Singapore Airlines rules out buying Virgin Australia

Singapore Airlines has said that it has no desire to take control of Virgin Australia.

A Virgin plane coming into land at Alice Springs Airport. Picture: NT Airports.

Singapore Airlines has categorically ruled out buying Virgin Australia saying it would rather see the airline remain an “independent” carrier in Australia.

Speculation has surrounded Singapore Airline’s intentions for Virgin ever since Air New Zealand announced its intention to sell its 25.9 per cent stake in the Australian airline.

That sale was triggered when Air New Zealand chief executive Christopher Luxon dramatically resigned from the Virgin board in March after he unsuccessfully tried to oust the airline’s boss John Borghetti.

But with Air New Zealand this week finalising its $260 million sale of a 19.98 per cent stake in Virgin to Chinese conglomerate Nanshan, Singapore Airlines has finally broken its silence with a rare public admission that it has no desire to take control of the Australian airline.

“SIA wishes to put on record that it has not contemplated taking a majority stake in Virgin Australia. SIA’s interests in the Australian market — as well as in Virgin Australia itself — are best served through an independent Virgin Australia,” said a spokesman for the company.

Singapore Airlines owns 20.09 per cent of Virgin but it has plans to increase its stake to 25.9 per cent if Virgin’s other major shareholders choose not to participate in the carrier’s recently announced $852 million capital raising.

Singapore Airlines will spend up to $US200m to buy as many shares in Virgin as it can in that capital raising including those not taken by airline’s other major shareholders, to a maximum stake of 25.9 per cent.

“SIA and Virgin Australia have an extensive commercial partnership that has gone from strength to strength over the past five years, providing many consumer benefits. SIA is confident of the long-term prospects of Virgin Australia and is committed to supporting its long-term growth,” the Singapore Airlines spokesman said.

Virgin’s capital raising will precede a three-year cost saving program that will see Virgin sell-off under-utilised aircraft, rationalise its supply chain and reduce jobs across crew, ground, maintenance and engineering operations.

The cost cuts and balance sheet surgery will result in some financial pain for Virgin which said it expects to incur restructuring costs of as much as $250m as well as non-cash balance sheet impairments of as much as $200m over the three years June 2019.

Virgin is expecting to bank annual savings of as much as $300m from the end of the 2019 financial year as a result of the wide-ranging cuts that Mr Borghetti said would involve “all areas of the company.”

Those savings will mostly be born from the reduction of Virgin’s ATR aircraft and the complete sell-off of its Embraer 190s which are used on regional routes. Aircraft fuelling costs and the crews needed to man, maintain and operate the planes remain the biggest expense on Virgin’s books.