Singapore Airlines has raised $US10.5 billion through Singapore Inc, which raises the question - is a takeover of Virgin Australia on the horizon?
The early commentary has put the airline’s capital raising as more of a rescue package as airlines worldwide reel from the blow of coronavirus.
But Singapore Airlines, which has a 20 per cent stake in the Australian carrier, has of all the Virgin shareholders the most to gain from a takeover.
Nearly 20 years ago Singapore tried to buy the airline from Richard Branson, who famously ripped up the cheque and said he wouldn’t accept it.
Current Virgin boss Paul Scurrah would run straight to his local bank to deposit the cheque and start talks about how to achieve the deal.
Company sources say there have been no talks, but it may be worth keeping an eye on the two airlines.
Any deal would be subject to Foreign Investment Review Board approval, which would not necessarily be a given, but Canberra would also see a Singapore Inc injection as the best way to keep Australia’s second airline afloat.
Qantas boss Alan Joyce would no doubt wrap himself in the national flag and shout about the terms, or any cosy deals for foreign airlines.
But he too would not be overly concerned, because it would cement Qantas’s place as the national flag carrier.
The Virgin share register is a mess and chock full of troubled offshore carriers including Etihad, HNA and Nanshan who, together with Branson, control over 90 per cent of the carrier.
Former boss John Borgehtti had pushed for a privatisation, but none of the four big foreign carriers would agree, or were willing to write the cheque to buy the others.
Virgin has an equity value of just over $700 million and $5 billion in debt.
Importantly that debt has a poison pill attached which is triggered by a change of control, but only if someone from outside the airline acquires it.
This means it wouldn’t affect Singapore Airlines, but would if say KKR acquired the airline.
Virgin would be a useful feeder for the Singapore network and provide strong competition for Qantas, which would be a good thing .
Watch this space.
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