Singapore Airlines (SIA) is said to be ready to offload its 49 per cent stake in Richard Branson'controlled Virgin Atlantic. Delta, the second 'biggest airline in the United States by revenue, is said to be in talks
to buy SIA's stake.

Prompted by a desire to connect its passengers from Singapore seamlessly via London to US eastern seaboard cities, SIA coughed up nearly ''600 million in 1999 (S$1.65 billion then) for its 49 per cent stake in Virgin Atlantic. But analysts now reckon Delta is unlikely to pay more than the book value of the stake, which they estimate to be under ''100 million (S$195 million).

Virgin Atlantic posted a loss of around ''80 million in its last full year. Also, the value proposition in holding on to Virgin Atlantic diminished somewhat by 2007, when Singapore and the United Kingdom inked a fifth Freedom agreement allowing SIA to 'y the trans'Atlantic route from Britain. But because of the dearth of new slots at London's overcrowded Heathrow Airport, the Virgin connection remained useful. The sale could open the door for Virgin Atlantic's entry into the lucrative Asia Pacific market  ' something it was prevented from doing by SIA.

The terms of its 49 per cent shareholding enabled SIA to block the Virgin group's international expansion in markets where it could compete head'on against the Singapore carrier. While SIA did not object to Virgin expanding into Africa and even Australia (where it operates Virgin Australia, in which SIA recently bought a 10 per cent stake), it understandably opposed Mr Branson expanding into its own backyard. But Virgin already 'ies to Hong Kong and Sydney, and Singapore could be on its network once SIA sells off its stake.
SIA's move to offload its stake in Virgin Atlantic is likely to be viewed positively by shareholders, given Virgin Atlantic's long'standing underperformance. However, should it decide to divest its 49% stake in Virgin Atlantic, this would allow Mr Branson to expand freely in markets which SIA is present in, thus elevating competitive pressures. On this note, SIA could potentially seek to raise its stake further in Virgin Australia to gain a stronger foothold in the Australian market.

Source: AmFraser