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Virgin Australia has proposed splitting its business into distinct international and domestic holding companies in a move that would open the way for greater foreign investment in its domestic operations.
Under the Air Navigation Act, Australian airlines with international services are capped at 49 per cent foreign ownership, but purely domestic airlines face no such limit. With foreign ownership of Virgin Australia close to the 49 per cent cap, creating a technically domestic airline would open an avenue for further foreign investment as Virgin seeks to expand.
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The move could be of particular interest to Air New Zealand, which already owns a 20 per cent stake in Virgin Australia, as well as to Etihad. The Abu Dhabi based carrier has long been rumoured to hold an interest in Virgin and has made investment in foreign airlines a key part of its business strategy.
Virgin said the move will have no effect on passengers and staff, with the international and domestic businesses continuing to operate as an integrated airline under one brand.
Rather, the changes amount to a reshuffle of the company’s corporate structure. The proposal would create an unlisted entity known as Virgin Australia International Holdings in addition to the current Virgin Australia Holdings, with VAH continuing to provide aircraft, crew, maintenance and capital requirements for both wings of the airline. VAIH would be owned by existing VAH shareholders.
Virgin said it plans to complete the change by the end of March. It proposed a board for VAIH chaired by current HSBC chairman Graham Bailey with directors including Business Council of Australia president Anthony Shepherd, former Federal Finance Minister Lindsay Tanner, Virgin Australia chairman Neil Chatfield and Virgin Australia CEO John Borghetti.
