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Virgin Australia Holdings (VAH) today announced that it has made an investment in Skywest Airlines Ltd. (Skywest, ASX:SXR) in order to capitalise on opportunities in regional Australia by supporting further growth of VAH and Skywest’s regional partnership.
Should this investment and associated rights be converted to equity VAH will own approximately 10% of Skywest on a fully diluted basis.
Virgin Australia Chief Financial Officer Sankar Narayan said: “This investment highlights our belief in the growth potential of the Australian regional market and strengthens our partnership with Skywest.
“We have grown our regional operations significantly since launching our regional network with Skywest in October 2011, with the commencement of new services to Emerald, Gladstone and Port Macquarie. These services have been highly popular with the flying public and are already among our best performing regional routes.
“The fleet of four new ATR aircraft that we are using to operate these services will increase to 12 by the end of the 2013 financial year, and there is plenty of opportunity to further expand our regional footprint.
“We have also recently received draft final approval from the ACCC to provide an integrated offering with Skywest to corporate customers so that we can cater to increased demand from the resource industry. The investment announced today will further cement this relationship”, Mr Narayan said.
The investment will be made by way of an A$8 million convertible facility with Skywest. The facility is convertible by VAH into ordinary shares in Skywest at a conversion price of A$0.45 per Skywest share with a maturity date of 15 April 2015 and a coupon rate of 7.5% per annum.
In addition, Skywest has agreed to grant VAH a first tranche of 4 million warrants at a grant price of A$0.05 per warrant with a conversion price of A$0.45 per warrant along with rights to participate in future share issues during the term of the facility to avoid dilution. Subject to Skywest shareholder approval and there being no objection under Australia's foreign investment policy Skywest intends to grant an additional tranche of 2.41 million warrants to VAH on the same terms. The warrants have a maturity date of 15 April 2015. If the facility and all warrants are converted by VAH, then VAH would hold an equity stake of approximately 10% in Skywest on a fully diluted basis.