Air NZ shares fall after $145m Virgin Blue foray

Photo / Herald on Sunday

Air New Zealand shares fell after the company made a A$145 million investment in a minority stake in new trans-Tasman partner Virgin Blue.

The stock declined 1.4 per cent to $1.42 on the NZX. It paid an average 44 Australian cents a share offmarket for 14.99 per cent of Virgin Blue, having last month won Australian and New Zealand regulatory approval to code share on the Tasman and connecting domestic flights, under an agreement that includes reciprocal frequent flyer and lounge access.

"We think we're coming out of a very difficult cycle for airlines," Air NZ chief executive Rob Fyfe said on a conference call. The investment allows the New Zealand carrier to participate in Virgin Blue's "very positive" future prospects. "We don't believe this is reflected in their current share price performance."

Shares of Virgin Blue jumped 10 per cent to 44 cents on the ASX yesterday.

They traded as high as 77 cents in March last year. The airline's stock is rated 'outperform' based on the consensus of 12 recommendations compiled by Reuters. Air NZ is also rated 'outperform.'

The purchase is being funded from cash, it said. Air New Zealand isn't initially seeking a board seat. The deal had the support of its 75 per cent owner, the New Zealand government.

Fyfe said he will be exploring other opportunities to partner with Virgin, including on some long-haul routes and regional flights within Australia. "The Australian domestic market is very strong," he said.

The about-15 per cent stake is the maximum it can hold under foreign ownership rules for the airline founded by Richard Branson. The UK's Virgin Group owns 26 per cent and the foreign ownership cap is set at 49 per cent.

Air NZ chief executive Rob Fyfe told his counterpart at Virgin Blue, John Borghetti, that there is no intention to make a full takeover bid.