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Equity Bottom-Up

Virgin Australia Holdings / Equity Bottom-Up

Virgin announced a AUD 852 million fully underwritten entitlement share offer which is fully supported by the majority of its existing and new airline shareholders, with only Etihad still to make a decision.   This will be in addition to the proposed AUD 159 million placement to new Chinese shareholder, HNA (yet to receive regulatory approval) and potentially a further AUD 136 million top-up placement to HNA. We estimate the equity raisings will reduce net debt to AUD 710 million and we forecast its financial leverage ratio will improve from 5.5 times to 3.5 times, providing the company with more flexibility if its ultimate goal is to increase its domestic market share from our estimated 36.6%, closer to Qantas' 63.4%.Analyst: Carolyn Holmes

Virgin announced a AUD 852 million fully underwritten entitlement share offer which is fully supported by the majority of its existing and new airline shareholders, with only Etihad still to make a decision.   This will be in addition to the proposed AUD 159 million placement to new Chinese shareholder, HNA (yet to receive regulatory approval) and potentially a further AUD 136 million top-up placement to HNA. We estimate the equity raisings will reduce net debt to AUD 710 million and we forecast its financial leverage ratio will improve from 5.5 times to 3.5 times, providing the company with more flexibility if its ultimate goal is to increase its domestic market share from our estimated 36.6%, closer to Qantas' 63.4%.Analyst: Carolyn Holmes

Corporate Action: Take Up Virgin Australia's Significantly Discounted Entitlement Offer

Qantas is Australia's national carrier and the leading domestic airline with more than 65% market share.It is also--with the inclusion of Jetstar--Australia's largest international carrier, with about 25% market share of passenger traffic into and out of the country.While this reflects the strength of the Qantas brand, the international business is facing challenges as it operates at a cost-base disadvantage to Asian and Middle Eastern carriers.During the past five years, competition has driven excess capacity in the domestic market, leading to downward pressure on fares, particularly in the leisure segment where demand is highly price elastic.Qantas International operates at a cost-base disadvantage to Asian and Middle Eastern airlines that have added capacity to target Australia. Some are sovereign-funded with lower benchmark return targets than Qantas.Analysts: Ross MacMillan and Tim Mann

Qantas is Australia's national carrier and the leading domestic airline with more than 65% market share.It is also--with the inclusion of Jetstar--Australia's largest international carrier, with about 25% market share of passenger traffic into and out of the country.While this reflects the strength of the Qantas brand, the international business is facing challenges as it operates at a cost-base disadvantage to Asian and Middle Eastern carriers.During the past five years, competition has driven excess capacity in the domestic market, leading to downward pressure on fares, particularly in the leisure segment where demand is highly price elastic.Qantas International operates at a cost-base disadvantage to Asian and Middle Eastern airlines that have added capacity to target Australia. Some are sovereign-funded with lower benchmark return targets than Qantas.Analysts: Ross MacMillan and Tim Mann

The airline industry's notoriously volatile nature prevents Qantas from making sustainable returns.

Australia

Virgin Australia Holdings Limited is an Australian-based  full service airline providing domestic and international operations.

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Virgin Australia Holdings (VAH AU)

Corporate Action: Take Up Virgin Australia's Significantly Discounted Entitlement Offer

Virgin announced a AUD 852 million fully underwritten entitlement share offer which is fully supported by the majority of its existing and new...

Morningstar, Inc.

The airline industry's notoriously volatile nature prevents Qantas from making sustainable returns.

Qantas is Australia's national carrier and the leading domestic airline with more than 65% market share.It is also--with the inclusion of...

Morningstar, Inc.

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