Bain wins: US investment giant takes control of Virgin Australia

The deep-pocketed Boston-based global investment giant will take the stick at Virgin Australia 2.0.

By David Flynn, June 26 2020
Bain wins: US investment giant takes control of Virgin Australia

Bain Capital has been annointed as the new owner of Virgin Australia, following this morning's shock withdrawal of challenger Cyrus Capital.

In a statement issued this morning, administrator Deloitte confirmed it has "now entered into a Sale and Implementation Deed with Bain Capital which will result in the sale and recapitalisation of the businesses of (the Virgin Australia Group)."

Deloitte notes that "no return to shareholders is anticipated. At this stage, it is not possible to determine the estimated return to creditors however an update will be provided ahead of the second meeting of creditors."

Bain Capital says it is committed to protecting as many Virgin Australia jobs as possible, will "invest in and see closer integration of Virgin Australia and the Velocity program", and also honour all all existing travel credits.

Staff who remain with the airline will be offered the chance to be part of an "employee ownership / profit sharing scheme," while those who are let go will see their entitlements fully funded.

Bain Capital's local managing director Mike Murphy said the firm's flight path for Virgin Australia would see a "return to its core strengths both strategically and operationally and reestablish itself as an iconic Australian airline."

Read: Here's what Bain Capital's Virgin Australia 2.0 will look like

Bringing back the Virgin vibe

“Our investment and plan for the airline will support and celebrate Virgin Australia’s unique culture and protect as many jobs as possible for the short and medium term in a way that will make significant jobs growth possible."

Virgin Australia CEO Paul Scurrah, who is expected to remain in that role while Bain Capital advisor and former Jetstar CEO Jayne Hrdlicka steps into the boardroom, said Bain's  proposal offered "the best possible future for Virgin Australia, its employees and its customers."

"We are aligned in our vision for Virgin 2.0 and look forward to working with them to secure the airline’s future."

The deep-pocketed investment and capital equity colossus will now be assisted by Deloitte in fine-tuning its takeover plan ahead of a meeting with the collapsed airline's creditors – who are owed almost $7bn between them – in late August.

This could however pit Bain against a cohort of Virgin Australia bondholders who are owed some $2 billion and want to see that debt converted to equity, and are offering an additional $1 billion to recapitalise the airline and keep it listed on the share market rather than be taken private by Bain.

Final approval for the sale needs the nod from two majorities of creditors: one with the largest value, that being secured lenders owed $2.3 billion (fifty aircraft lessors are owed some $1.9 billion); and one with the largest number, which is Virgin's 9,000-strong workforce (owned an estimated $450 million).

However, if those votes are split, the administrator will cast the deciding vote.

Bain's Virgin vision

Bain has previously said that it intends to reposition Virgin as a mid-market or 'hybrid' airline with a smaller and simplified fleet, flying mainly domestic routes except for short-range trips such as to New Zealand.

Longer-term international flying would be taken up by a new fleet of Boeing 787 Dreamliners, which would replace the current Boeing 777-300ER and Airbus A330 jets.

However, Bain's desire to step away from chasing the very top end of the corporate and government travel market could also mean the axe for Virgin's invitation-only The Club, created by former CEO John Borghetti as the airline's answer to the Qantas Chairman's Lounge.

Read more: Here's what Bain Capital's Virgin Australia 2.0 will look like

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

Qantas - Qantas Frequent Flyer

01 Apr 2011

Total posts 40

Sadly, I don't think this is going to end well. Nothing in the hands of venture capitalists ever has as far as I can see.

Virgin will be gutted, and those of us who prefer not to fly Qantas will be left high and dry. I have a conference coming up next March on the Sunshine Coast. If the conference goes ahead, I guess I will be driving rather than flying. Going to miss the Econonmy X seats. They made flying in cattle just a bit more bearable.

Qantas - Qantas Frequent Flyer

26 May 2014

Total posts 450

How would Bain "gut" Virgin ? There is next to no market for the majority of the assets. There are hundreds of 737s parked up all over the world.

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 551

Don't worry about 'gutting' @GregXL.

The preferred tactic with venture capital owners is to load the target up with debt. Look at all the retailers declaring Chapter 11 bankruptcy in the USA right now. Have a look at who owns/ owned Neiman Marcus, J. Crew, Pier One etc. All owned by VC firms and all loaded up with debt after they were taken over.

You can also have a look back at the demise of Ansett and how they became debt-loaded by NZ.

XWu
XWu

09 May 2020

Total posts 279

I am surprised that your aversion to QF is so much that if VA was available you would fly but if not, you rather drive.

Mind you I do worry about Bain winning the bid due to their reputation compared to Cyrus.

Sure, there will be others who say no one will know for sure how Bain will run/rightsize VA but past history and performance is always the main thing outsiders can refer to

Singapore Airlines - KrisFlyer

08 Jun 2018

Total posts 96

‘Winning' is an interesting choice of wording. More of a (potential) victory by default!!

And yet to be approved by creditors and bond holders - although unlikely they would de-rail it unless the offer is ludicrously low.

