Virgin Australia drops privatisation plan as profits soar

Shock move casts pall over the airline's best underlying half-yearly earnings in a decade

Virgin Australia aircraft at Melbourne's Tullamarine International Airport, Australia. David Gray/Reuters

Virgin Australia, the second-biggest airline in Australia, scrapped plans to potentially go private on Wednesday, sparking concerns that a major Chinese shareholder HNA Tourism may be about to exit, leading to a sharp fall in its share price.

The surprise decision overshadowed the airline's best underlying half-yearly profit in a decade. Small shareholders have stuck with their investments in hopes the company would make good on plans to buy them out at a premium.

Just 10 per cent of Virgin's stock is openly traded on the share market but analysts watch its register carefully since it includes Sir Richard Branson, with 10 per cent stake, and Singapore Airlines, Etihad Airways and China's Nanshan Capital and HNA Tourism, each holding about 20 per cent.

HNA, part of an aviation to services conglomerate, has been selling assets to alleviate severe financial strain after a $50 billion acquisition spree over two years sparked scrutiny of its opaque ownership and use of leverage.

"Following discussions with the major shareholders the board has decided not to privatise the company," the chairwoman Elizabeth Bryan said on Wednesday.

Ms Bryan did not give a reason for the company's decision to reverse a move it flagged in 2017.

Asked about the decision on an analyst call, Virgin chief executive John Borghetti said he was "here to run the company and we're doing the best we can".

"It's the decision and we move on," he added.

Virgin shares were down 6 per cent at 24.5 Australian cents by mid-session, close to the record lows the stock has traded at after years of losses and rising debt forced it to sell more shares. The broader market was down 0.4 per cent.

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The company meanwhile, posted a 142 per cent jump in first-half underlying profit and swung to an interim net profit for the first time in two years as more Australians chose to fly and fewer seats enabled it to charge higher fares.

The airline added that it expected an improvement in underlying performance in the second half of fiscal 2018.

Underlying profit was A$102.5 million (Dh293m) for the six months ended December 31, from A$42.3m the previous year. Net profit of A$4.4m compared with a A$21.5m loss a year earlier.

Last week, Virgin's larger rival and Australian flagship carrier Qantas beat market expectations with a record first-half profit, also largely because of fare hikes and higher demand at its domestic unit.

HNA, which bought into Virgin in May 2016, was not immediately available for comment