Wednesday, October 24, 2007

Why is Singapore Airlines Delaying its Virgin Sale?

Why is Singapore Airlines Delaying its Virgin Sale?

Singapore Airlines has postponed the sale of its 49 per cent stake in Virgin Atlantic because of turbulence in the financial markets.

Sources close to the company have confirmed that the recent credit crunch in world banking would delay a decision on offloading the stake, which could be worth up to £1 billion.

Singapore Airlines bought the stake from Sir Richard Branson in 1999 for £600 million, but said three months ago that it was considering whether to remain a shareholder in the British airline. Sir Richard is thought to have a preemptive right to buy back the shares, but Singapore has also considered selling to a private equity firm or even another airline.

Because of the turmoil in financial markets the airline is thought to be concerned that it will not get the best price for its stake. It will remain a shareholder in Virgin, therefore, until early next year, at least. Industry sources suggested that Singapore Airlines may choose to drop the sale completely as it focuses on expanding in Asia.

The company bought its stake in Virgin because it wanted access to the transatlantic route between Heathrow and New York. As a Singaporean company, it could not offer its own service between Europe and the United States. However, two weeks ago the British and Singaporean governments agreed to remove restrictions on air travel, which will allow Singapore to offer services from London to New York.

Analysts had been speculating that Singapore Airlines would drop the Virgin stake once this agreement was in place and launch its own transatlantic service.
Singapore Airlines, regularly voted one of the world’s best airlines, is particularly focused on growing in China and has taken a 24 per cent stake in China Eastern Airlines.

Singapore Airlines was not available for comment. A spokesman for Virgin said: “They have been a valuable shareholder and any decision on their stake is a matter for Singapore Airlines.”

Is turbulence in the financial market the only reason why Singapore Airlines is delaying the sale of its stake in Virgin Atlantic?