Posted on: 10 April 2012 by Mark Howells
Skywest Airlines has entered into an agreement for Virgin Australia Holdings (VAH) to invest A$8 million in the company, such that if the investment and associated warrants are converted to equity, the stake would represent 10% of the ordinary shares in Skywest on a fully diluted basis.
Skywest already has a strong working relationship with Virgin Australia and the two airlines are currently operating four ATR 72s as part of the Australian Regional Airline Network (ARAN) Agreement. This fleet will grow to 12 by the end of the 2013 financial year.
Skywest executive chairman Jeff Chatfield commented, “This investment highlights the confidence that Virgin Australia has in the Skywest business and our ability to tap into future growth opportunities in the Australian regional market.
“Our current integrated offering with Virgin Australia is extremely valuable to major mining company customers who need to move large numbers of employees to and from their place of employment around Australia. By late 2012, we expect the run rate revenue of the ARAN business to be larger than the existing Skywest legacy RPT business," Chatfield explained.
VAH’s investment will be made by way of an A$8 million convertible debt instrument which is convertible by Virgin Australia into ordinary shares at any time during the term at a conversion price of A$0.45 per share (the “Convertible”). The conversion price of A$0.45 per share represents approximately a 25% premium over the recent closing share prices. The Convertible matures on 15 April 2015 and pays interest of 7.5% per annum.
In addition, Skywest has agreed to grant Virgin Australia a first tranche of 4 million warrants at a grant price of A$0.05 per warrant with a conversion price of A$0.45 which may be exercised at any time until 15 April 2015 (the “First Tranche Warrants”).
Subject to its shareholders’ approval and there being no objection under Australia’s foreign investment policy, Skywest intends to grant an additional tranche of 2.41 million warrants to Virgin Australia on the same terms (the “Second Tranche Warrants”). The company intends to call an extraordinary general meeting for the purpose of approving the grant of the Second Tranche Warrants and will issue a notice of extraordinary general meeting in due course.
Virgin Australia chief financial officer Sankar Narayan remarked, “This investment highlights our belief in the growth potential of the Australian regional market and strengthens our partnership with Skywest. We have grown our regional operations significantly since launching our regional network with Skywest in October 2011, with the commencement of new services to Emerald, Gladstone and Port Macquarie. These services have been highly popular with the flying public and are already among our best performing regional routes.
“We have also recently received draft final approval from the ACCC to provide an integrated offering with Skywest to corporate customers so that we can cater to increased demand from the resource industry. This investment will further cement this relationship,” Narayan added.