Virgin Australia unveils major strategic moves

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Virgin Australia will acquire Australian regional carrier Skywest Airlines, and pay A$35 million ($36.2 million) for a 60% stake in Tiger Airways Australia. Separately, Singapore Airlines has agreed to buy a 10% stake in Virgin Australia for A$105.3 million.

Skywest will become part of the Virgin Australia brand but will continue to operate under its air operator's certificate with its own management team, says Virgin Australia's chief executive John Borghetti.

"If approved, this transaction will enable us to fast-track our advancement in the high growth fly-in-fly out and regional markets, increasing competition in these important segments," he adds.

Skywest already operates eight ATR-72 turboprops on behalf of Virgin Australia, and also has a fleet of 20 Airbus A320s, Fokker F100s and F50 turboprops.

The Skywest acquisition would require the approval of Singapore's Securities Industry Council, Australia's competition watchdog, the Australian Foreign Investment Review Board and the Singapore High Court. Skywest is incorporated in Singapore.

Under the in-principle agreement, Virgin Australia will offer Skywest shareholders A$0.45 per share, with A$0.225 per share to be paid in cash and 0.53 new Virgin Australia shares given for each Skywest share.

Virgin Australia also announced today that it has agreed to acquire a 60% stake in Tiger Airways Australia from its holding company, Tiger Airways Holdings, for A$35 million.

Tiger Airways and Virgin Australia will invest up to a further A$62.5 million into Tiger Airways Australia, which will become a joint venture between the two companies.

"The joint venture has flexibility to grow Tiger Australia's fleet from 11 to up to 35 aircraft by 2018," says Virgin. As part of the transaction, Tiger Airways Australia has agreed to pay A$5 million to Tiger Airways Holdings if the carrier achieves certain financial goals within five years. Virgin and Tiger did not elaborate on these goals.

Of the $62.5 million, the first A$20 million will be contributed by Tiger Airways, followed by A$30 million from Virgin Australia and the remaining A$12.5 million will be a "proportional investment by both parties".

Tiger Australia will remain a standalone carrier with its own AOC and management team, and will continue to operate under the Tiger brand.

Borghetti says the transaction will allow Virgin to "access the budget market and enables Tiger Australia to expedite its growth, providing greater competition to this important market segment".

Separately, Star Alliance carrier Singapore Airlines (SIA) will pay A$105.3 million for a 10% stake in Virgin Australia. This will be done through a placement of 245.7 million new shares to SIA at A$0.4288 cents per share.

The transaction comes with anti-dilution rights, in the event of an equity issuance as a result of the Skywest and Tiger transactions. The share purchase is likely to be completed on 16 November, and approval from the Australian Foreign Investment Board has been obtained.

"This major development demonstrates the importance and strength of the partnership between our two airlines, and our shared commitment to an alliance that provides a wide range of consumer benefits," says SIA's CEO Goh Choon Phong.

SIA and Virgin Australia entered into a long-term partnership in 2011 that covered codesharing, reciprocal frequent flyer benefits and others.