Richard Branson-backed airline Virgin Australia Holdings said it tapped its top shareholders for a A$425mn ($320mn) loan facility, a step that is expected to help it cut its reliance on the bond market for funds.
The loan facility goes some way to address investor concerns that its cash reserves have declined sharply in the wake of a five-year revamp aimed at broadening its services beyond the discount carrier market.
The US bond market, which Virgin Australia has previously tapped, has also become more expensive due to a sharp weakening of the Australian dollar over the past three years.
“Clearly they need extra funding,” said an aviation analyst declining to be identified as he had not yet published research on the news. “The market’s relieved that they’re going to get it.”
Virgin Australia’s shares rose 9%, their biggest one-day jump in two years, regaining some ground lost on Friday due to a spike in the price of oil. The one-year facility was secured with Air New Zealand, Branson’s Virgin Group, Singapore Airlines and Abu Dhabi government-owned Etihad Airways, which together own 83% of the company.
Last month, the airline swung to a half-year profit and forecast a return to full-year profitability as it attracted more big-spending corporate passengers.
But the airline also revealed that its unrestricted cash reserves shrank to A$543.7mn as of December 31, down by a quarter from a year earlier.
Chief executive officer John Borghetti said the loan facility will give the company additional flexibility in the short-term. It will be subordinated to Virgin Australia’s existing debt, and split between the four shareholders proportionally to their Virgin stake.
Air New Zealand is the airline’s biggest shareholder with a 26% holding, while Etihad has 24%, Singapore Airlines has 23% and Virgin Group has 10%.
The measure will, however, likely to fuel complaints by rival Qantas Airways that Virgin gets to compete unfairly since Qantas, as the national carrier, has its foreign ownership restricted to 49%.
Two Virgin Australia planes sit on the tarmac at Adelaide Airport. The Australian airline said it secured a A$425mn ($323mn) 12-month loan facility with its four major shareholders, as part of a structural review.
