Virgin Australia has agreed to acquire a 60% stake in Tiger Airways Australia.
The deal, which is worth AU$35 million (US$36m) in cash, forms part of a new joint venture agreement signed between Tiger and Virgin which the companies said would include “network planning, operational management and procurement”.
In addition to the cash payment, Tiger Australia will pay an annual license fee to its Singapore-based parent for the use of the Tiger brand for 20 years, based on a fixed percentage of Tiger Australia’s total revenue. This branding agreement also includes options to renew for another two periods of five years each. Tiger Australia will also make a payment of AU$5m to Tiger Singapore if it achieves certain financial performance targets within five years.
In the meantime, Tiger Australia will continue to operate as a low-cost carrier under the Tiger brand, providing domestic air services in Australia. Its flights will still be offered for sale through the tigerairways.com website.
“This is a significant step forward for us. The joint venture will bring about a stronger and more competitive Tiger Australia, and allow us to deploy more capacity and attractive budget offerings to our customers,” said Tiger’s Group CEO, Koay Peng Yen. “We are committed to growing Tiger Australia’s fleet, network and flight frequencies, and expanding to more destinations in Australia,” he added.
Tiger and Virgin have both committed to invest up to a further AU$62.5m into the business, as the Tiger Australia expands its fleet from 11 to 35 aircraft by 2018. Eight of these additional aircraft will be procured from Tiger Airways’ existing orders with Airbus.
“This transaction enables Virgin Australia to access the budget market and enables Tiger Australia to expedite its growth, providing greater competition to this important market segment,” said John Borghetti, CEO of Virgin Australia. “By partnering with Tiger Airways, we can use our expertise to leverage Tiger Australia’s competitive cost base and build a sustainable budget carrier. We are committed to maintaining the Tiger Australia business model and brand, and we look forward to collaborating with Tiger Airways as the business grows,” Borghetti added.
The completion of the share sale is subject to receiving regulatory approval from the Australian Competition and Consumer Commission (ACCC) and Foreign Investment Review Board. Tiger Airways in 32.8% owned by Singapore Airlines, which has already formed a joint venture with Virgin Australia.