Virgin Australia’s new American private equity owners will use a shell company loophole to evade foreign ownership laws in the aviation sector, in a move tipped to spark objections from bitter airline rival Qantas.
The Age and The Sydney Morning Herald have confirmed that Virgin’s new owner Bain Capital has revived a shell company, Virgin Australia International Holdings (VAIH), to sidestep federal laws preventing foreign investors from owning more than 49 per cent of a local carrier operating international flights.
Virgin set up the shell company in 2012 when it raised equity from foreign airline backers including Etihad Airways and Singapore Airlines to fund a bitter domestic capacity war with Qantas. The structure helped Virgin avoid breaching the Air Navigation Act.
Virgin supplied VAIH with aircraft, crew, management, and operated its flights under a “services agreement”. Shares in the new shell company were distributed to Virgin’s existing shareholders – which were mostly Australian at the time – and locked in a trust.
The nation’s number two carrier collapsed into administration in April last year after the COVID-19 pandemic and associated border closures led to steep falls in domestic and international travel.
The VAIH shell company also went voluntary administration but was revived shortly after US-headquartered Bain took control of Virgin in November following a fierce bidding war for the group.
Reviving VAIH also confirms Virgin’s plan to restart international flying after Bain originally said it would be focused on the domestic market.
While all shareholders in the ASX-listed Virgin entity were wiped out in the administration process, Virgin said there was “no change” to the VAIH ownership structure which “continues to operate in a legally compliant way with the same independent directors”.
“The [VAIH] company remains majority owned by Australian shareholders,” a Virgin spokesman said. “The structure ensures ongoing compliance with the foreign ownership restrictions under the Air Navigation Act.”
Qantas boss Alan Joyce has previously hit out at Virgin’s use of the loophole, saying in 2013 that it enabled his main competitor to “circumvent Australia law and pretend to be an Australian airline” as he pushed for changes to the Qantas Sale Act, which also limits foreign ownership of the national carrier to 49 per cent.
Aviation consultant Neil Hansford said the continuation of the VAIH structure under Bain’s ownership would enrage Qantas.
It could also prompt other countries to reconsider whether to extend flying rights to Virgin as an Australian carrier.”I think they would have enough reason as a Japanese operator to say: no, that is not an Australian owned and controlled airline,” Mr Hansford said.
Bain offloaded Virgin’s long-haul Airbus A330 and Boeing 777 aircraft but has said it will look to buy more wide-body jets and rebuild its international arm as demand recovers from the COVID-19 downturn.
The airline has reopened bookings on flights to New Zealand from March using its smaller 737s, and is seeking to retain its lucrative landing slots at Tokyo’s Haneda Airport.
Corporate filings show that Virgin’s new CEO Jayne Hrdlika and Bain’s local boss Michael Murphy have joined VAIH’s board, alongside previous directors including prominent businessmen Tony Shepherd and Graham Bradley, and former Rudd government finance minister Lindsay Tanner.
Virgin was more than 90 per cent foreign owned when COVID-19 pushed it into administration last year, with Singapore Airlines, Etihad Airways, Chinese conglomerates HNA and Nanshan each owning a fifth of the group and Richard Branson’s Virgin Group owning 10 per cent.
Bain now owns around 93 per cent of Virgin after agreeing to give a 5 per cent stake to Virgin Group in a deal that secured rights to the Virgin brand and a 2 per cent to the Queensland Investment Corporation under a support deal to keep it headquartered in Brisbane.
Source: Thanks smh.com