Print from Airliners.net discussion forum
http://www.airliners.net/aviation-forums/general_aviation/read.main/5802757/

Topic: EY Increases Stake In VA To 20 Percent
Username: EK413
Posted 2013-06-27 19:07:55 and read 3856 times.

Looks as though EY continues with their expansion strategy within Australia by increasing their stake in VA just below 20% by increasing their stake to 19.9%

Etihad Airways has received the Foreign Investment Review Board’s stamp of approval to increase its Virgin Australia share to 19.9 per cent, according to The Australian.

The move comes despite Etihad’s declaration it would keep its share at 10 per cent “at the moment”, the paper said.

The airline is understood to want to keep its options open, after Air New Zealand recently lifted its investment in Virgin to 23 per cent, from 20 per cent previously.

"Once the Jet deal is over we'll see what we can do moving forward working with Virgin," Etihad chief executive James Hogan said, according to The Australian.


http://www.businessspectator.com.au/...ad-gets-firb-tick-199-virgin-stake

EK8413

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: zkokq
Posted 2013-06-27 19:49:20 and read 3743 times.

I want to know what Air New Zealands next move is from here. There seems to be some cash being pumped into VA. Better bring some good results in the coming financial year.

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: mariner
Posted 2013-06-27 20:12:15 and read 3678 times.

Quoting zkokq (Reply 1):
I want to know what Air New Zealands next move is from here.

Probably going from 23% to 26% of Virgin Australia, as it has already indicated:

"Air New Zealand has agreed to lift its holding in Virgin Australia to about 23 percent from 19.99 percent in a series of off-market transactions and indicated it may seek to hold as much as 26 percent."

Under Australian corporate law it can raise it's holding by 3% every six months, so who knows where it will stop? It has denied it's planning a full takeover, but I wouldn't be surprised to see some joint arrangement with Singapore and/or Etihad.

mariner

[Edited 2013-06-27 20:15:15]

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: tullamarine
Posted 2013-06-27 20:55:16 and read 3587 times.

I would predict VAH is delisted within 12 months with minority shareholders being taken out by the 4 major shareholders. The ASX listing is an expensive distraction that leads to short-term profits overtaking the more sound long-term visions.

The 3 shareholder airlines are in for the long-haul (excuse the pun) so aren't worried about dividends this year or next year. VAH doesn't need the sharemarket to access capital so the listing can go.

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: EK413
Posted 2013-06-27 21:01:36 and read 3569 times.

Quoting mariner (Reply 2):
Under Australian corporate law it can raise it's holding by 3% every six months, so who knows where it will stop? It has denied it's planning a full takeover, but I wouldn't be surprised to see some joint arrangement with Singapore and/or Etihad.

QF is vulnerable at the moment with VA raising a lot of capital. Where will this stop is a guessing game.

EK8413

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: gemuser
Posted 2013-06-27 21:11:45 and read 3538 times.

Quoting EK413 (Reply 4):
with VA raising a lot of capital. Where will this stop is a guessing game.

What capital has VA raised?
The recent share transactions by NZ, SQ & EY put NO money into VA, it all goes to the owners of the shares they have brought, zero goes to the company. AFAIK VAH has not issued any shares recently.
It is quite likely that VA will require a capital raising in the next few years, then NZ, SQ & EY will have to stump up the cash or see their shareholding diluted. This could be a real problem. Airlines have a enormous appetite for capital and Australia has a relatively small capital market, so capital is expensive. IF NZ, SQ & EY will not put in more capital when the time comes VA could find itself in a difficult position. This could be a real problem for NZ, which comes from an even smaller capital market.

Gemuser

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: mariner
Posted 2013-06-27 21:20:41 and read 3509 times.

Quoting gemuser (Reply 5):
AFAIK VAH has not issued any shares recently.
It is quite likely that VA will require a capital raising in the next few years, then NZ, SQ & EY will have to stump up the cash or see their shareholding diluted.

Can't they raise money in the market with debentures or bonds and not dilute the shareholding or doesn't that happen in Australia?

I'd prefer to be in an interest bearing bond than hold shares.

mariner

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: EK413
Posted 2013-06-27 21:28:13 and read 3488 times.

Quoting gemuser (Reply 5):

Capital perhaps is not the right term, correct me if I'm wrong but with SQ & EY (excluding NZ) increasing their shares in VA & both having very deep pockets I'm sure VA will have no issues in raising funds.

