Too many captains

31 May 2016 By Rachel Morarjee

The Chinese behemoth may be able to improve its foothold in a key market by buying 13 pct of its peer Down Under. Virgin is a struggling carrier, however, in need of a huge capital injection and it already has three other big airline investors. That caps HNA’s potential returns.

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Virgin Australia said on May 31 that China’s HNA Aviation will buy 13 percent of the carrier as part of a strategic alliance and could raise its stake up to 19.9 percent over time.

HNA will pay a total of A$159 million ($115 million), equivalent to A$0.30 per share, for the initial 13 percent shareholding in Virgin. The price is a 7.1 percent premium to the last close on May 30.

The pair plan to introduce direct flights between Australia and China and co-operate on operations such as frequent flyer programmes, code-sharing and lounge access, Virgin said in a statement.

Virgin added that a review of its capital structure is ongoing and that HNA was committed to supporting the outcome.

The share placement is subject to regulatory approvals from Chinese authorities.

Virgin shares closed up 7.14 percent at A$0.30 on May 31 after the deal was announced.

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