Bain, Cyrus in line to buy Virgin Australia for up to $4 billion

The shortlist just got shorter, with two players in the ring to buy Virgin Australia and bring it back to the skies.

By David Flynn, June 2 2020
Bain, Cyrus in line to buy Virgin Australia for up to $4 billion

Two US-based capital equity and investment giants – global colossus Bain Capital and lower-profile Cyrus Capital Partners – have been shortlisted to take over Virgin Australia, with bidding expected to be north of $3.5 billion.

Airline administrator Deloitte confirmed Bain and Cyrus as dual and duelling finalists for the final round, with the clock now ticking on their "firm and binding" proposals to be submitted to Deloitte by June 22 with the winner to be chosen by the end of June.

Local hero BGH Capital, along with low-cost champion Indigo Partners and Canada's Brookfield – which was a late re-entrant to the process – all failed to make the cut.

Bain Capital's squad is spearheaded by Aussie director Mike Murphy and includes former Bain exec and Jetstar CEO Jayne Hrdlicka, who would likely move into Virgin Australia Mk II as either CEO or Chairman.

New York-based Cyrus emerged as a surprise 'outsider' but has solid connections with the Virgin mothership and Sir Richard Branson as a cornerstone investor in the launch of Virgin America.

"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," Deloitte's Vaughan Strawbridge said in a statement this afternoon.

"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."

Transport Workers Union National Secretary Michael Kaine, who represents the airline's 9,000 employees, said the decision was "an important moment towards what we hope will be a successful transition for Virgin."

"The administrators are saying that both of the short listed bidders are committing serious capital to the airline and with ambitions to get back to a full service airline. It is now up to the final bidders to show they can follow through on their commitment to ensure the best outcome for the Australian community and Virgin workers."

The shape of Virgin 2.0

Bain is said to be leaning towards the new Virgin Australia as being closer to a mid-market airline, while Cyrus wants it to remain close to the current full-service model.

Bain's Murphy has previously said that he wants to bring back some of the Virgin Blue vibe to Virgin Australia "and make flying fun again" while Cyrus is understood to be more closely aligned to the recovery plans of Virgin Australia CEO Paul Scurrah.

However, in both cases Virgin would relaunch as a domestic-only operation – the most realistic short-term option, given the impacts of the coronavirus – flying a smaller fleet of Boeing 737s to a pared-back network of destinations in an effort to streamline costs and operations.

International flying would gradually return as demand recovers, and Cyrus is on-board with plans to replace Virgin's Boeing 777 and Airbus A330 jets with Boeing 787 Dreamliners.

Deloitte's Strawbridge has previously noted that discussions with bidders were “focusing around keeping the business together and bringing Virgin as much out of administration in its current form as we can" – indicating that the new Virgin Australia is more likely to resemble the old one, rather than spear off in the direction of being a low-cost Virgin Blue 2.0 play.

Sir Richard Branson's Virgin Group has held discussions with both Bain and Cyrus is understood to be ready to support the winning consortium with a cash injection to help recapitalise the airline, along with dropping or steeply discounting his annual $15 million Virgin brand franchising fee at least over the next few years until the airline is back on its feet and back in the air.

The Queensland Government is also likely to join the winner's circle to ensure that Virgin Australia remains based in Brisbane, with the state-owned Queensland Investment Corporation's 'Project Maroon' looking at that "a direct equity stake, a loan, guarantee or other financial incentives."

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

07 Oct 2018

Total posts 9

Whoever is successful I hope Tigerair starts flying again

Virgin Australia - Velocity Rewards

15 Aug 2012

Total posts 175

That's hilarious

Qantas - Qantas Frequent Flyer

07 Oct 2018

Total posts 9

Spare a thought for the hundreds of Tigerair employees.

QF

11 Jul 2014

Total posts 536

The old story, it's anyone's race until the young lady sings.

Qantas - Qantas Frequent Flyer

02 Jan 2015

Total posts 64

I flew Virgin America a few times and if Cyrus are hoping to follow that then great. I just hope they do the sums and get it right. It's going to be a tough slog getting back in the air post Corona.

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 370

I've got total confidence in Cyrus/Virgin provided (and I do mean 'big if') they've done their forecasts better than Virgin Group has done them in the UK. If so, a materially stronger Virgin Atlantic-Virgin Australia alliance looks promising, particularly if Delta connections within the USA are properly integrated (which they hitherto have not!).

But a debt-laden Bain purchase with simply result in a Low-Cost Brother (Virgin 2.0) by another mother (Jetstar). I really don't think I could be bothered investing in FF points and status credits under this model, particularly with the strong likelihood (IMHO) that' we'll be back here within 2-3 years. Dear AJ (if you're reading), "Hi", pitch up a status-match offer into QFF and I'll be quickly accepting (otherwise SIA/KrisFlier here I come). But risk all this again, with Bain, no thanks, I'm too olde for that - it's Cyrus or out for me.

