Etihad Airbus A340-500, Wikipedia Commons by Adrian Pingstone

Etihad has now bought a minority stake in two airlines in two months, acquiring 29.21% of voting rights in Air Berlin in December for € 72.9 million and announcing today an MOU for  40% equity in Air Seychelles for $US 20 million, in conjunction with a matching equity injection of $US 20 million from the Seychelles government, plus a shareholder’s loan of $US 25 million from the Middle East carrier, which is a distant second largest UAE flag carrier after Emirates.

Which has already raised the question in the Australian media as to whether Virgin Australia might be next, even before the Seychelles agreement was announced, because Etihad CEO James Hogan told the AFR earlier this week that it was open to such possibilities.

That report speculates on the possibility of overcoming the blocking equities in Virgin Australia of 26% held by Richard Branson and 20% held by Air New Zealand by dividing the airline, Ansett style, into an international Australian flag carrier,  and a domestic arm.

Foreign domiciled equity in an airline exercising Australian flag carrier privileges in the international market is capped at 49%, while no limits apply to foreign investments in Australian domestic carriers.

The split domestic/international ownership strategy is well known to students of the Ansett disaster, which had used such a structure before it collapsed in September 2001.

These students include Mr Hogan, who was the CEO of the Tesna consortium planning to take over Ansett’s airport leases when that bid by Solomon Lew and Lindsay Fox collapsed in February 2002 for lack of money, after they had failed to persuade Richard Branson  to pay them for the Ansett airline assets they didn’t actually own, as they were being administered by KordaMentha.

(It was such an insane story at the time, and not terribly well reported either, and you can read part of the forthcoming book by clicking on the Ansett button on the right of this page.)

The split Virgin Australia scenario has also been discussed in the past in Plane Talking since it is the only obvious way, with the indulgence of  a very rich investor, that Virgin Australia as a group could get its hands on serious capital if it wanted to expand more convincingly into the opportunities presented in these markets.

There are of course, some complications, but they mightn’t necessarily get in the way of engineering access to the Abu Dhabi money that is behind Etihad, and for that matter, much more!

The only major airline equity that is immediately available in the neighborhood is the more than 80% of Air New Zealand held by the New Zealand government as a consequence of the events that saw that airline, when it was 25% owned by Singapore Airlines, abandon its 100% ownership of Ansett (domestic) which in turn owned the majority equity in Ansett (international)  after both Ansetts and Air NZ  had been totally trashed by an appallingly incompetent Kiwi management. No-one is suggesting at the moment that Etihad is interested in Air NZ, although in any comprehensive rationalisation in this part of the world, putting Virgin Australia and Air New Zealand together, perhaps with something else, could be a temptation for the rich and brave, or crazy.

But whatever it did in relation to Virgin Australia or its almost one fifth benevolent NZ shareholder, it wouldn’t get it for the pocket money spent on Air Berlin or proposed to be spent on Air Seychelles. That totals around $125 in Australian dollars, as of this moment, which is about what five single aisle 737s or A320s would cost  if you were buying them in a bulk discount deal for say, 200 of them.

The risk attendant on any such play by Etihad would be that someone might think on a bigger scale, and go for what’s left of Qantas, or maybe if they were really clever, Jetstar without Qantas, since that’s where the assets appear to have gone.

Maybe that’s the plot. Etihad wants to really buy Qantas. Yes? No?

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