Virgin Australia’s $350 million rights issue, which has seen major institutional investors Air New Zealand, Etihad, Singapore Airlines and the Virgin Group take up their entitlement shares in the airline, has sparked a pointed reaction from Qantas and counter arguments from Virgin.
The rights issue, which so far has raised $281.4 million from Virgin Australia’s institutional shareholders and is aimed at raising cash the airline says will “enhance Virgin Australia’s liquidity position and for general corporate purposes”, has seen Qantas CEO Alan Joyce write to the Prime Minister, the federal transport minister and state premiers calling for the capital raising to be blocked.
According to the Australian Financial Review, Joyce labelled the rights issue as being “supported and largely underwritten by three foreign governments” (as Air New Zealand, Etihad and Singapore Airlines are effectively government owned and controlled) in what he reportedly labels a “final act” with “all the characteristics of predator behaviour [to] substantially weaken a major competitor, [the] Qantas Group, and recoup the costs at a later date.” Joyce called for the deal to be examined by the Foreign Investment Review Board.
According to the AFR report the letter also said the Qantas Sale Act restrictions were an “outdated policy framework that left Qantas at a disadvantage to Virgin Australia”.
In a statement Qantas has subsequently confirmed that: “it has contacted federal and state governments to express concerns as the national carrier about potentially damaging shifts in Australia’s aviation industry.”
The statement continues: “Virgin Australia’s proposed capital raising could see its foreign ownership rise to more than 80 per cent without the need for any further regulatory approval. Despite this, the airline would retain all the traffic rights given to Australian carriers.
“If wholly privatised, Virgin Australia’s ability to receive potentially unlimited capital from its government-backed owners would seriously distort the domestic aviation market for the benefit of foreign interests.
“The decision of these shareholders to invest in Virgin Australia’s loss-making strategy highlights that these airlines aren’t subject to the same commercial realities as Qantas.
“We have asked federal and state governments to fully examine the motives behind the virtual takeover of Virgin Australia by foreign airlines, and to prevent destabilising of the domestic aviation industry, local tourism and jobs.”
In response, Virgin Australia issued its own statement on the issue: “The capital raising announced on 14 November 2013 is designed to enhance Virgin Australia’s liquidity and gearing position to ensure we are in a stronger position moving forward, so that we can continue to bring much needed competition to the Australian aviation market and continue to grow jobs in Australia.
“It is important to note that should all Virgin Australia’s three major airline shareholders have board representation, we will still continue to have a majority independent board with an independent chairman and appropriate protocols in place which will ensure good management and strong corporate governance.
“We know we have chosen the right partners with the right intentions. They are all aligned in the common goal of wanting Virgin Australia to provide strong competition in the Australian aviation market.
“The landscape of Australian aviation has changed forever. It is no longer a monopoly.”
