Richard Branson offloads Virgin shares

Virgin Australia (ASX: VAH) shareholder Etihad Airways has confirmed that its stake in Virgin has bounced from 13.4% to 19.9% in recent weeks. The rise comes after a stockmarket announcement revealed that Sir Richard Branson’s stake in the company had dropped by 2.5% to 10%.

Etihad’s stake is the maximum permitted for the company by the Australia’s Foreign Investment Review Board, following an approval granted in June 2013. Etihad now holds 515 million shares in Virgin, with the latest block purchased between 44.8 cents and 48 cents a share versus the Friday closing price of 41 cents.

The investment increases the link between the two airlines and expands Etihad’s corporate strategy of taking minority stakes in regional airlines. Etihad, the national airline of the United Arab Emirates, has stakes in airberlin, Air Seychelles and Aer Lingus, while it is progressing with plans to invest in Air Serbia and Jet Airways in India.

Etihad and Virgin have had a 10-year strategic partnership in place since 2010 that involves code-shared flights, joint sales and marketing activities, and reciprocal earn-and-burn on their respective frequent-flyer programs. Additionally, they operate a combined 28 (25 Etihad and 3 Virgin) flights between Australia and Abu Dhabi each week. Etihad CEO James Hogan predicted that the increased stake would further enrich the link between the companies and help to strengthen revenue streams and joint benefits of the agreement.

The move by Etihad follows Air New Zealand (ASX: AIZ) receiving approval last week from the Foreign Investment Review Board to increase its stake in Virgin by 6%, to 25.9%, after reaching the same 19.9% cap that Etihad has reached. Around 70% of Virgin’s equity is now controlled by four shareholders: Air New Zealand (19.9%), Etihad (19.9%), Singapore Airlines (19.9%) and Richard Branson (10%).

Foolish takeaway

For smaller Virgin shareholders, the interest from airline giants from across the world will be comforting following a less than stellar 2012-13. The company reported a loss and the share price has been volatile to say the least, with 20% swings occurring rapidly and often.

There is still much uncertainty ahead for shareholders as Virgin appears to be struggling to keep up with Qantas in both premium and budget price points. Long-term investors would be wise to hold tight to see how this financial year turns out, however buying into any new lows could prove risky until the outlook is clearer.

Shareholders should also note that Virgin have never paid a dividend, so if you’re more interested in income; discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

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