Air New Zealand sells down Virgin Australia stake

Majority-state-owned flag carrier Air New Zealand was up in Wellington trading on Friday, after it sold a 20% stake in Australia’s second-largest airline Virgin Australia to China’s Nanshan Group.

Prior to the sale, the NZX-listed airline was the largest single shareholder in Virgin - it retained a 2.5% stake after the sale.

Nanshan is the second Chinese firm to invest in the Australian carrier, after the HNA Group bought in last week, with both hoping to cash in on the Chinese tourism boom to Australia and New Zealand.

More than one million visitors from the People’s Republic landed in Australia last year, with forecasts for the figure to rise to 1.5 million by 2020.

Nanshan will pay AUD 0.33 per share for its one-fifth slice of Virgin, valuing it at AUD 230m.

Shares in Air New Zealand rose by more than 3% following the news, with Virgin Australia stock rising 5.4% in Sydney.

“We believe Nanshan Group will be a very strong, positive and complimentary shareholder for Virgin Australia,” said Air New Zealand chairman Tony Carter in a statement.

“The sale will allow Air New Zealand to focus on its own growth opportunities, while still continuing its long-standing alliance with Virgin Australia on the trans-Tasman network.”

Earlier this year, Air New Zealand signalled its intention to exit the flagging Australian when it abruptly quit its positions on Virgin’s board.

It built up its holding in Virgin Australia in 2013, in a bid to shore up competition and increase its domination on the lucrative but highly competitive trans-Tasman routes between New Zealand and Australia.

“We look forward to continuing our partnership on the Tasman alliance, providing customers of both airlines with the most comprehensive trans-Tasman network,” chief executive Christopher Luxon said in a short statement in late March when he left his board post.

Earlier that month, Air New Zealand and other shareholders Etihad Airways, Singapore Airlines and Richard Branson’s Virgin Group - agreed to provide a 12-month, AUD 425m loan facility as the airline struggled to improve its cash generation and profitability.

At least nine airlines currently compete on routes between Australia and New Zealand, despite the fact the latter country contains just 4.7 million people.