Share placement with Etihad can help Virgin Australia, analyst...

Share placement with Etihad can help Virgin Australia, analyst says

by: Gillian Tan
From: The Wall Street Journal
May 09, 2012


VIRGIN Australia could strengthen its balance sheet through an equity placement to strategic parties such as Etihad Airways, according to Macquarie Equities Research.

"Virgin management could look at opportunities to further bolster the balance sheet through a potential placement of shares at book value to interested parties such as Etihad, which would have the effect of lowering gearing and put the airline in a position where it could potentially resume dividend payments,” analyst Russell Shaw said in a note to clients.

Etihad, which is owned by the Abu Dhabi government, already has domestic and international code share arrangements with Virgin Australia. Last week, the Abu Dhabi-based airline said it had acquired close to a 3 per cent stake in Irish budget airline Aer Lingus Group, a strategic holding that could increase in coming months and a move that outlined its European ambitions. In late 2011, Etihad increased its holding in German carrier Air Berlinto 29 per cent.

Virgin last week confirmed it will retain more than $US850 million ($841.7m) of cash on its balance sheet, excluding the financing for all aircraft deliveries in the next 12 months.

Mr Shaw reckons Virgin can lift its fiscal-2013 earnings despite of increased capacity competition from Australia’s largest airline, Qantas.

The broker has an outperform call and a price target of 50 cents a share. Virgin Australia - which is 26 per cent owned by Richard Branson’s Vieco 2 Ltd - last traded at 41c a share.