China's biggest private airline operator is set to take a stake in Virgin Australia in a tie-up that will help the Australian airline tap the booming Chinese travel market.
Virgin - Australia's second-biggest carrier behind Qantas - on Tuesday unveiled a strategic commercial alliance with China's HNA Group.
The Chinese aviation giant will also buy a 13 per cent stake in Virgin for $159 million.
HNA intends to increase its shareholding over time up to 19.99 per cent, ensuring it won't need to launch a full takeover bid for the airline.
The tie-up comes as Virgin continues to review its capital structure and the group's biggest shareholder, Air New Zealand, mulls a full or partial sale of its 25.9 per cent stake in the Brisbane-based carrier.
HNA's investment in Virgin will have a diluting affect on the airline's existing shareholders, with Air NZ's stake set to drop to 22.5 per cent.
Etihad Airways, Singapore Airlines and Richard Branson's Virgin Group will all see their shareholdings fall.
Virgin chief executive John Borghetti said the HNA alliance will boost the airline's access to the burgeoning Chinese travel market.
"The Chinese travel market represents Australia's fastest growing and most valuable inbound travel market, with inbound passengers from China increasing by approximately 18 per cent per year since 2010," Mr Borghetti said on Tuesday.
In 2015, more than one million Chinese travellers visited Australia, spending about $8.3 billion. By 2020, almost 1.5 million Chinese travellers are expected to visit Australia annually in a market expected to be worth up to $13 billion, according to Mr Borghetti.
HNA's member airlines, including West Air, Lucky Air, Grand China Airlines, fly more than 77 million passengers annually to more than 200 destinations in China and around the world.
Virgin's rival Qantas already flies to Shanghai, Hong Kong and Beijing across its own network and codeshare partner, China Eastern while Qantas's budget carrier, Jetstar, also operates flights to six Chinese destinations.
China is one of Australia's largest inbound markets and the average Chinese tourist will take around two to three domestic flights while in the country, Blake Moore, industry analyst at the CAPA Centre for Aviation, told AAP.
"The value is there and that's why Qantas have established their own partnership with China Eastern," Mr Moore said.
Virgin's surprise announcement helped lift its shares, which were up by 1.75 cents, or 6.26 per cent, to 29.75 cents in afternoon trading.
The share placement is subject regulatory approvals from Chinese authorities and HNA will also get a seat on the Virgin board.
The alliance - which is subject to approval from Australia's competition regulator - is expected to be completed in the first half of 2017.
