The countdown clock is ticking for Virgin Australia's new owners, who have until this coming Friday May 15 to lodge their first offers to take over the airline.
Those will be "non-binding indicative offers" based on full access to Virgin's books and a detailed sale memorandum prepared by airline-appointed administrator Vaughan Strawbridge of Deloitte.
Strawbridge has previously indicated that 20 "interested parties" were scoping out the sale, which he expected to be "a very competitive process" involving "high-quality bidders with fantastic credentials and the ability to restructure this business."
This Friday will reveal which of those parties have coalesced into consortia.
Some of the suitors are said to include:
- Melbourne-based private equity firm BGH Capital, which is reportedly building a locally-financed 'Team Australia' bid as a counterpoint to Virgin being previous dominated by foreign ownership
- Australian-based multinational investment firm Macquarie Group
- Perth-based Wesfarmers, which is said to have its eye on how the Velocity rewards program could be used to bolster FlyBuys
- WA mining magnate Andrew 'Twiggy' Forrest
- Singapore sovereign wealth fund Temasek
- Bain Capital, with former Bain exec and Jetstar CEO Jayne Hrdlicka running point
- US-based private equity firm, airline investor and low-cost champion Indigo Partners, which owns US budget carrier Frontier Airlines and holds stakes in an array of other LCCs, including Europe's Wizz Air, which Indigo co-founded
Friday's first round of indicative offers will need to be shaped into "serious, binding offers" by the middle of June, from which the winning consortium will be chosen.
"We remain confident that our target of achieving a sale by the end of June is achievable" Strawbridge has said.
Virgin's suitors will have been running the numbers across a range of scenarios, ranging from a return to the airline's low-cost Virgin Blue roots, a hybrid mid-market position between Qantas and Jetstar, and a smaller but still full-service 'boutique' model.
Stripping back the fleet will be a strong focus – almost half of Virgin's aircraft are leased, including all six Airbus A330s – while international flying could be abandoned in at least the short term, given the ongoing travel bans due to the coronavirus pandemic, or pared back to a small number of short-range overseas routes including New Zealand.
Virgin 2.0 takes shape
Deloitte's pitch to the would-be owners of Australia's challenger airline highlighted its key domestic routes, including the 'Golden Triangle' of Brisbane, Sydney and Melbourne, which it described as "historically one of the most profitable operating jurisdictions globally for air travel."
Virgin Australia CEO Paul Scurrah, who remains in place during the administration period but would continue to serve only at the pleasure of the airline's new owners, has maintained there is nothing intrinsically wrong with the airline's business model or the plans he had in place "to turn a great airline into a great business."
The biggest issue was that Virgin was weighed down by an estimated $5 billion in debt at the time it went under – debt which could be substantially reduced through administration, freeing up more of the airline's annual revenue to become straight profit.
Administrator Deloitte and Virgin Australia management is said to be pitching Virgin 2.0 as capable of chalking up $1.2 billion in pre-tax profit against an estimated $5 billion in revenue by the middle of 2023, which is when the airline hopes to have pulled out of the coronavirus clouds and be flying steadily in the 'new norm'.
This would be based on the new Virgin Australia being a smaller airline with fewer planes, routes and staff, offset by lower operational costs.