Etihad to finance Virgin Australia’s domestic battle against Qantas

Etihad, which owns about 9 percent of Virgin Australia, along with other stakeholders Air New Zealand and Singapore Air, will provide a one-year unsecured loan facility worth a combined A$90m ($80.9m), Virgin said in a statement to Australian regulators.

The statement did not detail how much each airline would provide.

It said the loan was to “supplement and diversify the company’s liquidity position”.

Virgin also has used its head office in Brisbane as leverage for a A$99m bank loan, sold its hangar at the city’s airport and then leased it back, and taken out a A$9.3m unsecured loan with Virgin Samoa.

Virgin Australia has the third largest debt ratio of any airline in the world and has been spending up big in its pursuit of a larger share of the Australian domestic market, particularly aiming to steal market share from dominator Qantas.

Qantas launched its historic alliance with Dubai’s Emirates earlier this year, which includes code-share arrangements for flights within Australia.

Virgin and Qantas – traditional rivals – have recently stepped up their domestic competition, particularly on the lucrative east-west long haul routes.

Since John Borghetti took over as Virgin CEO in May 2010, the airline has spent at least A$1.54bn on capital projects to buy planes and airlines, renovate lounges and add business class seats to crack Qantas’s 65 percent dominance of the domestic travel market, according to Bloomberg.

Borghetti said the loan from the three airlines indicated their confidence in his strategy.

“It’s their way of saying, ‘We’re behind you and if you need some help we’re here’,” he said.

“[The carriers were extending the financing] because of their belief in our strategy, their belief in what we’re doing and that we’re on the right track.”