THE major stockholder in Australia's second-largest airline said yesterday it would dispose of almost all of its shares, cutting its exposure to an industry that is recoiling from soaring fuel prices.

Logistics and freight group Toll Holdings Ltd said it would off-load all but 1.7 percent of its 62.7 percent holding in Virgin Blue Holdings Ltd in a special dividend to shareholders.

"Virgin Blue is a non-core asset for Toll, and its distribution is consistent with our position to separate from Virgin Blue," Toll Managing Director Paul Little said in a statement. "The special distribution will reduce Toll's exposure to the passenger aviation sector, which at times has been volatile."

Toll, which inherited its 659.1 million Virgin Blue shares in a 2006 takeover of stevedore Patrick Corp, has previously said it was not a long-term investor in the airline.

In the special dividend, Toll shareholders will receive one Virgin Blue share for every Toll share they hold. The distribution is worth approximately A$330 million (US$319.5 million).

Virgin Blue holds about a third of Australia's domestic aviation market, where it competes against Qantas Airways Ltd and Qantas's budget carrier Jetstar.

Virgin Blue also flies to New Zealand, Fiji and Tonga.

The airline has watched its shares fall by about 75 percent from around A$2 in January.

Last month, Virgin Blue announced capacity reductions and an A$50-million package of cost savings to help offset the impact of record jet fuel prices.

Fuel accounts for about 35 percent of the company's cost base.