Virgin Blue surges 10% on Air New Zealand buy-in

Virgin Blue's shares soared 10% yesterday, as Air New Zealand announced late in trading that it has become a substantial shareholder in Virgin Blue with a 14.9%.

Air New Zealand, whose shares closed 2.8% lower, stated it had approval from Australia's Foreign Investment Review Board to acquire up to 14.99% in the Australian airline, but clarified it had no intention to make a takeover bid for Virgin Blue.

Air New Zealand CEO Rob Fyfe stated today: "This is simply an investment in Virgin Blue that reinforces Air New Zealand's strategy to grow its business in Australasia which is continually evolving as a single aviation market. The Tasman alliance with Virgin Blue was a key step in this strategy. This investment cements the important relationship between our two airlines and demonstrates the confidence we have in Virgin Blue and its management to grow their business both within the Tasman alliance and beyond the scope of the alliance.

"The investment provides us with an interest in the number two airline in Australia and, through this, access to the opportunities in the growing Australian domestic market. Air New Zealand has no intention of entering the Australian domestic market in its own right."

Mr Fyfe says Air New Zealand will not be seeking representation on the Virgin Blue Board for at least six months and notes that any representation would be a decision for the Virgin Blue Board and shareholders.

Air New Zealand's Chief Financial Officer Rob McDonald said the cost of entry into Virgin Blue is AUD145 million, or 44 cents per share.

See related report: Air New Zealand acquires ‘substantial’ stake in Virgin Blue. Second step towards fuller alliance

Asia Pacific airline share movements: 20-Jan-2011