Air New Zealand buys into Virgin Blue

Airline carrier, Air New Zealand (ASX:AIZ) have bought a stake in Virgin Blue (ASX:VBA) declaring plans to buy up to 14.99% of the company. AIZ have obtained approval from the Australian Foreign Investment Review Board. Neither airline would disclose the exact size of the current stake. Also both recently received conditional approval from Australia's competition watchdog to form an alliance that both hope will increase their ability to compete with Qantas (ASX:QAN) on the trans Tasman Sea route between Australia and New Zealand.

Richard Branson's Virgin Group owns 26% of Virgin Blue, lwhich leaves little room for Virgin Group or Air New Zealand to increase their holdings, which will total just over 40.9% combined if the AIZ carrier takes the full 15% stake. Australian law limits foreign ownership of airlines flying international routes to 49%.

The New Zealand Airline's adviser for the deal, Deutsche Bank, is believed to have been in the stockmarket yesterday evening approaching institutional investors in Virgin for shares at up to 51 cents each - 16 percent above yesterday's 44 cent closing price. More than 50 million VBA shares have been traded in the past three days, well above the 5 million daily average. According to Bloomberg data, Deutsche accounted for about 25 per cent of the trading.

Virgin Blue, Australia's second-biggest air carrier, recently hired John Borghetti, a long-serving Qantas executive, to be chief executive for VBA. Virgin Blue and Abu Dhabi-based Etihad Airways were given draft approval last month by the Australian Competition & Consumer Commission (ACCC) for an alliance. ACCC has also approved the carriers plans to work more closely with U.S.-based Delta Air Lines, which still requires U.S. approval.