Singapore Airlines, China Southern Airlines and Hainan Airlines are said to be the most likely buyers for Air New Zealand's stake, although the Singaporean carrier, which has a 23.1 per cent stake in Virgin, would want to be careful not to upset the other major shareholder, Etihad, with 25.1 per cent, according to Moore.
Under Australian law, a new shareholder can't purchase more than 20 per cent of Virgin Australia, the country's second-largest domestic airline, without approval. Similarly, an existing shareholder with more than 20 per cent but below 90 per cent can't automatically increase its holding beyond the 3 per cent a year "creep" provision without triggering a full takeover.
If the buying entity is a foreign company - the most likely outcome - it is subject to FIRB approval.
Air New Zealand has kept silent since announcing it was reviewing its shareholding in March but has a range of options for a sale.
Moore said Air New Zealand could sell less than 20 per cent of its holding to a new buyer and either retain the remaining 6 per cent or sell to a third party, as a way of getting around Australia's regulatory provisions.
Singapore Airlines was the most likely suitor, having a long history of interest in Australia's domestic market and the strategic and financial means to increase its holding, Moore said. It is currently authorised to increase its shareholding in Virgin to 25.9 per cent but is yet to do so.
In April Singapore Airlines settled a series of equity swaps at a cost of A$3.18 million, a premium to Virgin's share price at the time, which commentators took as a sign it wouldn't object to injecting further cash into the airline. Moore said the main impetus for Singapore was keeping out another airline shareholder so it could more readily influence Virgin's strategic direction in the Australian domestic market in its favour.
Hainan Airlines had been on a recent buying spree and was believed to be interested in more acquisitions. China Southern, which flies Chinese tourists to and from Australia where China has become the second-largest visitor source, might want to benefit from the two to four domestic flights each Chinese tourist makes on average while on holiday in Australia, which included across the Tasman to New Zealand, Moore said.
The Kiwi carrier has spent an estimated A$373 million building up and maintaining the Virgin stake since 2011 but faces a considerable loss on that investment given Virgin Australia's share price has fallen. Its share price dropped this week after sharebroker Credit Suisse indicated Virgin could require a A$1 billion equity raising, which is double previous expectations, to reduce debt to reasonable levels after it posted a profit warning earlier in the week.
Moore says the broker's A$1 billion estimate is "at the high end" but nonetheless doesn't think Air New Zealand will want to invest more into Virgin, preferring instead to fund its own growth and $2.2 billion capital expenditure programme on new aircraft between 2017 and 2020.
At the investor day, Air New Zealand said it had imputation credits available for up to $750 million of dividends but wouldn't look at paying a special dividend from its current balance sheet position unless there was a catalyst such as successfully divesting its Virgin stake.
Air New Zealand's debt gearing is sitting at 52.4 per cent. It told analysts that 2017 earnings would be "solid, while not at 2016 levels" as it won't have the benefit of foreign exchange hedging that it has had this year, and its share price has dropped this week to $2.36.
