If the Air NZ purchase of 14.9% of Virgin Blue is a blocking move to prevent, say, Etihad from acquiring a significant interest in the carrier, it may well be thwarted by “unintended consequences”.

One of them could be the division of Virgin Blue into a purely domestic Australian company, in which 100% foreign ownership is allowed, and the devising of an international arm in which the owners of Virgin Blue also own 51%, thus retaining its status in terms of air traffic treaties as an Australian flag carrier controlled by entities recognised as Australian.

However, while such a structure is a fascinating conjecture (and that was used by Ansett to set up Ansett International, in the unprofitable glory days of that brand before a different Air New Zealand purchased and destroyed what was already a very badly run airline) the immediate story is that the NZ carrier is now sitting on a “can’t lose” minority stake.

Air NZ stands to make money from a well-run and expanding Virgin Blue just by being a 14.9% minority owner, or by selling it for a better price to a more ambitious investor, keeping in mind that sovereign funds such as those of the UAE states or Singapore are not airlines in their own right, and can probably finesse their way to significant holdings other than up-front ownership of up to 49% of an Australian flag carrier.

They can, for example, own the fleet, or the engines, or key debt instruments, yet not necessarily, too many shares, or even any shares at all.

And in any event, the numbers will change if Richard Branson sells down his equity to, say 10% of Virgin Blue from his 26% equity (as of yesterday). Branson is publicly prepared to sell down his 51% controlling stake in Virgin Atlantic in order to broker a merger with another carrier that would defend it from the consequences of a triple trans-Atlantic merger between American Airlines, British Airways and Iberia.

It is not known if he is contemplating a similar sell-down of Virgin Blue.  Or even a higher stake. Never second-guess Branson.

At the moment, former Qantas executive general manager John Borghetti is, as Virgin Blue CEO, taking delivery of completely n-ked white new jets in advance of a rebranding of Virgin Blue, Pacific Blue and V Australia.

The all-white jets are the physical metaphor for the public uncertainty over the group’s new but unannounced name, as well as the uncertainty about Branson’s intentions, and that of other potential large scale investors in what is still called Virgin Blue.

The “white” whatever-it-is-to-be-called future Virgin Blue entity is also planning to launch product to eclipse the Qantas full-service offering, and introduce wide-body A330s to the transcontinental routes, and start up a fleet of 18 turbo-props to take on the Qantaslink network as well.  It is a huge year for Virgin. Whatever, even without the for-whatever-purpose purchase of 14.9% by Air New Zealand.

While this is going on, Qantas is expanding its Jetstar brand into a trans-border low-cost franchise throughout Asia, and has began a longer-term migration of its assets to a Singapore base that will host a substantial fleet of Australian-registered, Jetstar-branded, wide-body jets in the near future.

Those changes represent the biggest medium-term challenges to the future of Virgin Blue and Air New Zealand that have yet emerged, and will require something more than rebranded jets and cabin changes if they intend to survive or prosper beyond the end of this decade.

Peter Fray

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