Richard Branson-backed airline Virgin Australia Holdings said it had tapped its top shareholders for a loan of A$425m (US$320m) in a move expected to help cut its reliance on the bond market for funds.
The loan goes some way to addressing investor concerns that the company’s cash reserves have declined sharply in the wake of a five-year revamp to broaden its services beyond the discount-carrier market.
The US bond market, which Virgin Australia has previously tapped, has also become more expensive because of the sharp weakening of the Australian dollar over the past three years.
“Clearly, they need extra funding,” said an aviation analyst, who declined to be identified as he had yet to publish a research note on the news. “The market’s relieved that they’re going to get it.”
Virgin Australia’s shares rose 9% on the news, their biggest one-day jump in two years, regaining some ground lost owing to the rebound in the price of oil.
The one-year facility was obtained from Air New Zealand, Branson’s Virgin Group, Singapore Airlines and Abu Dhabi government-owned Etihad Airways, which together own 83% of the carrier.
Last month, the airline swung to a half-year profit and forecast a return to full-year profitability as it attracted more big-spending corporate passengers.
However, it also revealed that its unrestricted cash reserves had shrunk to A$543.7m at December 31, down 25% from a year earlier.
CEO John Borghetti said the loan facility would give the airline additional flexibility in the short term. It will be subordinated to Virgin Australia’s existing debt, and split between the four shareholders proportionally to their Virgin stakes.
Air New Zealand is the airline’s biggest shareholder, with a 26% interest, while Etihad controls 24%, Singapore Airlines 23% and Virgin Group 10%.
The measure is, however, likely to result in complaints from rival Qantas that Virgin is competing unfairly since the former, as the national carrier, has its foreign ownership restricted to 49%.
