Virgin Blue seeks more capital as chief goes

Virgin Blue's capital raising will help subsidiary Pacific Blue shore up its position in the New Zealand market. Photo / Glenn Jeffrey

Virgin Blue Holdings is seeking A$231 million ($289 million) of new capital through an equity raising, as it announced the departure of its chief executive and forecast a net loss.

The capital raising will help shore up subsidiary Pacific Blue's position in the New Zealand market, one analyst said.

Virgin Blue's equity raising will consist of a placement of shares worth A$21 million, and a one-for-one non-renounceable rights offer seeking A$210.4 million.

The airline said its 25.5 per cent shareholder, Virgin Group, would support the capital raising.

The airline told the Australian Securities Exchange it expects a full year group net loss of A$160 million to A$165 million in the year to June 30, in what it calls "the most challenging global environment to date".

"Key drivers of capacity, demand and fuel remained volatile throughout FY09," the company said in an equity-raising presentation.

Virgin Blue said its chief executive and co-founder, Brett Godfrey, would retire next year after more than 10 years with the company.

The airline said the board had ample time to manage the succession and was confident of appointing the right person to lead the company.

Virgin Blue said its short-haul operations were expected to make a net profit of between A$25 million to A$30 million for the year ending June 30.

The airline's long-haul offshoot, V Australia, was expected to make a trading loss after tax of between A$30 million and A$35 million, with a further A$60 million to A$65 million in associated start-up and foreign exchange losses. Financial instruments expenses - the non-cash cost of ineffective fuel and currency hedges - were expected to be A$90 million to A$95 million for 2008/09.

The carrier said it was issuing the new shares at 20c each, which is below the 29c closing price last Friday. Virgin Blue said Sir Richard Branson's Virgin Group has committed to subscribe for 304.9 million shares under the entitlement offer and would act as a sub-underwriter for 20 per cent of the retail component of the offer.

If there were no subscriptions under the retail entitlement offer, this would take Virgin Group's holdings in the airline to 30.2 per cent.

Virgin Blue said its underlying group result for 2009/10 was expected to be breakeven with a positive group cash inflow, based on current market conditions. The board has recommended that a final dividend not be paid for 2008/09. The airline reported a net profit of A$98 million in the 2007/08 financial year.

Forsyth Barr's head of research, Rob Mercer, said the New Zealand part of the business - domestic flights and services to Australia and the Pacific Islands - was relatively small.

"In the current environment it's hard to make a reasonable profit out of that but given its small base they should be able to stick around following this capital raising," he said.

"We're not anticipating them withdrawing services from this market but I guess that's always under review."

- AAP, staff reporter