Virgin Australia posted a net loss of $21.5 million including the impact of restructuring costs. Underlying profit before tax was $42.3 million. Credit:Peter Braig Virgin Australia chief executive John Borghetti said China was Australia's fastest-growing source of tourists, growing at about 18 per cent a year since 2010. "This is a big coup," he said. "For such a large company as HNA to recognise the potential of Virgin Australia, and for that matter the potential of Australia, is enormous. "This sets us up for very, very good growth going forward in that very lucrative inbound, but also outbound, traffic between Australia and China." Mr Borghetti said he hoped Chinese flights would start in the first half of 2017, but had not yet decided whether it would do so with its existing fleet of A330s and Boeing 777s or with other aircraft. He noted HNA owns Bohai Leasing, one of the world's largest aircraft leasing companies.

Mr Borghetti said at least eight flights a week would depart from major Chinese cities to Australia and mentioned Beijing and Hong Kong as attractive options. HNA controls Hainan, China's fourth-largest airline, and a number of budget airlines, and carries more than 77 million passengers a year on 700 routes between 200 destinations within China and abroad. Rival Qantas Airways has codesharing arrangements with China Southern and China Eastern that funnel a lot of Chinese passengers onto its domestic network. Virgin hopes for a similar outcome with the HNA-owned airlines. HNA will be able to nominate one director to Virgin's board after the investment, which will need the approval of Chinese regulators. The Chinese company will pay 30¢ for each Virgin share, which is 7.1 per cent above Monday closing price. Virgin's share price jumped 5.3 per cent to 29.5¢ after the announcement.

Air New Zealand's 26 per cent stake in Virgin will be diluted to 22.5 per cent by the deal. An analyst, who asked not to be named, said the strategic deal with NHA to fly in and out of China would make it hard for Air New Zealand to sell its Virgin shares, because potential buyers like China Southern could no longer be offered a similar arrangement. Air New Zealand did not know about the HNA deal before it was announced to the public on Tuesday because CEO Christopher Luxon quit Virgin's board in March after failing to unseat Mr Borghetti. "Air New Zealand is not on the board and this was a board decision," Mr Borghetti said. Virgin's other major shareholders will also be diluted: Etihad will fall from 25.1 to 21.8 per cent and Richard Branson's Virgin Group will fall from 10 per cent to 8.7 per cent. The portion of the company's shares in free float will fall from 17.2 per cent to 14.9 per cent. Virgin wants to cut debt and optimise its mix of long-term debt, short-term debt and equity. Citi analysts this month said Virgin needed to raise another $607 million to $853 million to meet its debt leverage target.

Mr Borghetti said HNA had agreed to support whatever outcome the review reaches. "There's no question it's helpful for Virgin from a funding perspective. It's helpful from a strategy into China perspective," Merrill Lynch analyst Matthew Spence said. He said major shareholder Singapore Airlines might see the deal as a challenge. "But it looked like they were going to be upset with whoever it was who came in," he said. Macquarie transport analyst Sam Dobson said the $159 million investment was small compared with some estimates of how much Virgin needed. He said it was a good strategic move that would open up a large number of destinations. It would also make for "interesting dynamics" within Virgin's management by bringing the number of other airlines on its share registry to five.

Loading "It's going to be challenging because they'll each have their own objectives, their own incentives," Mr Dobson said. "Having to think about things in the best interests of Virgin and Virgin shareholders is potentially a conflict."