Etihad buys stake in Virgin

In a move that will bolster Virgin in its assault on Qantas’ grip on the lucrative corporate market, Etihad revealed it had taken a 4 per cent stake in the airline’s domestic operation, which also has Sir Richard Branson’s Virgin Group and Air New Zealand as shareholders.

Etihad chief executive James Hogan said its stake was designed ”not to take control but to lock us in as a partner” and would allow the two airlines to share contracts on items such as in-flight entertainment and information technology. ”What this gives us is the ability to look at more cost opportunities,” he said.

Mr Hogan, who has made no secret of his interest in the airline, said Etihad had been in talks with the Foreign Investment Review Board about gaining approval to boost its stake in Virgin to 10 per cent. ”We have flagged that once we get approval to go beyond 5 per cent we would like to move it to 10 per cent. We are buying off the market,” Mr Hogan said.

Asked whether Etihad had long-term aspirations to pursue an even bigger stake, Mr Hogan said: ”We can’t be a major shareholder. Certainly we would like to have a shareholding that protects our interests long-term and certainly we are targeting 10 per cent at this stage.”

Mr Hogan has previously said he had made clear to Sir Richard Branson that his airline was interested in his cornerstone stake in Virgin. He said yesterday that he had had no further talks with Sir Richard, adding: ”At the end of the day let’s get to the 10 per cent and we can take a view.” But he insisted Etihad had no interest in mounting a takeover – even if it could, given Air New Zealand and Virgin Group’s hold blocking stakes of 19.99 and 26 per cent respectively.

Etihad’s direct investment follows a shake-up of Virgin’s ownership structure, which split the company in two to allow more foreign institutional investors and airlines to buy into the company’s domestic operations, the core of its earnings. Virgin chief executive John Borghetti said Etihad’s move was ”yet another demonstration of confidence” in the airline’s strategy, which is aimed at bolstering its appeal to business travellers.

Virgin closed up 1¢ at 42¢ yesterday.

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