Virgin takes full control of Tigerair Australia for AU$1
SYDNEY, Australia – Virgin on Friday, October 17 took full control of budget carrier Tigerair Australia, buying the remaining 40% it did not already own for AU$1 ($0.88*) from its Singapore-listed parent.
The deal was revealed as it was announced that Singapore Airlines (SIA) would take majority control of Tiger Airways – of which Tigerair Australia was a subsidiary – as part of a turnaround plan for the loss-making budget firm.
Virgin Australia purchased a 60% stake in Tigerair in mid-2013 for AU$35 million ($30.63 million) and said agreement had been reached to buy the rest of the carrier, which has struggled to reach profitability, for the tiny sum.
Tiger will continue to license its brand to Virgin.
Virgin Australia chief John Borghetti said the acquisition would allow it to fly to a number of new short-haul international destinations, providing growth opportunities for the business, while accelerating Tigerair's drive for profitability.
"Given the ongoing subdued consumer demand in the Australian domestic market, the growth of the Tigerair Australia domestic fleet is likely to be reduced," he said.
"Under this proposed transaction, we will benefit from the economies of scale and achieve profitability ahead of schedule by the end of 2016, by leveraging the resources of the wider Virgin Australia Group."
In Singapore, Tiger Airways said SIA would convert its "perpetual convertible capital securities holdings" in the carrier into shares, raising its stake to 55% from 40%.
It said the move would effectively make Tiger Airways a subsidiary of SIA, which also operates a long-haul budget unit called Scoot.
Tiger Airways also said it will separately raise SG$234 million ($184 million**) in a rights issue that will be mostly subscribed by SIA. The rights issue will be carried out after SIA increases its stake.
Tiger has been struggling to make money owing to tough competition in the booming Southeast Asian budget carrier market, which is dominated by Malaysia's AirAsia and Singapore-based Jetstar Asia.
Earlier this year, it sold its entire 40% stake in Tigerair Philippines to rival Cebu Pacific, and in July, its joint venture in Indonesia's PT Mandala Airlines ceased operations owing to losses.
Shukor Yusof, an analyst with Malaysia-based Endau Analytics, described SIA's raising of its stake in Tiger Airways as a bailout.
"It is a full body bailout. Tiger Airways appeared to be on the brink of financial collapse," he told AFP.
He said SIA's infusion was "very critical to the airline," adding: "If SIA did not come in, the airline would not have survived."
The Tigerair Australia move, which is subject to Foreign Investment Review Board approval, comes after a difficult 12 months for Australian airlines as intense battle for market share saw both Virgin and Qantas suffer heavy losses.
Virgin posted a full-year net loss of AU$355 million ($310.67 million), while Qantas suffered a record loss of AU$2.8 billion ($2.45 billion). – Rappler.com
*($1 = AU$1.14)
**($1 = SG$1.27)