Virgin Australia - Velocity Rewards

07 Dec 2015

Total posts 47

I travelled a lot with VX in the states until the code share with VA stopped and I moved to DL. I agree, the VX proposition was a good one and I thought they had a good point of difference in the market without being too garish (looking at you Virgin Blue!). Would it work here? Not sure

Am OK with domestic only (I will seriously miss VA J on the wide bodies though) but they better nail down quickly, some easy to understand and consistent alliances that are easy to engage with. I won't miss the current hodgepodge!

23 Oct 2014

Total posts 186

Sounds fantastic, basically a full service Virgin or Mid market (maybe J and Lounge only no VIP lounge) and re set company financials with debt reduced will be a win for all loyal VA FF's. Both are strong financial US institutions.

Qantas - Qantas Frequent Flyer

20 Mar 2012

Total posts 226

Cyrus did an excellent job with Virgin America, Bain's proposal seemed well rounded. Happy to see these two succeed, although sad to see local investor BGH miss out.

Seems we'll be seeing old mate Branson still around either way.

Qantas - Qantas Frequent Flyer

07 Aug 2013

Total posts 203

I was hoping to see a new airline out of this and shift away from Virgin brand to create a new identify - nonetheless glad to hear positive news and survival of the company and its staff looking stronger. Expect to know how virgin 2.0 will shape up to look like by July

30 Apr 2020

Total posts 15

I don't think Cyrus aim of returning Virgin 2 back as as full service airline is realistic, people would love to happen but I doubt it. All the other bids had a scaled down version returning because its very different aviation market now, the only way to survive is to lower the cost base. Bain's model of something in between is more realistic but will require less staff and planes. Interesting to see which the administrators go.

Qantas - Qantas Frequent Flyer

13 Sep 2013

Total posts 6

Will be so happy to see regular services back in OOL. Will be even happier to see two airlines to keep our fare structure right. No international services is ok, so long as we see some solid code shares

I need a holiday

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 370

I too need a holiday, and to see a return of Contrails in the sky (heck, I even miss the the sound).

Joe
Joe

03 May 2013

Total posts 544

Good luck is all I'll say. Virgin Blue II is the only way it will work.

08 May 2020

Total posts 55

I hope that near all of the VA terrific Personnel will get their Job back in VA 2. It will be great to see you all again in the near future. I also hope that Velocity will have some code sharing arrangement with their previous stakeholders in Emirate and Singapore Airline to obtain status credits, Miles points can be a bonus.

Good Luck to VA 2

QF

11 Jul 2014

Total posts 536

Do consumers really want an ex Jetstar CEO running Virgin?

Virgin Australia - Velocity Rewards

06 Aug 2017

Total posts 55

UpUpAndAway you do realise that there's currently an ex Jetstar CEO running Qantas? That seemed to work out OK.

QF

11 Jul 2014

Total posts 536

I think that actually proves my point

Qantas - Qantas Frequent Flyer

12 Jun 2011

Total posts 149

JQ and QF both make money. Would be a nice change for VA to finally make some money...

Qantas - Qantas Frequent Flyer

07 Oct 2018

Total posts 9

Hence why Tiger will be back to compete with JQ

Qantas - Qantas Frequent Flyer

12 Jun 2011

Total posts 149

Tiger is dead. Its never coming back lol

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 370

VAH 2.0 should keep one (1) only Tiger jet for use by the AFL Premiers, Richmond FC, when travelling inter-state.

08 May 2020

Total posts 55

my apology on my previous Note I mentioned Emirates it should have been Etihad. I am not sure with Air NZ as they now have some arrangement with Qantas & Jetstar, which I am sure is not in the best interest of Air NZ and would be better suited with Virgin. So my 5-6 trips annually to NZ are a bit of a question mark right now.

bmc
bmc

Virgin Australia - Velocity Rewards

22 Aug 2013

Total posts 169

A tighter tie in with Singapore Airlines would IMHO be best. VA2 to concentrate on domestic with a strong codeshare agreement in place from a big international player like SQ

QF

11 Jul 2014

Total posts 536

Elizabeth Knight wrote a good article on this "Forget Team Australia, Virgin will ultimately be owned by Americans"

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 370

I'd like to read it, so, date and masthead, s'il vouz plait ?

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 370

Found it, read it, I'm convinced: being a PE player, Bain will cut, burn and flip the airline - probably within 2-4 years. The only question is who will they sell it to?

QF

11 Jul 2014

Total posts 536

20% of Singapore Airlines market share comes from Australia, Etihad not sure but it's up there, Delta to USA? Private Equity firms are there to make money so this is a cash cow for someone.

23 Apr 2020

Total posts 4

Virgin is a tired old brand from the 70's and 80's. Only benefit in keeping it is the savings from not having to repaint aircraft and reprint collateral and signage

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 370

'Virgin's has hitherto been one seriously expensive brand with no obvious benefit to domestic travellers and only marginal benefit to international travellers. Branson needs to now take a massive haircut and instead be rewarded for $ and £ he brings to the table. His smile and white locks don't work down here anymore, Mick Malloy would add far more value.

28 Dec 2016

Total posts 1

A shame Branson might be back in again

13 Apr 2020

Total posts 4

Completely agree. That guy is all ‘smoke and mirrors'.

