Is Air NZ's stake in Virgin Australia a takeover bid?

Air New Zealand has increased its relevant interest in Virgin Australia from 14.99 to 19.99 per cent, with the increased interest acquired at 29.7 cents per share.

The increased interest is held through an equity derivative agreement with Deutsche Bank which gives Air New Zealand an economic interest in up to five per cent of Virgin Australia, subject to certain conditions.

One of these conditions is that such purchase does not cause Virgin Australia to breach its foreign ownership cap of 49 per cent, as specified in the Australian Air Navigation Act.

Air New Zealand says it intends to work with Virgin Australia to bring its interest out of the derivative and into physical shares as soon as possible within the constraints of the foreign ownership cap.

Prior to entering into the equity derivative arrangement, Air New Zealand received Australian Foreign Investment Review Board approval to purchase up to 19.99 per cent of Virgin Australia.

Air New Zealand CEO Rob Fyfe says there is no intention to make a takeover bid for Virgin Australia, something he confirmed to the airline’s Chief Executive, John Borghetti, in a telephone call.

“Our increased investment in Virgin Australia continues Air New Zealand’s strategy to develop scale and reach in this region.

"The trans-Tasman Alliance with Virgin Australia was the first step in this strategy,  followed by our initial investment in January of this year.

"This increased investment demonstrates our continued belief in the strategy that Virgin Australia is pursuing and our confidence in the Virgin Australia management team to deliver this strategy.

"The trans-Tasman alliance that we have with Virgin Australia is now well underway and delivering great results for customers and also for both airlines."

So it's not a takeover strategy, but VA's share price remains very attractive...