November 17 will see the end of he Voluntary Administration of Virgin Australia. On that day, the shares in Virgin Australia will be transferred to Bain Capital, and the company delisted from the Stock Exchange.
While some refer to the renewed airline as Virgin 2.0, it may be worth viewing it as the third incarnation of the airline. Certainly, we will see the third business model for the airline.
Starting out life in 2000 as Virgin Blue, it was a no frills low cost carrier. Over time it added bits and pieces, but it wasn;t until 2011 that it switched gear to take on Qantas. It added lounges, business class and remodelled its frequent flyer program.
Now Bain are promising us an airline based around a ‘value’ offering. What that exactly means is yet to be unveiled, but Virgin do appear to be heading towards a simplified offering.
One hopes that once the change in ownership is complete, we won’t have to wait too long to see what the future Virgin Australia looks like.
4 September 2020
Creditors of Virgin Australia have voted in favour of Bain Capitals proposal to buyout the company. While there are a few steps to go, it is expected that Bain will receive the keys to the company by 31 October, 2020.
The deal was accepted at the second meeting of creditors held today. Under the Deed of Company Arrangement (DOCA) accepted today, secured creditors and employees will receive 100% of their entitlements.
Bain has also agreed to offer customers holding vouchers from cancelled flights Future Flight Credit to the value of their existing vouchers.
Things are not so rosy for other unsecured creditors. They are expected to receive between 9 and 13 cents in the dollar on the amounts they are owed. Even though they sounds low, the administrator believes they would have received less of the company had gone into liquidation.
In a statement today, joint Voluntary Administrator Vaughan Strawbridge said ““This outcome provides certainty for employees and customers, a return to creditors, opportunities for suppliers and financiers to continue to trade with the Virgin Australia Group as well as maintaining a competitive Australian aviation industry for the benefit of consumers.”
The future for customers
Virgin Australia customers can now look forward to some certainty when booking flights. This includes
- The value of all customer travel credits and prepaid flights provided post-administration
- Continuation of the Velocity Frequent Flyer program
As has been noted previously, the Virgin Australia that emerges from this process will not be quite the same airline as it was before. The airline will be smaller, and intends to be more value focussed than a full service competitor to Qantas.
What that actually means remains to be seen. We do know that the fleet will shrink, and aircraft such as the A330s will no longer feature on the network. However, we do not yet have full details on what the actual service offerings will be.
While there is still work to be done in fleshing that out, todays acceptance of Bains proposal is a significant milestone on the journey.
20 July 2020
More than three weeks have passed since Bain Capital was selected as the preferred bidder for Virgin Australia. In that time, we have heard, well, little.
That was until Deloitte prepared an update sent to creditors. While it did not say much about what the business will look like, it did contain some interesting statistics.
Who is owed money
| Category | Owed Approx |
|---|---|
| Secured lenders and aircraft financiers | $2,284 million |
| Unsecured bondholders | $1,988 million |
| Trade creditors | $167 million |
| Aircraft lessors | $1,884 million |
| Landlords | $71 million |
| Employees | $451 million |
| Customers entitled to credits for flights which were cancelled due to the pandemic | $604 million |
26 June 2020
The big news on Friday was confirmation Bain Capital had been selected as preferred bidder. This followed an eventful day, which kicked off with Cyrus withdrawing from the process.
So, now Bain has signed a Sale and Implementation with the administrators. From this point, there will be some continued negotiation prior to the creditors voting on the sale in August. While it is by no means a certainty, it is the likely path. Let’s take a look at what this means for Virgin Australia.
Firstly, let’s start off by saying that we don’t really have the full details of what Virgin will look like going forward. Having said that, Bain has made some statements around the future. They have also signalled some ideas, and we will now take a look at some of what to expect.
The airline will be smaller
It would come as no surprise that the airline will, at least to start with, be smaller. This will see fewer aircraft in the air. It also means that not all employees will remain with the airline. At this point, we do not know how deep these cuts will be.
Current Travel Credits Honoured
If you have a travel credit with Virgin, you may be able to rest a bit easier. Bain has committed to honouring all existing travel credits.
Velocity
First some good news. Bain is promising that all Velocity Points will be honoured.
Further to that, Bain is promising significant investment in the Velocity Frequent Flyer program. In particular, it is looking at a closer integration of Velocity with Virgin Australia. The vision is that we will eventually see a single website and app. This would be a definite improvement over the current situation.
Having said that, it is a little unclear exactly what changes may occur. We can expect some, and there will likely be some changes flow across to Velocity. However, Velocity is clearly seen as an important part of the Virgin story.
Over the next few weeks, we should get further information on these aspects.
22 June 2020
On Monday, Deloitte confirmed that it had received the final binding offers from both Bain Capital and Cyrus Capital Partners. From this point, the bids will be assessed with the final aim of selecting a preferred bidder.
While the details of the bids have not been disclosed, it was noted that both bids had been approved by the Foreign Investment Review Board.
“On the basis of their public statements, both bidders are committed to seeing a strong, competitive and sustainable Virgin Australia operating into the future, employing many thousands of Australians, and supporting the tourism industry and state and national economies,” Deloitte said in a statement.
