The tourism industry has welcomed Virgin’s announcement that it will take a 60% stake in Tiger Airways, with the Tourism and Transport Forum saying it will ensure a long-term future for the local aviation sector.
The move comes as part of a three-way transaction, with Singapore Airlines buying up 10% of Virgin for $105 million, while Virgin will in turn pay $35 million for its stake in Tiger.
In a third transaction, Virgin is planning a $99 million purchase of regional carrier Skywest.
Virgin’s move to invest in the company comes a year after Tiger suffered a string of embarrassing mishaps, with the aviation safety regulator grounding the company for a month and its local chief executive resigning.
It is yet another sign of ongoing consolidation and restructuring in the struggling aviation industry – especially on behalf of Singapore as it attempts to compete with Australian airlines.
Virgin shares have risen 6.5% to 49 cents after the announcement. Other investors in the company include Air New Zealand and Etihad.
In a statement, Virgin chief executive John Borghetti said the Singapore Airlines investment “demonstrates their confidence in our strategy”, and allows the company to fast-track its growth plans.
In a separate statement, Borghetti said the Tiger Airways deal would allow the carrier to expand its capacity and offer more customers. Tiger chief executive Koay Peng Yen said the added move would be a step forward for the company’s strategy.
“The joint venture will bring about a stronger and more competitive Tiger Australia, and allow us to deploy more capacity and attractive budget offerings to our customers,” he said in a statement.
The third and final deal will see Virgin make a $98.7 million takeover offer for Skywest. The company, which operates in regional Australia and some parts of south-east Asia, will be purchased for 22.5 cents per share in cash and 0.53 shares in Virgin Australia for each Skywest share.
Skywest executive chairman Jeff Chatfield said the offer is a premium to the company’s price.
“The proposal will only proceed in the absence of a superior offer,” he said in a statement.
“Skywest will be appointing a Singaporean independent expert to advise the board on the value of the proposed consideration.
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John Lee, chief executive of the Tourism and Transport Forum, said the announcements will give the local industry a shot of stability.
“It’s a vote of confidence in the strength of Australia’s aviation market generally and in Virgin Australia more specifically that Singapore Airlines has entered into this arrangement.”
He also added the Singapore investment is timely considering the recent release of the Australia in the Asian Century white paper.