Bain to hand over $750m if its Virgin Australia takeover bid fails

The guarantee aims to lock in Bain even, with the airline's creditors voting on the takeover next month.

By Angus Whitley , August 19 2020
Bain to hand over $750m if its Virgin Australia takeover bid fails

Bain Capital has agreed to pay $750 million should it fail to buy Virgin Australia, an unusually high break fee that helped win over the collapsed airline’s administrator.

The U.S. private equity firm made the pledge “to underpin its commitment to the transaction,” it said in a statement. Administrator Deloitte agreed to sell the struggling airline to Bain in June, though the deal’s terms weren’t made public.

While Deloitte hasn’t disclosed the potential fee, it told Virgin’s creditors last week that Bain had provided a “substantial financial guarantee to secure transaction certainty."

Coronavirus flareups and second-round lockdowns have made the aviation market in Australia and the rest of the world even bleaker since Bain agreed to buy Virgin. The break fee is designed to lock in the buyout firm even as the airline’s prospects darken.

Virgin’s creditors are due to vote on Bain’s takeover on September 4. The potential penalty is a “strong impetus” for the firm to complete the deal “irrespective of operational challenges caused by Covid-19,” Deloitte told creditors, without specifying the sum.

Bain’s guarantee also means all Virgin Australia employee entitlements will be paid even if the deal falls apart, Deloitte told creditors in its August 14 circular. Those entitlements are worth $450 million. A spokesman for Deloitte declined to comment.

Bain said its guarantee, and $125 million of interim funding for the airline, shows its “determination to secure the long-term future success of Virgin Australia."

Also read: How Virgin Australia 2.0 plans to win back business travellers

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This article was published under license from Bloomberg Media and the original article can be viewed here

QF

11 Jul 2014

Total posts 488

The airline is a golden egg for an investor and I can see why Bain has done this deal, QF came out fighting at the front of the pandemic against VA which has now turned out to the possibility of QFs worst nightmare. If QF had joined forces with VA in asking for Government support hand in hand and been on one team VA wouldn't now have the possible leg up once we get going again. Anyone who wants to be an international partner of VA, Bain will be saying "what's in it for us?" and this applies to every other part of the VA business. Smart business moves all round.

XWu
XWu

09 May 2020

Total posts 94

@ upupandaway

You may know more than me but I thought there isn’t as much benefit from tie up with international air alliance as much for a company whose main profitable business will be domestic flights in the foreseeable future. International airlines would lose more than they gain on alliance with VA while they have to recognise reward bookings via velocity points while assuming more business may come out of those business VA FF trying to get loyalty benefits to fly within the alliance network.

Qantas - Qantas Frequent Flyer

07 Aug 2013

Total posts 174

Very much agree with @UpUpAndAway. Qantas went against Virgin to deter them from securing government funding. Not only did they help put VA in a position to be bought up and backed by a multi billion dollar investor (VA will have more security behind them then Qantas now), but Qantas destroyed their own likelihood of ever getting future government funding.

Etihad - Etihad Guest

21 Jul 2019

Total posts 45

@UpUpAndAway

I can't disagree with your sharp analysis regarding the consequences of QF's decisive stand against selective gov't support (and surely Mr Joyce only had VA in mind). It looks increasingly like its now rebounded. VA now gets fresh and substantial capital, simplified ownership, a release from onerous aircraft lease agreements, simplified fleet, a sharp focus on money-making domestic routes, no debt load, lower cost base, and dare I say a highly motivated remaining workforce with nothing to lose. As I'm wont to say often, I gladly fly both airlines. But the impression I get of VA is a weakened airline being strongly built up for future growth as we speak; on the other hand with QF my impression is of a strong airline in a process of managed decline.

Qantas - Qantas Frequent Flyer

24 Mar 2013

Total posts 67

Wake up you’re dreaming.

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 241

It's likely also to be a "goodbye" to the Velocity <> KrisFlyer point swapping arrangement based on the assumption that the transaction does proceed.   The point swapping arrangement was implemented around the time SQ had a 20% stake in VA, however it is likely be considered 'unsustainable' financially under new Bain Capital.

On a positive note, many aviation bloggers/columnists and users across the aviation forums are tipping that the SQ partnership will likely to be re-implented, but scaled back from the former VA mk 1 arrangement.

QF

11 Jul 2014

Total posts 488

I think Bain will have an auction to the highest bidder for partnerships, and Qatar would like to stick it to Qantas. What was the percentage of VA flyers using Etihad and Singapore? 

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 328

WoW, now that really IS an interesting thought.  Big IF, but if a code share was developed between QTA and VA and, between the two of them, they have 'some' of those flights to Doha serviced by VA metal, both would really benefit, particularly QTA on all flights from Doha up to EU and UK.  I could see many bookings being purposely selected to fly VA one way and QTR the other.  

No doubt about it, UpUpAndAway, you're delivering some clever insights here on Et.  (They should retain you as a contributor). 

Virgin Australia - Velocity Rewards

30 Aug 2018

Total posts 10

I can see one big problem if it the transfer arrangement is retained.. there will be a "capital" (well, points) flight to KF as soon as transfers are re-opened.

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 241

@Tremere, that's one of the major issues highlighted during VA mk 1's final days prior to administration.   

Bain will not want that capital going from one of the few profitable units of VAH (Velocity was one of the few 'profitable' subsidiaries of VAH alongside VAd) to another company, especially to a company that will no longer be part owner of VA.

Taking into consideration the Forbes article (Author: Will Horton, April 30) reporting that SIA wants to "move on" from VA financially, it does seem that neither airline are keen for their FF subsidiaries (Velocity and Krisflyer) to retain the point swapping arrangement.

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 328

Post-administration, Bain will be under no obligation to allow points swap from Velocity to Krisflyer.  SNG will be happy enough to enjoy code-share airfares purchased by VFF members with points.  But with today's news of CSL poised to start pumping a vaccine early next year, I suspect Bain will soon start planning for an international return circa March-April 2021.  The question is, with who ???

@skier, how do you get to see/access the wholesale fares available to the trade?

skier

Thank you for your quick reply. Guess you're not talking pointy end fares there. However, that's an excellent economy LAX return fare if you can get your hands on it.  Thanks again.

skier

Once again, thanks for that information. Super helpful and further confirmation of your valuable contributions. Will follow through with your suggestion.


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