Singapore Airlines to buy Virgin Blue?

Singapore Airlines has sought to establish itself in Australasia for many years.  Ownership of Virgin Blue would open up new avenues and opportunities in a tight global market.  It would provide a feed into its European and Asian routes, as well as opening up possibilities across the Pacific.

Toll’s takeover of Patrick gives it a 62% stake in Virgin Blue which it could sell.  Sir Richard Branson has rights to buy 15%.  There is a $12 million break-free penalty with a deadline of May 15.

Singapore Inc has already made three attempts to enter the Australasian market.  In the early 1990’s, the Singapore Government built a stake in Brierley Investments who is a part owner of Air New Zealand.  However, they failed to secure significant airline control and were somewhat disappointed by their investment in Brierley.  Singapore Airlines then attempted to buy Ansett, a deal which very nearly happened but never eventuated. 

The strategic reasons for airline ownership in Australasia are as strong and this airline is more attractive than the previous two.  Virgin Blue is a large profitable domestic airline lacking any relations with a major international partner.  If given such a relationship it could potentially do even better.  Virgin Blue is an airline with an appealing low cost structure, free of IR baggage.  It does not have an entrenched culture and it is not top heavy with management.  These aspects have strong appeal for Singapore Airlines.  It also means that the airline could be molded to fit a larger plan.  Branson and Singapore Airlines are already partners in Virgin Atlantic.

Qantas could react with sustained pressure using the Qantas-Jetstar vice and can afford to prolong a battle for market share.  There are not many large airlines with strong balance sheets and Qantas is one of them.  Singapore Airlines is also a contender.   

A worthwhile block of Virgin Blue might not even become available, and if it does it might be over-priced.  However, Singapore is a technocracy with over-lapping economic plans.  The first boom was based on its ports, the second on multinationals, and the third on financial markets. Now the airline is leaning towards foreign investment and such a venture is encompasses many hard decisions.  Vying for a block of Virgin Blue would seem to be an easy option. 

Virgin Blue would be much more attractive to Singapore Airlines if it retained its international bilateral rights.  To do so, it needs to be 51% Australian owned.  This is a big fact influencing the negotiations.

What Singapore doesn’t buy directly from Toll, it could buy from Branson.  The combined foreign ownership is an issue for Singapore.  Toll’s MD Paul Little says a decision may take eighteen months, with the first of its kind set to be initiated on May 15.  Toll might need more time to find a mix of local institutional buyers to satisfy Singapore Airline’s logical target of a stable controlling minority interest.  Such control is also dependent on whether enough foreign ownership is available for Singapore to proceed.