Etihad Might Lose Influence at Virgin Australia
Jeff Edwards July 26, 2016
Unless the Gulf carrier agrees to make a considerable cash infusion, Etihad could lose a seat on the Virgin Australia board of directors and nearly half its interest in the company.
A stock offering intended to raise hundreds of millions of dollars in capital at Virgin Australia could have the side effect of seriously diluting the Etihad Airways stake in the Australian carrier. Etihad currently owns a nearly 22 percent stake in Virgin Australia. Without a substantial reinvestment on Etihad’s part, that ownership stake could drop by half. According to company bylaws, if Etihad’s stake drops below 20 percent, the company will be asked to relinquish its seat on the Virgin Australia Board of Directors.
Recent media reports say that Etihad would need to pony up nearly $200 million in order to maintain its voice on the Virgin Australia board. If Etihad declines to make that investment, Singapore Airlines has already signaled it’s willing to step in. Singapore officials say that they have freed up more than $200 million to increase the company’s current stake in Virgin Australia.
While Etihad has not indicated whether or not it will up its investment in Virgin Australia in order to maintain its current ownership stake, company officials insist that it remains committed to maintaining a strong relationship with the Australian carrier. “Our comprehensive 10-year commercial agreement is further evidence of our confidence in and support for Virgin Australia, and our commitment to the airline and Australia,” an Etihad spokesman told The Australian. “We will continue to review our option to take up the pro-rata entitlement.”
Etihad has until 5 pm on Wednesday to either ante-up to maintain its position or see its ownership stake halved. The chair of the Virgin Australia board reportedly has the option of allowing Etihad to keep its seat despite its decreased ownership role, but it is unclear if Chairperson Elizabeth Bryan would be willing to make an exception for Virgin’s Gulf partner.
[Photo: Airbus]