Given that it's inevitable that creditors will almost certainly take some sort of haircut on this it will be interesting to see who provides the debt going forward that they will inevitably look for, if not in the short term, then at least in the medium term.

Qantas - Qantas Frequent Flyer

01 Apr 2011

Total posts 40

I don't have an "aversion" to Qantas, I just prefer not to fly with them if possible. The Economy X seats on Virgin suit my needs for domestic travel as I have hip, knee and back problems. QF does not have an equivalent seat and I cannot afford J. I save all my QF points for international travel on Qatar - a far superior airline for me.

I had two flights with QF last year, one domestic in J from Adelaide to Melbourne (final leg of an award redemtion in J on Qatar - Birmingham to Melbourne via Adelaide) which was fine. The other was Melbourne to Singapore in J which was ok, but nothing to write home about. A trip to LA in 2017 in J on Virgin was far superior in terms of service and comfort, as was a flight on Singapore Airlines from SIN to MEL in J in 2018.

pj.
pj.

10 Sep 2019

Total posts 3

There goes hope of that epic musical safety video...

16 Dec 2011

Total posts 45

My company was bought by a VC 3 years ago and it's doing fine. They are not all bad, and I think the alternative could have been no virgin at all so I am relieved by this.

I think axing the Club is the first thing they should do. The idea was presumably to buy favour with politicians, and that clearly didn't work.

QF

11 Jul 2014

Total posts 533

Bond Holder? may still top Bain

Qantas - Qantas Frequent Flyer

25 May 2017

Total posts 76

What has been predicted and said for a long time now. VA mark 2 will be a glorified Tiger Airlines at best. All the high yield business traffic will remain with QF. Lost opportunity. VA for the past few years had missed the mark and did not listen to the high yield customers. Instead they wanted the business however offered a truly average product to its Platinum FF customers. Mr Joyce would be a very happy man today given this news. No serious corporate will fly with a VA mark 2. Wonder if they will retain the so called bus shed lounges with the Coles cafe food and poor outsourced service...... I would have much preferred a true competitor to QF than a competitor to JQ

QF

11 Jul 2014

Total posts 533

BLAMEX can you explain what the "High End Yield Customers" wanted, this will be an interesting read from yourself I'm sure of it.

Qantas - Qantas Frequent Flyer

07 Aug 2013

Total posts 203

Im not sure how Bains vision for Hybrid virgin 2.0 is just a mask for another tiger airways. A lot of existing and long term corporates never shifted from Qantas to Virgin and that will remain. Pollies but also other corp groups that have to go with cheapest fare of day have to spread their flying between airlines they don't just stick to one so at the very least there will remain some element of corp flyers. But that's not the direction that we are hearing from them anyway - there's a greater pool and market share of non corp travellers. It may not be to your taste @BLAMEX but itll probs appeal to large amount of Aus population and also to a larger pool of people that dont really care what airline they fly as long as they get cheapest fare also.

XWu
XWu

09 May 2020

Total posts 279

@ Dan22

You realise of course “people that don't really care what airline they fly as long as they get cheapest fare also” pretty much describes Tiger and Jetstar clientele except when the flights get cancelled or “re-timed” and they start expecting same problem resolution service as VA and QF

26 Jun 2020

Total posts 6

completely agree.. those who think it will be better or same as VA was preCovid will face the truth come September. There's no way these guys would buy a company only to let it suffer in this environment. VA was already a loss making airline for the last decade, they will position VA 2.0 with slightly better options like lounge or Economy X first 3 rows and that's it. Cut half the workforce and fleet, focus domestic and maybe LA/JP/SIN in 5 years and that's it.

Qantas - Qantas Frequent Flyer

26 May 2014

Total posts 450

Commitment to travel credits is a good sign. Now I would like to see their life extended to match Qantas. After all, spreading their use is in the best interests of both the customer and the airline.

05 Dec 2017

Total posts 4

Wwasn't VA already a hybrid airline? They ditch the ATRs and international widebodies for now, sure. But other than that, what's the difference?

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 259

The remaining ATRs are likely to be returned to lessors. A few former VA ATRs has been reassigned to Hevilift

Just like QF mothballing the A380 and most of the 787 fleets, VA's 77Ws (as most of the fleet are owned) are likely to be mothballed for the short term foreseeable future as well, seeing that there are next to no market for wide-bodies.

VA's A330s are very likely to be returned to lessors, regardless of whatever party got the nod from administrators. They were one of the most expensive lease rates in the world thanks to JB.

XWu
XWu

09 May 2020

Total posts 279

I recently looked up the fleet details of VA and was surprised that most of the ATRs are between 22-26 years old, including those leased

24 Aug 2011

Total posts 808

I think you may have looked up the F100s. The ATRs have an average age of 7 years according to Airfleets.

XWu
XWu

09 May 2020

Total posts 279

@ reeves35

You are right, my apologies for being confused.

Virgin Australia - Velocity Rewards

14 Mar 2017

Total posts 152

I won't be missing the ATRs...

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 551

Close the Invitation Only 'The Club'?

Where do you propose that Virgin 2.0 will put all those pollies, titans of business and celebrities' ? If Virgin 2.0 retains a Business Class, it will retain the patronage of at least some of these folk.