EK8413

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: gemuser
Posted 2013-06-27 22:36:25 and read 3378 times.

Quoting mariner (Reply 6):
Can't they raise money in the market with debentures or bonds and not dilute the shareholding or doesn't that happen in Australia?

Of course they can, BUT that is debt, not capital. You can only carry so much debt on the amount of capital you have, the debt/equity ratio. Back when I first studied it in the 1960s a d/e ratio of 1:1 was considered prudent, along came the 1970s & 80 etc and many companies d/e ratios blew out to unsustainable levels. I have no idea what is considered a good d/e ratio for an airline today, but there will be one.

Unless the shareholders put more capital into VA it will eventually reach a point where the d/e ratio is unsustainable and capital expenditure on aircraft etc will have to be cut back as you can't borrow any more money and/or it has a very negative effect on the share price.

This is exactly the problem QF faces, they can't really issue more shares, at a reasonable price as the Australian market is saturated with their shares, which limits their borrowing capacity, which is why some B787s were cancelled & A380s deferred.

Quoting EK413 (Reply 7):
with SQ & EY (excluding NZ) increasing their shares in VA & both having very deep pockets I'm sure VA will have no issues in raising funds.

You are assuming so. You might be right, but you might be wrong, we don't really know. That is actually a very complex question.

Gemuser

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: EK413
Posted 2013-06-27 23:00:19 and read 3331 times.

Quoting gemuser (Reply 8):
You are assuming so. You might be right, but you might be wrong, we don't really know. That is actually a very complex question.

How about we not assume and wait to see what's EY's next move it makes things more interesting. Just like watching an action packed movie & knowing what's going to happen makes it no fun

EK8413

[Edited 2013-06-27 23:43:20]

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: mariner
Posted 2013-06-27 23:23:05 and read 3296 times.

Quoting gemuser (Reply 8):
Of course they can, BUT that is debt, not capital. You can only carry so much debt on the amount of capital you have, the debt/equity ratio. Back when I first studied it in the 1960s a d/e ratio of 1:1 was considered prudent, along came the 1970s & 80 etc and many companies d/e ratios blew out to unsustainable levels. I have no idea what is considered a good d/e ratio for an airline today, but there will be one.

Sure there is, and I believe that Virgin Oz improved its d/e ratio quite well last year.

Quoting gemuser (Reply 8):
Unless the shareholders put more capital into VA it will eventually reach a point where the d/e ratio is unsustainable and capital expenditure on aircraft etc will have to be cut back as you can't borrow any more money and/or it has a very negative effect on the share price.

What you say is always the balance but in a solvent company there are a number of ways raising money - debt being one of them, or a balance of debt an other things.

I don't know how likely it is, but I am quite attracted to Tullamarine's belief in post #3, that the owners take it private, and you suggested a share issue, I think:

Quoting gemuser (Reply 5):
It is quite likely that VA will require a capital raising in the next few years, then NZ, SQ & EY will have to stump up the cash or see their shareholding diluted.

None of these owners is short of money and I can't think why the wouldn't stump up - unless there is some dramatic change in financial circumstances.

But I'm somewhat out of my depth with this because I don't know the intentions of these present owners nor I am really familiar enough with Virgin Australia's potential capital needs, other than perhaps aircraft, the co called "good" debt.

mariner

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: motorhussy
Posted 2013-06-27 23:54:31 and read 3219 times.

Quoting mariner (Reply 10):

Quoting gemuser (Reply 5):
It is quite likely that VA will require a capital raising in the next few years, then NZ, SQ & EY will have to stump up the cash or see their shareholding diluted.

None of these owners is short of money and I can't think why the wouldn't stump up - unless there is some dramatic change in financial circumstances.

But they'll only each stump up if it's in their individual interest so setting a strategic direction that benefits all them will be key to raising new capital from these equity investors.

MH

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: gemuser
Posted 2013-06-28 00:04:04 and read 3195 times.

Quoting motorhussy (Reply 11):
But they'll only each stump up if it's in their individual interest so setting a strategic direction that benefits all them will be key to raising new capital from these equity investors.

I totally agree that that will be a major factor. The overall financial health of the shareholders also comes into play. EY, I presume will have no problems, SQ I don't know, but I bet they can't be as free with their money as EY and I believe NZ would have problems unless the NZL government assists.

As I said above it is a very complex decision for each shareholder.

gemuser

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: mariner
Posted 2013-06-28 00:06:25 and read 3188 times.