Having said that, it has been widely reported that the two bidders are looking at a smaller, more focussed operation. For a start, this will focus on their domestic operations, with some short-haul international operations in the mix.
02 June 2020
Deloitte has announced that Bain Capital and Cyrus Capital Partners are the shortlisted bidders in the race to take Virgin Australia.
Over the next two weeks, the bidders will need to sharpen the pencils, with final and binding bids expected to exceed $3.5 billion. During that time, they will work with Deloitte and stakeholders to finalise their bids.
In a statement to the ASX, Deloitte says
Both Bain Capital and Cyrus Capital Partners are well-funded, have deep aviation experience, and they see real value in the business and its future,
“We will now spend the coming weeks facilitating in-depth bidder engagement with the stakeholders of the business and work closely with both preferred bidders in the lead up to binding final offers being received. It is still the intention to have a binding agreement in place by 30 June, which remains unchanged.
As Deloitte has noted, the selection does not preclude others from still being involved. They would need to do so through one of the two shortlisted players. On that matter, there is speculation in the media that Richard Branson has spoken with all parties.
Media reports have suggested different futures for Virgin Australia, depending on which bidder ultimately wins. It is believed Bain is proposing a more mid-mark position. That is stepping toward the ‘new-age carrier’ style of Virgin Blue.
On the other hand, Cyrus is reported to be looking more toward retaining its full-service positioning.
24 May 2020
It’s a Sunday, and probably a day you wouldn’t expect much to be happening. But you’d be wrong.
The administrators may have been hesitant to reveal who was on the shortlist, but now Bain Capital have outed themselves. And they are planning to submit a bid in the second round in an effort to gain control of Virgin Australia.
Binding Bids are due by June 12, and Bain Capital is positioning itself as the ‘strongest’ suitor to turnaround the airline. While they do not reveal much about the business model they will use, they do want to bring back some of the ‘fun’ elements of Virgin Blue.
There are some interesting days ahead of us!
18 May 2020
The first ‘indicative’ bids for Virgin Australia were due last Friday. Over the weekend, Deloitte whittled the bids down to a shortlist of 4. While they have not publically disclosed the shortlisted bidders, the media has generally reported the following:
- BGH Capital (Private Equity Group)
- Bain Capital
- Indigo Partners (US Based Airline Investor)
- Cyrus Capital Partners
The next deadline is June 12, when the shortlisted bidders are expected to submit their final bids for Virgin Australia.
Between now and June 12, the bidders will get to undertake further due diligence on the company, and refine their ideas of what a new version of Virgin may look like. And importantly, put together a proposal.
Whether all four of them make it to the end line remains to be seen. For those of us looking on as customers (and Velocity members), hopefully we will get a better picture of what is on the table late in June.
30 April 2020
Deloitte held the first creditor meeting on 30 April 2020. The meeting formalised the appointment of Deloitte as the administrator,
Perhaps of more interest to many were statements around the level of interest in the process. At the meeting, Deloittes confirmed that there were 20 parties that had expressed an interest in acquiring the business. This was made up of 8 parties that had signed a non-disclosure agreement and had access to the books of the company. Discussions were still proceeding with the other 12.
Who is in the (data) room?
We don’t officially know who is kicking tyres in this process. Having said that, there have been a number of media reports offering the following parties.
- BGH Capital (Private Equity Group)
- Oaktree Capital Management (Private Equity Group)
- Apollo Global Management (Private Equity Group)
- Indigo Partners (US Based Airline Investor)
- Wesfarmers (Australian Based Conglomerate)
- Macquarie
- Temasek (Singapore Fund)
- Andrew Forrest
Of course, some of these may be more serious than others. In addition, some may be looking at the company as a matter of course. It is always possible that the final result may be some combination of the above. Or it may be someone else altogether.
21 April 2020
After days of speculation, Virgin Australia placed itself into voluntary administration. The ASX announcement is here.
As a company, Virgin Australia carried a lot of debt. Between the creditors, the total debt is over $5 Billion. Obviously a lot and the management team at Virgin has been addressing the issue.
Unfortunately, the world was hit head-on by Covid-19 before the turnaround was complete. As a result of government actions in containing the outbreak, the travel industry has been hit, and hit hard.
Airlines were not immune to this, and as borders closed, the demand for the services dried up. As reported elsewhere, Virgin was down to just one flight a day at one point.
While Virgin Australia tried to find funds to survive, this was not to be. The Australian government declined to provide a loan. In addition, the main shareholders, each having their own issues through the pandemic, were in no real position to help out.
Given all that, the board opted for Voluntary Administration. The stated purpose of the administration is to “recapitalise the business and help ensure it emerges in a stronger financial position on the other side of the COVID-19 crisis”.
Thoughts
While a difficult situation, this may be the best path for Virgin. There may be some pain, but it should be able to find itself a new owner, and a new structure. Free of its onerous debt, and complicated ownership, it should be able to be a solid airline.
Hopefully, it will be not too dissimilar to the airline today. Maybe smaller, but I hope it doesn’t go downmarket but remains as a viable option to Qantas.
Anyway, time will tell, and over the coming few months, I will update this post with further information as the process progresses.