Is Singapore Airlines about to takeover Virgin Australia?

Singapore Airlines increased its stake in Australia’s second domestic carrier Virgin Australia Holdings Ltd (ASX: VAH) to 23.11% today, from 22.91%, but could be after a much bigger stake.

Air New Zealand – Air N.Z. FPO NZ (ASX: AIZ) recently announced that it wants to sell its 26% holding in Virgin to focus on other growth areas, and Singapore Airlines is viewed as the most likely buyer of that stake.

Interestingly, Singapore says it paid 46.72 cents per share for ~6m shares, well above the current Virgin share price of 36.5 cents. Singapore Airlines is not adverse to kicking in money to Virgin, recently participating in a $425 million loan to the group, alongside the other major shareholders, Air New Zealand, Etihad Airways (24%) and Sir Richard Branson’s Virgin Group (10%).

University of Sydney associate professor in aviation management Rico Merkert has told Fairfax Media, “Singapore would be a natural fit in terms of the network and complementary routes. It would also gain more control over the airline. I think that is important. [Singapore Airlines] tried before to get into Australia and had serious talks with Qantas Airways Limited (ASX: QAN) at one stage.

Singapore would need Foreign investment Review Board (FIRB) approval to make a full takeover of Virgin, not to mention the agreement of Etihad and the Virgin Group. The airline currently has FIRB permission for up to 25.9% in Virgin.

Air New Zealand had previously stated that it prefers to see Virgin as a listed company subject to financial discipline and more anchored as an Australian company. But now that the Air NZ wants to exit Virgin, that could allow Singapore Airlines to make a full takeover bid.

News reports suggest that Singapore would be very interested in Virgin’s international business, particularly its trans-Pacific route too.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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