Quoting motorhussy (Reply 11):
But they'll only each stump up if it's in their individual interest so setting a strategic direction that benefits all them will be key to raising new capital from these equity investors.

Of course.

But having committed so far and so strenuously, I assume they have a game plan, each individually, as well as whatever their collective thinking may be.

Air NZ has already stumped more than once, when its percentage holding was diluted by the first Singapore purchase and then again with the second Singapore purchase, and now with this latest 3%. It has also said it may go to 26%.

There seems to be a deal of strategic thinking here.

mariner

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: KiwiRob
Posted 2013-06-28 00:28:21 and read 3116 times.

Quoting gemuser (Reply 12):
and I believe NZ would have problems unless the NZL government assists.

NZ is a profitable airline with a healthy bank account, they won't need to ask there major shareholder for assistance.

http://www.stuff.co.nz/business/indu...363153/Air-NZ-interim-profit-soars

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: SYDSpotter
Posted 2013-06-28 01:53:38 and read 2986 times.

Quoting mariner (Reply 13):
But having committed so far and so strenuously, I assume they have a game plan, each individually, as well as whatever their collective thinking may be.

I still haven't got my head around what EY, NZ's and SQ's collective intentions are with respect to VA. Whilst there are common goals/objectives surely there's going to be some clash/overlap of objectives. For example, all 3 carriers will utilise the feed/frequent flyer base provided by VA, but in the case of SQ and EY, surely both would want VA traffic to Europe. With there only be so much of the pie to go around (so to speak), surely SQ and EY aren't going to settle for a split of the VA feed between themselves?

Also I understand that EY/SQ/NZ don't currently have board seats, surely they would want some say in operations given they've stumped up some significant cash?

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: mariner
Posted 2013-06-28 02:22:47 and read 2922 times.

Quoting SYDSpotter (Reply 15):
I still haven't got my head around what EY, NZ's and SQ's collective intentions are with respect to VA.

You and me both. I could speculate on a duet but the trio has me scratching my head.

Originally, I thought of Etihad as the interloper, but then again, I'm not sure why has Air NZ been at such pains to make sure that their holding is - at all times - bigger than Singapore's, even if only by fractions of a per cent.

Quoting SYDSpotter (Reply 15):
Also I understand that EY/SQ/NZ don't currently have board seats, surely they would want some say in operations given they've stumped up some significant cash?

On several occasions, and recently, both the previous and present CEO's of Air NZ have said that they have not asked for board seats.

I think it's curious.

mariner

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: gemuser
Posted 2013-06-28 04:45:48 and read 2768 times.

[quote=KiwiRob,reply=14]
NZ is a profitable airline with a healthy bank account, they won't need to ask there major shareholder for assistance. [quote]
It's not that healthy IF it had to fund a one third share of a major equity increase for VAH. It could do it but it would be a strain and be equal to ABOUT 50% of NZ net assets, depending on details. It would have to borrow about $A500 M to do so, again depending on the details. Not impossible, but getting into the worrying range.

NZ data: http://static.airnewzealand.com/asse...013-interim-shareholder-review.pdf
VAH data: http://au.investsmart.com.au/shares/...AUSTRALIA-HOLDINGS-LIMITED-VAH.asp

Gemuser

Topic: RE: EY Increases Stake In VA To 20 Percent
Username: mariner
Posted 2013-06-28 11:54:53 and read 2146 times.

Quoting gemuser (Reply 17):
It's not that healthy IF it had to fund a one third share of a major equity increase for VAH.

As always, it would depend on how much they wanted to raise, but I see nothing in that link to inhibit Air NZ from full participation in any realistic equity issues. Again, it has also excellent access to the money markets, partly because of its own strong balance sheet and partly, perhaps, because of its majority owner, the Crown.

It has more than a billion in cash-in-hand and to put that in perspective, Virgin Oz has a present total market cap of about one billion.

Your scenario of raising $500 million may be accurate as a total number, meaning it would have to find one third of that, which is easily do-able.

If you mean that number as a one third contribution - for a total of $1.5 billion - which it could, as you agree, achieve - I would find that high number somewhat worrying until Virgin Oz improves its own balance sheet, at least based on its present return on capital invested.

mariner


The messages in this discussion express the views of the author of the message, not necessarily the views of Airliners.net or any entity associated with Airliners.net.

Copyright © Lundgren Aerospace. All rights reserved.
http://www.airliners.net/