Etihad Airways to raise stake in Virgin Australia

Etihad Airways has been given the green light by regulators to increase its existing 10 per cent share in Australia's second-biggest carrier.

James Hogan, the chief executive of Etihad Airways, left, with John Borghetti, his counterpart at Virgin Blue Holdings, announce the partnership between the two companies in 2010. Sergio Dionisio / Bloomberg News
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Etihad Airways is moving to raise its stake in Virgin Australia after getting the green light from regulators to increase its 10 per cent share in Australia's second-biggest carrier.

It signals the importance of the carrier to Etihad in generating traffic between Australasia and Europe through its Abu Dhabi base.

"We applied for and received Foreign Investment Review Board approval to increase our previous stake of 10 per cent in Virgin Australia to 19.9 per cent," Etihad said in a statement. "We may purchase shares to increase our shareholding where it is prudent to do so, and will provide notice in accordance with regulatory disclosure requirements."

In little more than a year, Etihad has steadily built up its stake in Virgin Australia after announcing in June last year that it had paid US$35.6 million for a 3.96 per cent share in the airline.

The Etihad chief executive and president James Hogan was quoted as telling The Australian newspaper this week that the airline had been buying shares on the market in the past fortnight.

Buying activity in Virgin Australia's shares has been frenzied in recent months. Singapore Airlines doubled its share in the airline to close to 20 per cent by purchasing $123m of shares from Sir Richard Branson's Virgin Group.

That was followed last month by another large shareholder, Air New Zealand, raising its share to 22.99 per cent and saying it was asking regulator approval to raise the stake by a further three percentage points.

Etihad has been on a global acquisition spree in the past two years by buying up equity in international carriers in an effort to gain market share. In addition to Virgin Australia, it holds a 29 per cent stake in Germany's airberlin, 40 per cent in Air Seychelles and 3 per cent in Ireland's Aer Lingus.

It is also expected to announce a deal towards the end of the month to buy a stake in Serbia's Jat Airways. Reports in local media suggest the Serbian government will accept Etihad's proposal to acquire a 49 per cent stake and take over operational control of the airline.

The two airlines last month signed a codeshare agreement and a memorandum of understanding to discuss an equity investment in the Serbian carrier.

"The UAE flag carrier will be able to use Jat to increase its presence significantly in the EX-YU region [countries of the former Yugolslavia] and offer connections via Abu Dhabi to destinations throughout the Middle East, Africa and Asia-Pacific," the Centre for Aviation, an aviation research company, said in a report released yesterday.

"The feed from Etihad should allow Jat to expand in these markets, giving it an important competitive advantage over other carriers from the region."

Etihad believes its equity alliances can save money through joint initiatives covering pilot and crew training, fuel insurance, and procurement and maintenance agreements for common aircraft engine types. The deals are also beginning to contribute to Etihad's bottom line. Revenue generated by codeshare and equity-alliance partners was $184m in the second quarter, 25 per cent higher than the $147m during the same period last year, it said last week.

The airline this week announced a codeshare partnership with Korean Air, its 46th such deal with an international airline.