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Virgin Australia Announces Proposed New Structure

23/02/2012

Virgin Australia Holdings (VAH) today announced a proposed new structure of its business designed to ensure ongoing compliance with the Air Navigation Act (ANA) which limits foreign ownership of Australian international airlines to 49%.

The proposed structure involves securing majority Australian ownership in VAH’s international airlines by changing the shareholding and governance structure of the international airlines to ensure compliance with the ANA. The proposed new structure will facilitate overseas institutional investment in the domestic business, which will improve the liquidity of VAH and in turn enhance shareholder value. 

There will be no change from an operational perspective for staff and consumers as both the domestic and international businesses will continue to operate as an integrated airline under one brand.

The proposed new structure involves creating a new unlisted entity Virgin Australia International Holdings Pty Ltd (VAIH) which will hold VAH’s international airlines. VAIH will:

  • be owned by existing VAH shareholders and have a majority independent board of directors;
  • be comprehensively serviced and funded by VAH, and therefore will not involve any visible changes from a consumer perspective; and 
  • mean business as usual from a staff perspective in terms of the day to day running of the airline.

VAH became subject to the 49% foreign ownership cap of the ANA after launching its international operations in 2004. Foreign ownership has traditionally been well below the cap, however over the past 12 months it has been sitting only marginally below 49% and therefore Virgin Australia has been evaluating options to ensure ongoing compliance.

The VAH Board of Directors and management believe that the proposed new structure is the best option for Virgin Australia and its stakeholders to ensure long-term growth and access to capital for its business.

Foreign investors should note that the foreign ownership levels of VAH are sitting only marginally below the 49% cap. If foreign investors acquire shares in VAH before the Ex-Date for the in-specie dividend and as a result foreign ownership in VAH exceeds 49%, those shareholders may be required to dispose of their interest in VAIH shares under the cure mechanism in the VAIH Constitution.

Subject to the satisfaction or waiver of certain conditions, it is intended that dividend will be determined on 16th March 2012, with implementation by the end of March 2012.

Proposed new structure – Overview

The proposed new structure involves the creation of a new entity VAIH which will hold the international airlines of VAH and (subject to satisfaction or waiver of certain conditions) will be effected through the determination and payment of an In Specie Dividend to VAH shareholders who have acquired their VAH shares prior to the proposed Ex-Date, 21 March, on a 1:1 ratio. The In Specie Dividend effectively gives each shareholder a beneficial interest, in the VAIH shares and these shares will be administered by a Trust.

VAIH will be governed by a separate independent Board of Directors, with majority independents, including an independent Chairman*.

VAIH shares cannot be traded and only sold under limited circumstances. Shareholders who are not permitted to hold shares in an unlisted entity can for a period of 60 days from Distribution Date sell their interests in VAIH shares to a person nominated and approved by VAH (Subject to VAH and foreign persons not holding more than 49% of VAIH).

Under the proposed new structure VAIH will enter into a long term service agreement and long term loan agreement with VAH. VAH will provide VAIH with a range of services, including the provision of aircraft, fully trained crew, maintenance, and back office services. VAIH will be charged a management fee for these services andthere will be no change for staff or the day to day running of the airline.

VAIH’s loan and future working capital requirements will be comprehensively funded by VAH. 

The VAH Board of Directors proposes to assign a nominal value to VAIH shares ($0.000001 per share) on the implementation date. Under the proposed new structure VAIH will have an approximately nil equity position on implementation date, as VAH have decided to recapitalise the balance sheet of VAIH prior to implementation to ensure it has sufficient assets to cover liabilities on day 1.

The proposed new structure is to be effected by the In Specie Dividend. That dividend will only be determined and distributed by VAH if the following conditions are satisfied or waived by VAH:

  • no legal action exists which would prohibit the implementation of the proposed new structure, including no event or occurrence which would have a material adverse effect on the ability of the international entities to continue to operate their operations; and
  • where required the consent of key stakeholders are secured.

If these conditions are not satisfied and VAH decides not to proceed with the dividend, VAH will notify the market immediately.

The proposed timing for implementation is as follows:

  • 23rd February 2012 - Announcementof intention to determine In Specie Dividend, subject to conditions
  • 23rd February 2012 - Information Statement lodged with ASX
  • 16th March 2012 - Determination and announcement of In-Specie Dividend (subject to satisfaction or waiver of conditions)- market will be notified in advance should this date change
  • 21st March 2012 Ex-Date - third business day after determination and announcement of In Specie Dividend (shareholders who acquire shares in VAH after this date will not be eligible for shares in VAIH)
  • 27th March 2012 Record Date - seventh business day after determination and announcement of In Specie Dividend
  • 28th March 2012 (target) - Distribution and Implementation Date – market will be notified in advance should this date change

*Proposed VAIH Board of Directors:

  • Graham Bradley (Chairman and Non-Executive Director) – Currently Chairman of HSBC Bank Australia, Stockland Corporation, Anglo American Australia and Po Valley Energy.
  • Anthony Shepherd (Non-Executive Director) – Currently President of the Business Council of Australia, Chairman of Transfield Services and a Director of Victorian Rail Track (VicTrack).
  • Lindsay Tanner (Non-Executive Director) - former Federal Minister for Finance and Deregulation who has extensive experience in aviation industry issues. Since leaving politics in 2010, he has worked as a special advisor at Lazard Australia and as adjunct professor at VictoriaUniversity.
  • Neil Chatfield (Non - Executive Director) - Virgin Australia Chairman.
  • John Borghetti (Non - Executive Director) - Virgin Australia CEO and Managing Director.