Virgin Australia Holdings (VAH) today announced a proposed new structure of its business designed to ensure ongoing compliance with the Air Navigation Act (ANA) which limits foreign ownership of Australian international airlines to 49%.

The proposed structure involves securing majority Australian ownership in VAH’s international airlines by changing the shareholding and governance structure of the international airlines to ensure compliance with the ANA. The proposed new structure will facilitate overseas institutional investment in the domestic business, which will improve the liquidity of VAH and in turn enhance shareholder value.

There will be no change from an operational perspective for staff and consumers as both the domestic and international businesses will continue to operate as an integrated airline under one brand.

The proposed new structure involves creating a new unlisted entity Virgin Australia International Holdings Pty Ltd (VAIH) which will hold VAH’s international airlines. VAIH will:
*  be owned by existing VAH shareholders and have a majority independent board of directors;
*  be comprehensively serviced and funded by VAH, and therefore will not involve any visible changes from a consumer perspective; and
*  mean business as usual from a staff perspective in terms of the day to day running of the airline.

VAH became subject to the 49% foreign ownership cap of the ANA after launching its international operations in 2004. Foreign ownership has traditionally been well below the cap, however over the past 12 months it has been sitting only marginally below 49% and therefore Virgin Australia has been evaluating options to ensure ongoing compliance.

The VAH Board of Directors and management believe that the proposed new structure is the best option for Virgin Australia and its stakeholders to ensure long-term growth and access to capital for its business.

Foreign investors should note that the foreign ownership levels of VAH are sitting only marginally below the 49% cap. If foreign investors acquire shares in VAH before the Ex-Date for the in-specie dividend and as a result foreign ownership in VAH exceeds 49%, those shareholders may be required to dispose of their interest in VAIH shares under the cure mechanism in the VAIH Constitution.

Subject to the satisfaction or waiver of certain conditions, it is intended that dividend will be determined on 16th March 2012, with implementation by the end of March 2012.

Proposed new structure – Overview

The proposed new structure involves the creation of a new entity VAIH which will hold the international airlines of VAH and(subject to satisfaction or waiver of certain conditions) will be effected through the determination and payment of an In Specie Dividend to VAHshareholders who have acquired their VAH shares prior tothe proposed Ex-Date, 21st March, on a 1:1 ratio. The In Specie Dividend effectively gives each shareholder a beneficial interest, in the VAIH shares and these shares will be administered by a Trust.

VAIH will be governed by a separate independent Board of Directors, with majority independents, including an independent Chairman*.
VAIH shares cannot be traded and only sold under limited circumstances. Shareholders who are not permitted to hold shares in an unlisted entity can for a period of 60 days from Distribution Date sell their interests in VAIH shares to a person nominated and approved by VAH. (Subject to VAH and foreign persons not holding more than 49% of VAIH)

Under the proposed new structure VAIH will enter into a long term service agreement and long term loan agreement with VAH. VAH will provide VAIH with a range of services, including the provision of aircraft, fully trained crew, maintenance, and back office services. VAIH will be charged a management fee for these services andthere will be no change for staff or the day to day running of the airline.
VAIH’s loan and future working capital requirements will be comprehensively funded by VAH.

The VAH Board of Directors proposes to assign a nominal value to VAIH shares ($0.000001 per share) on the implementation date. Under the proposed new structure VAIH will have an approximately nil equity position on implementation date, as VAH have decided to recapitalise the balance sheet of VAIH prior to implementation to ensure it has sufficient assets to cover liabilities on day 1.

The proposed new structure is to be effected by the In Specie Dividend. That dividend will only be determined and distributed by VAH if the following conditions are satisfied or waived by VAH