Patrick could cut stake in airline

Virgin Blue is a 50:50 joint venture between Patrick Corp and Sir Richard Branson's Virgin group of companies.

Managing director Chris Corrigan yesterday told shareholders at the company's annual meeting that Patrick Corp remained ``indifferent" to plans by the Virgin group to sell down its stake in Virgin Blue.

But he said the group would keep a commitment to sell as much as 5 per cent of its shareholding if necessary, ``otherwise we will keep our 50 per cent".

Any move to take Virgin Blue public will likely be made in the coming few months, when audited accounts for the year to March are available.

Shareholders approved issuing 1 million free options to Mr Corrigan with an exercise price of $14. While the vote was approved on a show of hands, there was significant opposition to the new issue with 44 million proxy votes opposed and 66 million proxies held in favour.

Speaking after the meeting, Mr Corrigan said the options formed an important part of his remuneration package. In the latest financial year he was paid a base salary of about $650,000.

In the year to October Virgin Blue contributed earnings before interest, depreciation and amortisation (EBITDA) of $39.8 million on revenue of $205.6 million to Patrick Corp's profit. Patrick brought to account seven months contribution from its stake in Virgin Blue.

Virgin Blue has indicated previously that it expects to post a pre-tax profit of more than $100 million for the year to March, 2004, with revenues expected to top $500 million.

With a 24 per cent share of the domestic market, up from 11 per cent a year ago, Mr Corrigan said Virgin Blue was targeting a 30 per cent share of the aviation market in 12 months' time. Market share growth would be assisted by better terminal access along with increased flight frequency, he said.

Virgin Blue has services on 19 of the top 20 domestic routes and will launch services on the final route Sydney to Canberra from April, after it takes delivery of additional aircraft.

``As we build our share with services at the lowest price available, we expect reasonable market share gains," Mr Corrigan said. ``We are definitely trying to avoid cutting margins."

Under a formula agreed between the two parties, Patrick Corp is to pay Virgin $30 million for each $100 million of value achieved above $600 million of market value of the listed entity. The size of that payment diminishes over time.

``We expect to pay a top-up and may sell 5 per cent if needed, for liquidity purposes, otherwise we will stay at 50 per cent," Mr Corrigan said.

Regional low-cost airline operators in the US such as Sky West are trading on price-earnings multiples of 10 times net earnings, signalling that Patrick Corp may have to pay a top-up of as much as $100 million for the Virgin Blue stake, depending on the degree of optimism over the earnings outlook for the airline in 2003-04, when further aircraft are to be delivered.

Patrick Corp refrained from giving any guidance about earnings prospects this financial year, pointing to the economic and political ``volatility" around the globe.

The new chairman, Peter Scanlon, said operating profits for the first quarter to December ``have exceeded our expectations across all segments of the business". Shares in Patrick Corp rose 40c to $12.70.