SIA-Virgin Atlantic marriage on the rocks

SINGAPORE - A 13-year marriage that started happily enough but soon deteriorated into an unhappy co- existence could soon end in divorce: Singapore Airlines (SIA) is said to be ready to offload its 49 per cent stake in Richard Branson-controlled Virgin Atlantic.

Delta, the second-biggest airline in the United States by revenue, is said to be in talks to buy SIA's stake.

British newspapers say that the deal could also be a precursor to Delta's European partner Air France- KLM buying out Mr Branson's entire 51 per cent majority stake in Virgin Atlantic.

European Union rules require majority European ownership of a European carrier.

SIA did not provide a definitive confirmation of any imminent deal.

"Singapore Airlines wishes to announce that it is in discussions with interested parties concerning the possible divestment of its 49 per cent shareholding in Virgin Atlantic Ltd," it said in a short statement.

"These discussions may or may not result in a transaction. Singapore Airlines will make further public announcements as necessary."

Prompted by a desire to connect its passengers from Singapore seamlessly via London to US eastern seaboard cities, SIA coughed up nearly £600 million in 1999 (S$1.65 billion then) for its 49 per cent stake in Virgin Atlantic.

But analysts now reckon Delta is unlikely to pay more than the book value of the stake, which they estimate to be under £100 million (S$195 million).

This would be much less than even a fifth of SIA's original investment.

If so, this would not be the first investment to go bad for SIA; it lost most of the more than NZ$400 million (S$400 million) it invested in Air New Zealand following the near-collapse and subsequent government-led rescue of the Kiwi carrier in the early 2000s.

SIA has long been looking to get out of the Virgin partnership as it has not been a happy one, with the Singapore carrier simply sitting idly and collecting occasional dividends in the face of Mr Branson & Co's steadfast refusal to offer the Singapore carrier any management control.

Still, SIA has said before that it was not desperate to sell out but was open to "serious and reasonable" offers for its stake.

"It's not a secret that we regard it as an underperforming investment. We are still reviewing our plans and are open to all offers," former SIA chief executive Chew Choon Seng said at a 2008 news conference.

Current CEO Goh Choon Phong holds the same position.

Virgin Atlantic posted a loss of around £80 million in its last full year.

Also, the value proposition in holding on to Virgin Atlantic diminished somewhat by 2007, when Singapore and the United Kingdom inked a Fifth Freedom agreement allowing SIA to fly the trans-Atlantic route from Britain.

But because of the dearth of new slots at London's overcrowded Heathrow Airport, the Virgin connection remained useful.

The sale could eventually lead to Virgin Atlantic joining the SkyTeam alliance of 19 airlines, including Delta, and Air France- KLM.

But, more critically, it could also open the door for Virgin Atlantic's entry into the lucrative Asia Pacific market - something it was prevented from doing by SIA.

The terms of its 49 per cent shareholding enabled SIA to block the Virgin group's international expansion in markets where it could compete head-on against the Singapore carrier.

While SIA did not object to Virgin expanding into Africa and even Australia (where it operates Virgin Australia, in which SIA recently bought a 10 per cent stake), it understandably opposed Mr Branson expanding into its own backyard.

But Virgin already flies to Hong Kong and Sydney, and Singapore could be on its network once SIA sells off its stake.

The Sydney-based Centre for Asia Pacific Aviation (Capa) noted yesterday that the sale of the 49 per cent stake would "remove the impediment for Virgin Blue using the Virgin branding on international routes from Australia".