In a surprise move, Virgin Atlantic Airways has opted out of the bidding for a stake in its current South African partner Sun Air, and has set its sights on the biggest fish of all, South African Airways.

Virgin's withdrawal from the sale of state-owned Sun Air means a bitter bidding war is likely to erupt over a stake in SAA as arch-rival British Airways is the only other carrier to have so far declared an interest. Sources at SAA's current strategic partner Lufthansa have previously indicated that the German carrier doesn't have the cash to make a concrete bid.

Any disposal of SAA is still some way off. The intention is to sell 25-30 per cent of SAA initially, but this is unlikely to happen before the end of 1998. The government has indicated that it ultimately wants to privatise the carrier fully, and Virgin has its sights set on a major shareholding. 'We see 25 per cent as the first step to full privatisation, and for this reason want to get a foot in the door,' says David James, Virgin's general manager for Southern Africa.

James refuses to say why Virgin pulled out of the bidding for Sun Air, but admits there were concerns about obtaining regional traffic rights alongside SAA. This wouldn't fit in with chairman Richard Branson's plans for a South Africa-based airline to serve the sub-Saharan region.

Industry sources suggest other reasons for Virgin's decision to pull out. These are the inability to secure a controlling stake immediately and projected low initial returns on the investment, because Sun Air is already highly geared and is planning to acquire five MD-80s to complement its five Douglas DC-9s.

Roger Makings

Source: Airline Business