Updates throughout morning

Virgin Australia is proposing to split the company into domestic and international businesses, a move which clearly sets it up for an investment by Etihad Airways.

It has also reported a statutory net profit after tax of $51.8 million in the six months to 31 December, meaning that as a much smaller airline, it nevertheless made more ‘real’ money, in statutory terms, than the entire Qantas group, which reported a net profit after tax of $42 million for the same period.

These are the headline financial results filed with the ASX.

The proposed restructuring depends on the approval of a special distribution of new shares to existing shareholders by way of an ‘in specie dividend ‘  and will not affect employees or customers in any material way.

The Virgin Australia statement says that the two businesses will have different shareholders in the future but continue to have a close working relationship.

The statement makes no references to possible new shareholders by name, but does refer to the need to make the changes to allow the Virgin Australia business and brand continue to grow.

It says a long term service agreement between Virgin Australia Holdings and Virgin Australia International Holdings is central to the future relationship between both companies.

Under current ownership laws, Virgin Australia, if entirely domestic in its operations, can be 100% foreign domiciled shareholder owned. However under the same laws a Virgin Australia that is entirely international in its operations, or in the case of Qantas, a mix of domestic and international services, is capped at 49% foreign domiciled shareholder ownership, a provision which conforms to the international definition of a flag carrier as being majority national owned, for purposes of negotiating and recognising international air traffic rights.

However the clear and stated intention of the proposed changes is to bring in more capital for the expansion of the domestic operations, which is where both Virgin Australia and Qantas make the most of their profits.

In the case of speculation concerning Etihad,  its unstated yet clear interest in acquiring a stake in Virgin Australia is blocked by a share register in which two foreign domiciled shareholders, Richard Branson’s private company Virgin Holdings and Air New Zealand, hold 26% and nearly 20% respectively, leaving almost no room for it to move in relation to the foreign investment cap.

Under changes made to the Foreign Investment Review Board (FIRB) rules a while back, any entity deemed to be owned or controlled by a sovereign or state enterprise cannot buy any shares in an Australian company without its approval, which would be a potential hurdle for Etihad as well as a range of state investment corporations throughout Asia.

Back on the domestic fronts, this is how Virgin Australia summarised its operations in the first half to 31 December.

In the supporting statements lodged with the ASX Virgin Australia says it is also introducing a further change to domestic business class in the Embraer E-jets that notably serve corporate and government accounts flying into and out of Canberra.

Those jets will get a two by one seating configuration, the roomiest configuration ever introduced to a smaller scheduled jet airliner in Australia.