SYDNEY--Singapore
Airlines Ltd. bought 10% of Virgin Australia Ltd. for 105 million
Australian dollars (US$108.5 million) in one of three separate deals
announced Tuesday, as Australia's second-biggest carrier intensifies
competition with its main rival Qantas Airways Ltd.
Virgin
Australia said it also agreed to buy 60% of budget carrier Tiger
Australia from Tiger Airways Holdings Ltd. for A$35 million and acquire
regional carrier Skywest Airlines Ltd. in a cash and shares offer worth
about A$95 million.
"Singapore Airlines fully supports the
ongoing transformation at Virgin Australia, which has already resulted
in a more competitive aviation market in Australia," Singapore Airlines
Chief Executive Goh Choon Phong said in a statement.
The deal is a
further sign of a strategic shift by Singapore Airlines as it adapts
its business to cope better with the growth of low-cost carriers across
Asia and competition from state-backed Middle East rivals. Singapore has
also gained a direct stake in Australia's lucrative domestic travel
market that has benefited in recent years from the boom in the nation's
mining and energy sectors.
"We see today's move by Singapore
Airlines as a strategic shift down south to back Qantas' main domestic
competitor," said Peter Esho, market analyst at broker CityIndex.
The
low-cost travel boom is altering Asia's aviation-industry, with
national carriers mulling radical changes to their businesses to compete
more effectively. Budget airlines now account for one-quarter of
Asia-Pacific traffic.
Virgin Australia said it will issue shares
to Singapore Airlines at 42.88 Australian cents each, a 6.8% discount to
their last traded price of 46 cents, and equal to their 30-day
volume-weighted average price. The two airlines already have an alliance
partnership and it was expected that Singapore Airlines may want some
shares, given Virgin Australia has sold similar-sized stakes in the
company to other alliance partners including Etihad Airways and Air New
Zealand Ltd.
Subject to regulatory approval, Virgin Australia
will take control of Tiger Australia as the budget airline continues to
recover from the grounding of its entire fleet last year following
safety breaches. Singapore Airlines currently owns about 32% of Tiger
Airways, which competes directly with Qantas's Jetstar unit. Virgin
Australia said it will offer Skywest shareholders 45 Australian cents
per share via 22.5 Australian cents cash and 0.53 of a Virgin Australia
share for each Skywest share.
If all three deals are completed,
they will boost Virgin Australia's fleet to 139 aircraft from 108 and
add ten new destinations in Western Australia state.
"The
transactions overall represent a monumental shift for Virgin Australia
which, if approved, will see a more even playing field in Australian
aviation," Macquarie analysts said in a note. "They arguably create a
replica of Qantas."
Qantas recently set up a low cost
joint-venture in Singapore through its Jetstar unit and is awaiting
approval for a strategic tie-up with Dubai-based Emirates. It has also
set up a low-cost joint ventures in Japan, Hong Kong and Vietnam through
Jetstar.
"As Qantas closes more Asian deals and looks at ramping
up its Emirates code share alliance, competitors will be feeling the
heat," Mr. Esho said.
Virgin Australia shares were up 2.2% at A$0.47 in early trading in Sydney.
http://www.marketwatch.com
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