Air NZ denies rumours it is lining up Virgin Blue

By NZPA

Friday 12th October 2007

Air New Zealand today dismissed speculation it was interested in buying a stake in Australian airline Virgin Blue Holdings.

"Air New Zealand has become aware of rumours to the effect that it is interested in acquiring a shareholding in Virgin Blue Ltd. Air New Zealand advises that there is no substance to these rumours," the airline said in a statement.

Virgin Blue, 62% owned by Toll Holdings and quarter owned by Sir Richard Branson's Virgin group, has announced plans for its Pacific Blue unit to set up in New Zealand next month to compete with Air NZ on domestic routes.

An Air NZ spokeswoman said the rumours were in the market rather in the media.

Virgin Blue is capitalised at $A2.4 billion ($NZ2.8b) against Air NZ's capitalisation of $NZ2.3b.

Rumours are circulating on the other side of the Tasman that Toll Holdings is wanting to sell its 62 percent Virgin stake, valued at $A1.5b, within the next 10 days.

Air NZ was one of a number of companies touted as a potential buyer.

Emirates Air and Singapore Airlines have both denied interest and Air NZ was the next cab off the rank, said Derek Sadubin of the Centre for Asia Pacific Aviation.

Toll chief executive Paul Little said last month the company would make a decision on its stake by the end of the year.

"I think we believe that between now and the end of the year, we will probably be in a position to make a more definitive decision about our current Virgin Blue shareholding," he told journalists in New York.

Analysts say Virgin does not fit with the rail company's business plan. Toll inherited the stake when it bought stevedoring company Patrick last year.

Bad blood remains between Air NZ and Virgin after founder Sir Richard Branson ripped up a cheque for $A250 million as a television stunt when Air NZ tried to buy the then fledgling airline in 2001 in a bid to save its collapsing unit, Ansett Australia.

Sadubin said Air NZ needed a long-term strategy for its survival to set up in Australia, but Virgin was probably too costly.

"Air New Zealand has made up its mind that it's focusing on itself and it's content to be a New Zealand carrier and do what it can in its markets.

"It's got a big competitive assault at home next month that it needs to keep its eye on, plus it's rolling out its long-haul expansion, so there's a fair bit for Air NZ to be looking out (for) without the distraction potentially of a massive investment that would be required in the Australian carrier.

"They've been burnt badly in the past and I don't think they'd be looking to do that again."

Virgin's share price has been trading down on speculation that if no airlines are interested in buying it the Toll stake, it will be sold at a discount.

Sadubin said Virgin required hefty ongoing investment and its earnings were particularly volatile.

Virgin's June year net profit was $A216m compared with $A112m a year earlier.

Since Pacific Blue announced plans to begin domestic operations here, Air NZ would face competition issues buying the company.

Air NZ shares were unchanged today on $2.25.

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