Tiger-Virgin deal slapped with another approval delay

Decision has been moved to May.

According to CIMB, Tiger’s proposed sale of its 60% stake in Tiger Australia to Virgin Airways, a positive move in our view, is now facing some degree of pushback from regulators.

CIMB noted that it has been five months since the deal was proposed, but the Australian Competition and Consumer Commission (ACCC) has repeatedly postponed its decision on this issue, citing concerns over a potential Virgin-Jetstar duopoly (as a result of the deal) that could lower the competitiveness of the industry.

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In addition, the ACCC also wants Virgin to commit to increasing Tiger Australia’s fleet size from 11 to 35 within five years as part of its approval consideration – which is a tall order for the cyclical aviation industry. ACCC has delayed its decision to May.

In our view, further approval delays will jeopardise the feasibility of the deal. Virgin Airways has even threatened to walk away from the deal entirely. If this happens, Tiger will once more have to bear the full brunt of losses in Australia.

Such losses have led to a huge cash drain over the past six quarters and without the Virgin deal, Tiger could exit the Australian market altogether. Moreover, Tiger Australia has been profitable for only one quarter over the past five years.

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