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Tue 30 Oct 2012 11:41 AM

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Etihad-backed Virgin Aus in tie-ups worth $208m

Singapore Airlines acquires 10% stake in Virgin, which has bought a 60% stake in Tiger Airways

Etihad-backed Virgin Aus in tie-ups worth $208m
Virgin Australia, 10 percent-owned by Abu Dhabi’s Etihad Airways, has bought a 60 percent stake in Tiger Airways (Getty Images).

Virgin Australia, 10 percent-owned by Abu Dhabi’s Etihad Airways, has bought a 60 percent stake in Tiger Airways, while the Asian budget carrier’s parent company, Singapore Airlines, has confirmed it has acquired a 10 percent stake in the Australian carrier.

Singapore Airlines, the world's second-largest carrier by market value, will buy 10 percent in Virgin Australia for AUD$105m (US$108m), stepping up the competition with rival Qantas Airways in the lucrative Australian market.

As part of a series of deals, Virgin, Australia's number-two carrier, will buy 60 percent of Tiger Australia for AUD$35m (US$36.2m) and invest a further AUD$62.5m to increase fleet size to 35 aircraft from 11 by 2018.

City Index analyst Peter Esho told Reuters Qantas's ambition to become a premium player in the Asia-Pacific aviation market was meeting stiff resistance from Singapore Airlines.

"We see today's move by Singapore Airlines as a strategic shift down south to back Qantas's main domestic competitor," he said.

Virgin is also buying regional and charter carrier Skywest, which services fly-in fly-out mining camps, in a deal worth AUD$93m.

Shares in Tiger Airways, which is 33 percent-owned by Singapore Airlines, were suspended after the carrier reported a SGD$18 million second-quarter net loss.

Virgin's efforts to shore up its position follow Qantas's proposed ten-year alliance with Dubai's Emirates, revealed last month. Qantas ditched its seventeen-year alliance with British Airways, owned by IAG, in favour of a deal with Emirates, a key step in the carrier's efforts to try and turn around its loss-making international business.

Qantas, which has been propped up by earnings from its domestic operations, will operate through Dubai rather than Singapore as part of that deal.

Singapore will join unlisted Etihad Airways, Abu Dhabi's flag carrier, in taking a minority equity stake in Virgin. Etihad also has a 10 percent stake.

"Singapore and Tiger recognise how difficult it would be to continue to operate in the Australian market and this is a good resolution for them," said White Funds Management portfolio manager Angus Gluskie, who holds Virgin shares.

The three deals would make Virgin a stronger competitor in all segments, including budget, domestic and international, Virgin Chief Executive John Borghetti said in a conference call with analysts and media.

"I think we are a formidable group now," Borghetti said.

He said Tiger's financial performance would impact Virgin's earnings from the three months to June 2013, and both the Tiger and Skywest deals should be completed around March.

Borghetti said after the deals, Virgin would expand to 139 aircraft and more than 9,000 employees.

Earlier this year, in an interview with The Australian newspaper, Etihad CEO James Hogan dismissed claims the company is aiming for full control of Virgin as “ridiculous”.

"What we won't do is get into a position where it means we take control of the business," Hogan was quoted as saying. "We can't run an Australian airline from Abu Dhabi, nor do we intend to."

Virgin Atlantic is part owned by British billionaire Richard Branson and Air New Zealand.

* With Reuters

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