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m a i n s t o r ying US$650 million, way up on the originalUS$500 million asking price.For SIA, already a powerful internationalplayer in Australia, Virgin is not only aboutthe market ‘Down Under’. It is a key link inthe carrier’s plans to extend its network fromEurope across the Atlantic to the U.S., using aBritish, now partly-owned, partner.Complicating matters, British Midland(BM), another UK operator and Virgincompetitor, is due to join the Star Alliancesoon, clouding the map on which SIA willoperate in Europe in conjunction with alliancepartners. BM also plans to launch trans-Atlanticservices this year and, as a Star partner, wouldexpect to be able to code-share with SIA.Mr Harbison is convinced developmentsover the past month could have a significantimpact on aviation in Asia. He believes Virginis moving towards a new strategy of globalaspirations and membership of a majoralliance, although Sir Richard Branson deniedthis.“We have no plans at all to join anyalliances. This is the marriage we want and thisis as far as we want it to go,” he said.Nevertheless, Mr Harbison said Virginis moving into Asia, which could have greatsignificance for airline competition – and forone or two key hub airports. “If Virgin doeswant to join one of the global alliances onequal standing, it needs more assets in itswar chest.“A position in the Indian market – with itsenormous potential – along with a footholdin Australia and a growing list of associationsin northern Asia would add much greatersubstance to its profile,” said Mr Harbison.He considered the alliance position in Asia“keenly poised”, with SIA apparently aboutto commit to Star, MAS moving towardsthe Wings grouping and the possibility thatTHAI, now a Star member, may explore otheroptions, depending on which foreign carrierends up holding shares.“The list of permutations is a long one. Theoutcome will possibly secure the future of atleast one airport and greatly affect the roles ofseveral airlines,” said Mr Harbison.MAS chairman, Tan Sri Tajudin Ramli, hasacknowledged the potential danger of theVirgin/SIA deal and pointed out MAS maysuffer if Kuala Lumpur International Airportis not developed quickly into a major regionalhub.“While we recognise there are somethreats to us here, there are also a lot ofopportunities that can be created,” he said,conceding MAS could lose its code-sharearrangement with Virgin on the Kuala LumpurSingapore Airlines deputy chairman andchief executive, Dr Cheong Choong Kong:“the failure of our Ansett attempt mayprove to be a blessing in disguise”to London sector.Despite some speculation about SIA’sintentions with Star, a spokesman for theairline told Orient Aviation membership wouldbe confirmed in April. This “does not precludeus from entering into bilateral strategicarrangements with airlines outside Star. Weare certainly thinking about opportunities thatmay arise following our decision to buy 49%of Virgin, including Richard Branson’s plansto enter the Australian aviation scene. But itis premature to talk about how this wouldimpact on our code-sharing arrangementswith Ansett,” he added.SIA’s position on equity participation inother airlines has not changed, he said. “Ourobjective is to grow into a global group ofairline and airline-related companies.”With around US$1 billion of reserve cashand another US$1.3 billion to come from theplanned sale of airport and engineering units,that undertaking is bound to cause extremeAirline shareholders may well have beentearing their hair out as the rash ofdevelopments in the industry sparkedsharp swings in the value of stock.Whether they were doing it out of joy ordespair depended where their cash wasinvested.Shocked Qantas Airways investors sawthe airline’s shares sink to an 11-month lowof US$2.27, well below the highs of over$3.25, on the news Virgin was shaping upto enter the domestic market.The deal knocked US$567 millionoff the value of Australia’s flag carrier,nervousness among some of SIA’s rivals.There may be more income to come. SirRichard Branson said SIA can expect to reaphuge profits within three years from its sharebuy.Final documentation on the deal wasexpected to be complete by the end ofJanuary.Sir Richard had a warning for long-time rivalBA: “We will be meeting every two monthsto plot how to compete with our mutual friend– British Airways,” he said.Under the deal, SIA and Virgin will haveagreements on code-sharing, frequent-flyerprogrammes and shared access to passengerlounges and airport facilities.“This deal is all about growth. Thesynergies derived from linking two perfectlycomplementary route networks will allowboth airlines to grow faster than either canmanage on their own,” said SIA CEO DrCheong.“One important benefit SIA will gain fromthis association with Richard Branson is thatwe Singaporeans will be infected by his joiede vivre and begin taking ourselves a little lessseriously. Richard Branson clearly has fun whenhe does business,” added Dr Cheong.That tongue-in-cheek remark concealsa steely determination at SIA to dominateAsia’s skies and continue with a strong growthpattern and improvements in economicperformance. “This is a long-term investment... It will have a positive impact on our EVA(economic value added),” he said.What is becoming apparent is that withinStar SIA will be operating an alliance withinan alliance, giving it enormous power andinfluence, but who the members are will verymuch depend on the outcome of the plannedshare sale process at several Asian airlines andelsewhere.Deal puts markets in a spinalthough by late January the stock hadrecovered to around the $3 mark.In London, British Airways shares alsodropped nearly 5%.Not surprisingly, SIA shares soared followingits Virgin purchase announcement,rising some 9.1% at its peak, its biggestone-day gain in six months.While MAS’s fortunes may be hit bythe new partnership, its shares also surgedon (apparently unfounded) speculationKLM Royal Dutch Airlines was preparingto take a stake in the Kuala Lumpur-basednational carrier.24 | Orient Aviation | February 2000