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Air NZ buying up to 15 percent of Virgin Blue

Air NZ buying up to 15 percent of Virgin Blue

January 20th, 2011 in News

WELLINGTON, New Zealand (AP) - Air New Zealand is buying up to 15 percent of Australia's Virgin Blue, a decade after the flag carrier was bailed out by the government following an investment gone bad in another Australian airline.

Air New Zealand notified stock exchanges in New Zealand and Australia on Thursday it plans to take a shareholding of 10 percent to 14.99 percent in Virgin Blue, a cut price carrier. Virgin Group, the U.K.-based company founded by Sir Richard Branson, has a 26 percent stake in Virgin Blue.

News of Air New Zealand's plans sent Virgin Blue shares soaring 10 percent on the Australian stock market.

"The investment in Virgin Blue is part of Air New Zealand's strategy to develop scale and reach in this region," airline chief executive Rob Fyfe said in a statement.

A recently signed alliance with Virgin Blue on routes between Australia and New Zealand was the first step in this strategy, he said.

The New Zealand government owns 75 percent of Air New Zealand after a bailout in 2001, under which it injected 1 billion New Zealand dollars ($770 million) to keep the national carrier afloat.

The bailout followed Air New Zealand's disastrous investment in Australian airline Ansett, which collapsed after years of stiff competition and poor management.

Last year Air New Zealand and Virgin Blue got approval from New Zealand's competition regulator to cooperate on routes across the Tasman Sea that separates Australia and New Zealand. The decision followed approval from Australia's antitrust regulator, which reversed its preliminary objections after the two airlines gave guarantees to boost seats on certain routes.

The airline said it has obtained Australian Foreign Investment Review Board approval to purchase up to 14.99 percent of Virgin Blue, a shareholding which would keep total foreign ownership of Virgin Blue within the statutory limit of 49 percent.

Air New Zealand did not comment on how it was funding the purchase.

Air New Zealand last week signed a code share agreement with Branson's Virgin Atlantic that will allow its passengers to book on many Virgin Atlantic services.

Air New Zealand said it intends to make a further announcement about the shareholding to the New Zealand and Australian stock exchanges before trading opens Friday.