Just two months shy of its 20th birthday, Virgin Australia today hands over the keys to Bain Capital.
The US-based global investment giant, anointed by airline-appointed administrator Deloitte on the back of a multi-billion dollar bid, is now in the cockpit.
Perhaps more crucially, it today takes up financial responsibility for the failed airline which nosedived into administration on April 21, weighed down by almost $7 billion of debt.
Bain is said to be ready to inject as much as $600m in cash to keep the airline operating, even as the new Virgin Australia 2.0 takes shape, according to The Australian.
That’s reportedly part of a $1.65bn package, of which just over $1bn has been split between honouring travel credit for cancelled flights ($600m) and fully-funding staff entitlements ($450m).
Bain’s billions also sees it elbow aside Virgin’s previous shareholders – an unwieldy roster mainly comprised of Singapore Airlines, Etihad Airways, China’s HNA Group and Nanshan, and Richard Branson’s Virgin Group – all of which which exit without a cent.
In a statement to the ASX yesterday, the administrator declared “we have reasonable grounds to believe that there is no likelihood that shareholders of VAH will receive any distribution for their shares.”
The prospects for other investors, bondholders and creditors are equally unlikely to be rosy, but Bain’s anointment as the new force behind Virgin Australia is almost done deal.
While all creditors will meet mid-August to formally vote on the takeover, their only other option would be to vote down the deal and send the airline into liquidation, resulting in a fire sale of assets.
With Virgin Australia no longer weighed down by debt, and having a refreshingly singular focus on the future, Bain – and Virgin Australia CEO Paul Scurrah, who is expected to remain at the helm – are now plotting a new trajectory for this streamlined challenger.
But it won’t be a flight path without some turbulence, with tough decisions still to come on the shape of the airline, which could see the 10,000-strong workforce potentially halved as Virgin becomes smaller.
Hard decisions and headwinds
In an all-hands email to Virgin Australia staff last night, Scurrah said he acknowledged “that there is a huge amount of anxiety across the Group regarding the size and shape of the business moving forward, and what impact that may have on your individual roles.”
“Bain officially takes financial responsibility from tomorrow, July 1, and from that point there are many decisions to be made.”
Scurrah spent part of Tuesday in what he described as “a productive two hour session with Bain and the (Executive Leadership Team) to begin discussing the future direction of the business.”
“We have another full day session with Bain on Thursday and I hope to have some more information for you then.”
Virgin has put in place a number of support mechanisms for staff, including 24-hour a day access to an employee assistance program provided by Benestar’s MyCoach service.
A Virgin Australia spokesman told Executive Traveller “Management will be working this week with Bain to discuss parts of the business moving forward and we’ll provide details when decisions have been made.”
The flightpath to Virgin 2.0
Bain intends to accelerate Scurrah’s own pre-pandemic plan, which he’s often described as “turning a great airline into great business.”
Some of that was set in motion as the coronavirus shockwaves hit: shutting down the budget Tigerair arm, closing the New Zealand crew bases, and replacing the Airbus A330 and Boeing 777-300ER jets with a single fleet.
Bain has adopted much of Scurrah’s plan and is adapting more of it to suit the times, with the necessary downsizing becoming more a matter of essential rightsizing in the face of the dramatically reshaped travel landscape.
The scene continues to prove a highly fluid one.
Within the space of the past 24 hours Melbourne cancelled all international flights following a surge in coronavirus infections; Queensland announced it would reopen its borders from July 10 to visitors from all across Australia except for Victoria; and South Australia abandoned a previous decision to open its eastern borders to NSW and Victoria as of July 20.
Bain’s blueprint for Virgin Australia 2.0 will recast the airline as a leaner ‘value-based’ player with a dash of that on-brand Virgin flair, and straddling the middle of the market rather than entering a dogfight with Jetstar in the budget space or going head-to-head with Qantas as a full-service airline for corporate travellers.
The airline will move to an all-Boeing 737 fleet, with fewer planes.
Bain’s local managing director Mike Murphy has said he expects the sweet spot for relaunching Virgin to be around 60-70 planes, close to half of the current total fleet, with the suggestion that there’ll be enough fat in the reduced schedule to have some jets on hand to ensure a high reliability of service should technical issues occur.
Fewer planes means fewer flights, with Bain set to axe some routes and in other cases trim the frequency of services, while focussing on the busiest and most profitable routes such as the 'golden triangle' between Brisbane, Sydney and Melbourne.