlines' Virgin strategy.

Qantas has launched an attack on Air New Zealand's commercial strategy behind its investment in Virgin Australia and accused it of being part of a foreign bid to destabilise the Australian aviation market.

As another 20 per cent of Air New Zealand is about to hit the market, Qantas has written to Australian federal and state governments saying it is being undermined by the three majority government-backed airlines which own most of Virgin - Air New Zealand, Etihad and Singapore Airlines.

Air New Zealand said last week it would spend up to $130 million maintaining its stake in Virgin as part of a planned A$350 million capital raising. Analysts said then the Air New Zealand investment was manageable given the health of its balance sheet, but tipping in any further funds would attract greater scrutiny.

Qantas yesterday was scathing of the decision by the Virgin investors and in a statement said: "The decision of these shareholders to invest in Virgin Australia's loss-making strategy highlights that these airlines aren't subject to the same commercial realities as Qantas."

Virgin suffered an A$98 million loss in the past financial year and is having to spend heavily to hold on to inroads it made into Qantas' stranglehold on corporate travel in Australia. In response to the Qantas claims it said it had broken the business market monopoly.

Qantas said Virgin Australia's proposed capital raising could see its foreign ownership rise to more than 80 per cent without the need for any further regulatory approval. Despite this, the airline would retain all the traffic rights given to Australian carriers.

"If wholly privatised, Virgin Australia's ability to receive potentially unlimited capital from its government-backed owners would seriously distort the domestic aviation market for the benefit of foreign interests," the statement said.

Qantas has asked governments to fully examine the motives behind the "virtual takeover of Virgin Australia by foreign airlines and to prevent destabilising" of the domestic aviation industry, local tourism and jobs.

Air New Zealand started investing in Virgin early in 2011 to give it access to the Australian domestic market and rationalise its transtasman operations. It now holds a near 23 per cent stake and regulatory permission to go to nearly 26 per cent.

It would not comment on the Qantas statement yesterday but Virgin did, saying the Australian aviation landscape had been changed and "it is no longer a monopoly".

Virgin said the capital raising announced last week would enhance its liquidity and gearing position to ensure it was in a stronger position to bring much-needed competition to the Australian aviation market.

While the three investing airlines did not yet have board representation, if they did Virgin would continue to "have a majority independent board with an independent chairman and appropriate protocols in place which will ensure good management and strong corporate governance".