Air New Zealand is taking its relationship with Virgin Blue up a notch, saying it has become a substantial shareholder in the Australian-based airline it is forming a trans-Tasman alliance with.

Air New Zealand has notified the ASX and NZX that it has become a substantial shareholder in Virgin Blue, and plans to build its holding to between 10 percent and 14.99 percent. Companies are considered to be substantial shareholders when they hold 5 percent or more of a company.

Virgin Group, the United Kingdom-based company founded by Sir Richard Branson, has a 26 percent shareholding in Virgin Blue.

Air New Zealand chief executive Rob Fyfe said his airline had no intention of making a takeover bid for Virgin Blue. He told Virgin Blue's chief executive, John Borghetti, this in a telephone call today.

"The investment in Virgin Blue is part of Air New Zealand's strategy to develop scale and reach in this region. The Tasman alliance with Virgin Blue was the first step in this strategy.

"This investment cements the emerging relationship between our two airlines and demonstrates the confidence we have in Virgin Blue both as an entity and as a partner for Air New Zealand," said Mr Fyfe.

Last year Air New Zealand and Virgin Blue won approval from Transport Minister Steven Joyce to co-operate on routes across the Tasman Sea. The decision followed approval from Australia's antitrust regulator, which reversed its preliminary view, after the two airlines gave guarantees on growth in capacity.

Air New Zealand is majority owned by the New Zealand Government.

The airline said today that it has obtained Australian Foreign Investment Review Board approval to purchase up to 14.99 percent of Virgin Blue, a shareholding which would keep the total foreign ownership of Virgin Blue within the statutory limit of 49 percent.

Air NZ did not comment on how it funded the purchase.

Air New Zealand intends to make a further announcement about the shareholding to the NZX and ASX before the commencement of market trading tomorrow. - NZPA

Air New Zealand has paid $A145 million ($NZ188.9m) for a 14.9 per cent stake in Australian-based airline Virgin Blue.

After yesterday saying it had become a "substantial" shareholder in Virgin Blue, Air New Zealand today said further shares were acquired off-market last night which increased Air New Zealand's relevant interest to 14.9 per cent.

The purchase of the shareholding was completed from existing cash resources.

Air New Zealand chief financial officer Rob McDonald said the cost of entry into Virgin Blue was $A145m or 44 cents per share.

Air New Zealand chief executive Rob Fyfe today repeated that the company had no intention to go over 14.99 per cent.

"This is simply an investment in Virgin Blue that reinforces Air New Zealand's strategy to grow its business in Australasia which is continually evolving as a single aviation market," Mr Fyfe said.

"The Tasman alliance with Virgin Blue was a key step in this strategy. This investment cements the important relationship between our two airlines and demonstrates the confidence we have in Virgin Blue and its management to grow their business both within the Tasman alliance and beyond the scope of the alliance."

While the investment provided Air New Zealand with opportunities in the growing Australian domestic market, the company had no intention of entering the Australian domestic market in its own right, Mr Fyfe said.

Air New Zealand would not be seeking representation on the Virgin Blue board for at least six months.

Last year Air New Zealand and Virgin Blue won approval from Transport Minister Steven Joyce to co-operate on routes across the Tasman Sea. The decision followed approval from Australia's antitrust regulator, which reversed its preliminary view, after the two airlines gave guarantees on growth in capacity.

Air New Zealand is majority owned by the New Zealand government.