31 May 2016

Hainan looks for 20pc of Virgin Australia

3:00 pm on 31 May 2016

Air New Zealand's exit from Virgin Australia appears to be close, with news that China's Hainan Aviation is to take a stake in the Australian carrier.

Virgin Australia plane at Sydney Airport.

Virgin Australia plane at Sydney Airport. Photo: AFP

Virgin this morning has announced Hainan would take a 13 percent stake worth $A159 million - about $NZ171m.

Hainan intended increasing its shareholding to nearly 20 percent in due course.

The two airlines also agreed on a strategic alliance, which would speed up Virgin's access to the Chinese travel market through direct flights between Australia and China.

Virgin Australia chief executive John Borgehetti said the alliance would help it tap into the Chinese market.

"The alliance will see us leverage the opportunities offered by China as well as the synergies of HNA's comprehensive aviation supply chain."

Virgin's new alliance fuelled expectations that Air New Zealand might be close to announcing its partial or full exit from Virgin, and its shareprice rose more than 3 percent to a two-week high, before easing back.

Air New Zealand has told RNZ News it is making no comment.

In March, Air New Zealand said it was reviewing its 26 percent stake in Virgin Australia, with all options possible from a partial to full sale of its shareholding.

Air New Zealand has been involved in Virgin for five years and used the $450m investment to secure an entry into the Australian domestic market, which stopped rival Qantas exerting total dominance.

But Virgin wracked up big losses over the years and while it has edged into the black in the past year it needed the collective support of Air New Zealand, Etihad, Singapore Airlines and Virgin Group to prop it up financially.

It had been thought that either Singapore or Etihad would carve up Air New Zealand's stake between them, but the entry of a Chinese carrier would add new muscle to the coalition to compete with a reinvigorated Qantas.

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