When Sir Richard Branson sold a 49% stake in Virgin Atlantic
Airways to Singapore Airlines Ltd. in 1999, the U.K. billionaire
described the tie-up as a "marriage made in heaven," with hopes
that the alliance would offer customers a much-wider choice of
destinations.
But the relationship never quite blossomed the way both partners
had envisaged, and now looks set to end after 13 years. On Monday,
Singapore Airlines said it was in talks to sell its investment in
Virgin Atlantic, a move that if successful would free the premium
Asian carrier from one of its most underperforming strategic
investments. Mr. Branson's Virgin Group owns 51% of the
London-based airline.
"It was pretty clear for a long time that the partnership didn't
go deep enough," said Timothy Bacchus, head of transportation
research at CCB International Securities.
People familiar with the situation said Sunday that U.S.-based
Delta Air Lines Inc. has approached the Singapore flag carrier to
discuss buying its Virgin Atlantic stake, though they said there
was no certainty the talks would succeed.
Singapore Airlines confirmed in its statement that it was in
discussions with "interested parties' on a possible sale, but noted
the talks "may or may not result in a transaction." The airline
said Monday it had no further comment beyond the statement. Its
shares ended flat at S$10.71 ($8.77), tracking the broad
market.
Singapore Airlines, frustrated over its lack of involvement in
Virgin Atlantic despite their equity links, has been considering
the sale of the stake for several years and has held talks with
airlines, according to analysts and industry executives. However,
they said interest was muted because of a weak aviation market
since the global financial crisis.
With its initial investment in Virgin Atlantic having long been
written down, cash from the sale could help Singapore Airlines fund
an aggressive fleet expansion. In October, the airline ordered 25
new Airbus aircraft, worth $7.5 billion at list prices. It also has
20 Boeing 787 Dreamliners on order for its new budget carrier unit,
Scoot.
"This is definitely good news for Singapore Airlines," said
Kelvin Lau, a Hong Kong-based analyst at Daiwa Research. The
investment "didn't really deliver what the airline was looking for
and hasn't really been financially performing."
Singapore Airlines paid 600.3 million British pounds ($962
million) for the stake in Virgin Atlantic and was criticized at the
time by financial analysts for having offered too much for a share
in the privately held airline. Since then, the cooperation between
the two carriers has been largely limited to code-sharing and
reciprocal recognition of frequent-flier miles--arrangements that
Singapore Airlines also has with nearly 20 other airlines. Virgin
Atlantic also doesn't fly to Singapore.
Though it is unclear what prevented further cooperation between
Singapore Airlines and Virgin Atlantic, some analysts said
divergent markets could be partly to blame: Virgin Atlantic was big
in the trans-Atlantic business, while Singapore Airlines was strong
on long-haul and regional flights from its home city.
With the investment, Singapore Airlines had sought rights to fly
on the key London-New York route. Those hopes, however, never
materialized.
Virgin Atlantic has also produced dismal financial results:
though it posted operating losses for only two of the last five
financial years, the total losses far exceeded the profits
made.
Analysts therefore expect Virgin Atlantic to be worth much less
than what it was valued at the time of the Singapore Airlines
investment, though specific estimates are difficult to formulate
because the unlisted U.K. carrier doesn't release detailed
financial statements.
Singapore Airlines hasn't been immune to the downturn in first-
and business-class passenger traffic and sky-high fuel prices, and
last month it reported a 54% slump in net profit for the quarter
ended September. It plans to withdraw nonstop flights to Los
Angeles and Newark, N.J., at the end of next year because of high
operating costs, marking the end of the world's two
longest-distance commercial flights. Meanwhile, competition with
thriving low-cost carriers is also putting pressure on ticket
prices on short, regional flights.
The relationship between Singapore Airlines and Virgin Group has
also at times been rocky. In its 1999 investment in Virgin
Atlantic, Singapore Airlines acquired the veto rights to use the
Virgin brand on other international airlines. Without the Singapore
company's consent, Mr. Branson had been unable to use the Virgin
brand on new international ventures operating out of Australia.
The ice finally broke last year, when Virgin Australia Holdings
Ltd., in which Virgin Group owns a 26% stake, entered a
wide-ranging alliance with Singapore Airlines involving coordinated
schedules, code-sharing and marketing ties. Virgin's international
ventures were also folded into the Virgin Australia brand for the
first time. In October, Singapore Airlines bought a 10% stake in
Virgin Australia.
--Gaurav Raghuvanshi in Singapore contributed to this
article.
Write to Jeffrey Ng at Jeffrey.Ng@wsj.com
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