We can't have these A-listers mixing with your average Kath and Kell in the basic lounge!

QF

11 Jul 2014

Total posts 533

3900 of the 4000 members hide out in The Club so they don't get harassed waiting for a flight, I remember seeing a photo of a well known person getting selfies with different people at the Qantas lounge and basically be harassed. The Club became the hide out.

19 Jun 2020

Total posts 21

jealousy is a curse, I see very few pollies in the club, they generally go to the Qantas chairmans lounge but I do see many CEOs there who are the ones who generally sign off on travel policy, on any given weekday morning these guys are flying interstate to do business, keeping them happy will keep V2 afloat

QF

11 Jul 2014

Total posts 533

Don't forget Fish n Chip lady loves the lounge

03 Jan 2013

Total posts 50

Opportunities for private lounge operators with pay per visit access and also commercial arrangements with other airlines. Very common at lots of airports overseas.

24 Dec 2013

Total posts 89

Hopefully they tweak Velocity and make it better than QFF.

08 May 2020

Total posts 55

Still hopeful something good may yet to come from the Bond holders, 2/3 have to commit to the Bains Capital offer and the Investment Board yet to be approved. If Bain is the winner we as Virgin Guest Flyers have not received any real indications what V2 will offer, especially with trips to Europe alliance and whether it will attract 60 , 70 , 80 or 100% of regulars back onto Virgin Planes under Bain Capitals ownership. Well it is wait and see , & I wont cut up my Platinum Card as yet.

XWu
XWu

09 May 2020

Total posts 279

These news contributes to uncertainty and I would not think anyone who want to buy tickets beyond 1-2 months ahead when most states open up in July (here's looking at you, WA) until things are sorted out in the August meeting

Jetstar Airways - Qantas Frequent Flyer

03 Jul 2018

Total posts 32

I think they have got this right...no more poor man's Qantas, and ejecting Tiger which was a noose around their neck. The difference should remain their friendly relaxed service with little pretension ,and emphasis on price while still getting value for what you pay for. The lounge was always a step down from the Qantas club, but that is how it should stay..bright ,light and friendly.

Virgin Australia - Velocity Rewards

10 Nov 2011

Total posts 132

Some strange comments here from people who seem convinced the reason Bain have bought the airline is so they can run it into the ground. Sure, there's a group of rusted on FF that wouldn't be seen dead on any airline but QF, but there's a hige mid market of people who will do whatever they can to avoid Jetstar. The alliances with SQ and EY while not perfect also provide very good schedules and connections internationaly. I hope they continue. I think there's sitll alot going for Virgin.

26 Jun 2020

Total posts 6

No one is saying that Bain will run them to the ground. As you said exactly there's a group who will do whatever they can to avoid Jetstar - so welcome to Virgin 2.0

It just won't be the same Virgin before, it'll be low fare smaller domestic airline (not low cost like Tiger but also not premium hot-meal-serving, lounge rich, international ex Virgin)

24 Apr 2013

Total posts 18

NO COVI PASS.

Covid has been over hyped , with even the CDC admitting it has a bout 1/4 of the death rate of the flu. Plus for those who are positive but asymptomatic only have 0-2.2% chance of spreading it ( medically next to none). We has 102 deaths, Taiwan 6 and so many other nations have botched it. In the USA given the money given to hospitals for counting patients as Covid the figures are heavily distorted ( flu and pneumonia deaths have plummeted as they got counted as covid.

The ABS said 1277 people died from flu last year for comparison, others say 3000 , so why the BS over Covid.

There are a lot of agenda's going on with treatments . What worries me that governments and bureaucrats who should serve us but serve themselves will want us to have very very questionable vaccines and ave a COVID PASS to fly.

Stuff that, we have had enough of martial law.

If you have mitochondrial disorders ( more people than you think), or are immune suppressant or just a bit ill you can have very adverse reactions. In 2003, 38,885 first responders ( probably fitter than normal in the USA were given the smallpox vaccine and though you think this is tried and tested, the adverse result were not goo. So even a super safe vaccine is going to kill more people than Covid has in australia by extrapolation.

In 38,885 vaccination there were 822 adverse reaction, including 3 deaths and 112 serious ones with 85 people going to hospital. So if you extrapolate that to australia with 25 million people, that 1800 deaths and 72000 serious adverse reaction. No wonder they did not do the nationwide roll out in 2003, due to the idea of some terror threat. This is not an experimental vaccine either. I have read much more than the average person and there is lots of disturbing stuff about the medical industry. Someone always pays with vaccines, the industry does not tell you that.

https://pubmed.ncbi.nlm.nih.gov/16333009/

The rushed trials of the Moderna vaccine has seen 1 in 5 very high systematic reaction and people are really distrubing. This is that industry behaving like Josef Mengele.

So how many with something rushed would be killed or scarred for life

Plus look at the forces at play, 6 months before. makes you wonder.

https://madisonarealymesupportgroup.com/2020/06/13/100-billion-contact-tracing-deal-by-bill-gates-just-before-pandemic/


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