Qatar Airways weighing Virgin Australia investment: sources

The plan for Virgin Australia could be to have a foreign carrier amongst its key investors. Picture: Supplied

Speculation is mounting that Qatar Airways has been holding talks about acquiring a stake in Virgin Australia, at a time that the Middle Eastern Carrier has applied for more flights into Australia.

The suggestion is that the carrier could be a key shareholder as part of an initial public offering by Virgin Australia.

Should market support be limited for a listing, the thinking is another possibility is that Qatar could continue to jointly own Virgin Australia with private equity owner Bain Capital.

It comes at a time that Qatar Airways has applied for more flights into Australia, only for Qantas to oppose the move on the grounds that it would distort the market and not be in the national interest and the federal government blocking it.

The thinking among some in the market is that a real motivating factor for Qantas to oppose the move could also be one to hamper Virgin Australia’s growth plans and prospects, as it discusses with Qatar Airways a potential strategic investment.

Virgin Australia chief executive Jayne Hrdlicka has argued the additional 28 flights a week by Qatar into Sydney, Melbourne, Perth and Brisbane would lower international fares almost “immediately” by as much as 40 per cent.

The presence of Qatar in Australia would feed traffic into Virgin Australia’s domestic network.

In the past, Virgin Australia was previously owned by Singapore Airlines with a 20 per cent, Etihad with a 21 per cent stake, China’s Nanshan Group with 20 per cent, Richard Branson with 10 per cent, and the remainder equity investors, so an investment by Qatar would see it return to foreign carrier hands.

Air New Zealand had previously been an investor, and while some had suggested it could be eager to rekindle a relationship with Virgin Australia, the understanding is that the New Zealand government, a key shareholder, would be opposed to a move.

Before Bain paid $700m in equity for Virgin Australia, buying the airline out of administration, its debt level at June 2020 was $5.15bn.

It has hired investment banks Goldman Sachs, UBS and Barrenjoey for an initial public offering of the carrier that was slated for this year.

However, a listing is a tough ask in the current soft economic environment, with investors cautious about spending on new listings.

The understanding had been that Bain Capital would ask prospective investors to pay more for the airline’s shares than Qantas, which trades at about 3 times its earnings before interest, tax, depreciation and amortisation, but less than European low-cost carrier Ryanair that trades at about 7 times EBITDA.

Led by former Jetstar boss, Ms Hrdlicka, Virgin Australia plans to operate more as a lower cost carrier than it has done in the past, positioning itself somewhere between low-cost carrier Jetstar and a full service airline like Air New Zealand that operates in the middle of the market.

The plan has been for Virgin Australia to have about $1.97bn in borrowings, with a $3bn-odd valuation.

Virgin Australia is the country’s number two carrier with 19 million passengers and, 7000 staff, and has experienced bumper conditions, with strong airline demand in the aftermath of the global pandemic.

The airline hopes to capitalise on leisure passenger demand being above pre-Covid-19 levels, continued pent-up demand and the reopening of China to inbound tourism.