Personally I'd like to see Cyrus, they fit with my own preferred profile of owner and I don't see Virgin brand as dated at all. Get back in the air and compete with QA, not much international to switch back on, so that shouldn't be to difficult at the right time. Post Covid, I expect to see moderate price increases if there's competition and I like many are prepared to pay a little more within reason to fly safely and healthily. Good luck Cyrus

QF LTG

29 Feb 2016

Total posts 21

There is a large (disaffected, ex QF) body of FF'ers like me who will be devastated if VA2 comes back as a Tigerair cheap as chips LCC. I don't hear any partic good news on the service front about QF, nothing at all attractive about QF Intl fares, and (albeit on a reduced current sched) nothing flash on current domestic fares either.

So beware the fund, spruik n flip model of VC companies, apparently incl Bain. But the alternative Cyrus can't be regarded as all that successful if Virgin America is cited (somewhere in this string) as an example of their airline savvy. V America doesn't exist any more.

Qantas - Qantas Frequent Flyer

08 Nov 2011

Total posts 123

Qantas aren't there to cater to FFers who are price conscious while wanting all the status benefits. They are in the business to sell fares for the most amount of money they can. Something they as a business do very well regardless of whether you think their fares are too high or if their service is so so. They are reliable, frequent, consistent and offer an international network that is unmatched for the high spending FFer.

VX doesn't exist anymore because it was an attractive business to purchase. The American market is huge and a player like VX was, while highly successful, an attractive target to one of the majors for easy expansion and slots. Something along the lines of VX for VAmkII would be not unreasonable. Domestic only, value based economy (basically LCC with funky lights) and a good business class would be a good mix. Again, a la Virgin Blue when they had premium...

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 370

You make Qantas sound like a Department of the Public Service that we're stuck with using. I don't disagree with you, that was my consistent experience before 2012 and, perhaps from a 'jaded' perspective, still seems the case 50% of the time I've flown with Q since then (recognising there has been 'some' clear noticeable improvement for the better, attributable to AJ's leadership).

But I'm disappointed, because it seems more effort has been put into 'emotional' advertisements intended to pull on patriotic heartstrings. I'll always be keen to use a better Q service offering, I hope Q keeps improving and doesn't use its financial troubles caused by the COVID-19 China virus as an excuse the take their foot off that pedal.

23 Oct 2014

Total posts 186

“Public service” beautiful.

Malaysia Airlines - Enrich

01 Jun 2015

Total posts 31

Whoever the NEW VIRGIN BOSS, 9000 employees isn't too many? I'm pretty sure there will be a chopping block in stages. All the best. Will see what the New Owner can do.

Qantas - Qantas Frequent Flyer

11 Nov 2015

Total posts 41

I really think many on this forum do not understand Strategy by Segment as it applies to Virgin and indeed Qantas.

It is the key to understanding how any purchaser will run Virgin and how Qantas and all the others locally, see Rex, Airnorth, etc, respond.

Austin

XWu
XWu

09 May 2020

Total posts 285

Just waiting for someone in the media. to scream no foreigner (read Chinese) taking over our Australian icon....

Except:

1. It's already foreign owned, including the Chinese HNA

2. The 2 forerunners are US based

So this may be ok

Just saying. Ok, do your worst

08 May 2020

Total posts 55

It may well be Cyrus's Plan to incorporate Virgin Australia into VAM Virgin America and manage it as one. Sharing the overall Management structure and buying power could well save millions a year.

Virgin Australia - Velocity Rewards

06 Aug 2017

Total posts 55

I think we can say with some confidence that that will not be Cyrus' plan, for the very simple reason that Virgin America doesn't exist any more.

QF LTG

29 Feb 2016

Total posts 21

VX was bought by Alaskan Airlines in 2016 and, from early 2018, been full integrated ie. swallowed.

23 Oct 2014

Total posts 186

VX was bought for $2.5b US, Virgin and Branson doing a lot right, Branson has launched 5 airlines, Atlantic, Sun, Express, Blue and America. He is going great, with great form, 5 airlines more than his knockers and experts on this forum.

QF

11 Jul 2014

Total posts 536

A newspaper is reporting debut issues with 2 Bain companies in Australia?

XWu
XWu

09 May 2020

Total posts 285

News online today have Deloitte worried about finalists bidders walking away if government doesn't step in to guarantee support of some kind.

Real news or the administrators trying to make VA more attractive to higher bid with government support?

Virgin Australia - Velocity Rewards

10 Jun 2020

Total posts 6

I liked virgin blue and their mantra they were different and fun. Qantas has always been too corporate and I always have and still feel 2nd class because I don't wear a suit and not a typical business client- I'm a rep and see people in rural type settings.

Virgin always seemed more for the average Joe. However they always looked after their FF.im platinum now 2 years Gold for a lot longer. They have gifted me stays credits etc to maintain. I'm bronze with Qantas but don't seem to care- be it I guess being bronze. However one thing I see with virgin is they actually send out surveys and ask you if you are a FF with another airline and what tier-

Smart marketing there. Qantas has never asked me or ever want to.

In saying all this we are truely blessed with 2 great domestic airlines. I've flown domestically in the US and wow don't we have it good.


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