Virgin Australia's new owner to be chosen by next week

We'll soon know more about the new force behind Virgin Australia and the shape of the rebooted challenger.

By David Flynn, June 22 2020
Virgin Australia's new owner to be chosen by next week

With Bain Capital and Cyrus Capital having today locked in their multi-billion dollar bids to take over Virgin Australia, the countdown clock is now ticking on airline-appointed administrator Deloitte to crown the winner.

Deloitte’s Vaughan Strawbridge, who is leading the team behind Virgin Australia's sale, said in a statement that lodgement of the competing bids, both of which have already received approval from the Foreign Investment Review Board, marked "another important milestone" in the sale process.

“Both bidders are committed to seeing a strong, competitive and sustainable Virgin Australia operating into the future, employing many thousands of Australians, and supporting the tourism industry and state and national economies,” Strawbridge said.

But despite both of the US-based investment giants being given an extension from June 12 to June 22 to lodge their "final, binding offer", the decision as to which firm finds itself behind the stick of the failed airline remains on track for next week.

A Deloitte spokesman tells Executive Traveller that it's "still the plan to have a preferred bidder signing an implementation deed by 30 June."

Virgin Australia slid into administration nine weeks ago, owing close to $7bn to a range of creditors ranging from lenders, aircraft leasing firms and suppliers to its own employees.

The administration process is expected to see much of that debt wiped out, with  Strawbridge previously saying “I don’t think anyone is under the illusion that all creditors will get their money back."

This would however remove much of the ballast which has weighed the airline down throughout previous years, and could potentially see it turn a corner – and turn a profit – in two to three years.

It's not just about the money

When it comes to anointing the airline's new owner, the Deloitte spokesman told Executive Traveller that while "price will certainly be a very major factor, there may be other things proposed by a buyer that also deliver value to creditors."

"Under the Corporations Act, the Administrators are bound to determine the best outcome for creditors (and) the Administrators will put their recommendation to creditors for their consideration."

Regardless of if it's Bain or Cyrus which is handed the keys – and assuming the winner gets the nod of approval from Virgin's army of creditors at a meeting previously expected to be held in mid-August – the new Virgin Australia will be very different to the one which former Qantas executive John Borghetti launched in May 2011 and current CEO Paul Scurrah inherited in March 2019.

The airline will be much smaller - with fewer aircraft and fewer routes – and focussed wholly on the domestic market, with the possible exception of New Zealand flights once the trans-Tasman 'bubble' opens up.

Deloitte's Strawbridge confirmed that both bidders are looking to operate a smaller, single-branded domestic and short-range international airline, although "ultimately the size of the airline will be dependent on the timing and level of demand by customers as travel restrictions are eased."

Repositioning Virgin 2.0

Bain and Cyrus have also made it clear they each see Virgin 2.0's best chance for success as a mid-market 'value-based' airline with a dash of that on-brand Virgin flair rather than go head to head with Qantas as a full-service airline for corporate travellers or enter a dogfight with Jetstar in the budget space.

"We are not looking to take Qantas head on, especially in their corporate part of the market," Bain Capital's local managing director Mike Murphy has said. “We are not looking to attack the very high end of corporate Australia," adding that the outcome of Virgin's previous battle for the suited-and-booted business travel brigade" wasn’t a happy outcome for anybody."

Likewise, Cyrus Capital lead Jonathan Peachey says that Virgin Australia 2.0 “should sit below that very top tier of where Qantas plays so strongly in, and above and maybe overlapping slightly where Jetstar sits. We think there's a really sweet spot in the middle where Virgin can play very strongly."

Richard Branson is expected to join the winner's circle, with his Virgin Group having engaged with both Bain and Cyrus and said to be willing to put down several hundred million dollars in exchange for a continued 10% equity in the airline.

The Queensland Government may also be asked to make good on its promise of financial support to keep it based Virgin Australia based in Brisbane.

Also read: Could the new Virgin Australia be more like Virgin America?

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.

16 Mar 2014

Total posts 21

Interesting development in the news today with bond holders potentially having an impact on these two bidders.

Qantas - Qantas Frequent Flyer

07 Aug 2013

Total posts 152

Take a look at the history of the virgin articles published on ET over last few months. Then take a look at the comments raised by who I assume to be concerned Qantas Loyalists and keyboard warriors... the amount of rubbish posts, unsubstantiated opinion, fake news and bias towards doom and gloom for VA is very entertaining to look back on. Appears to actually not be the case and we will know very soon for sure. There is a future for VA after all, it's not a LCC - it will remain as competition to Qantas, debt will cleared, future plans for the airline and aircraft exist. This was the best thing to happen to VA...Voluntary Administration that is - not get weighed down in new loans and new debt funding, but pave way for a new Investor to reduce the debt, reconsolidate and reinvigorate the airline. Unfortunately for some airlines who aren't backed by government, those airlines livelihood has now resulted in new loans to fund them through and lead to a reduced cash base. If anything they have made themselves more vulnerable in uncertain times for years to come.

13 Apr 2020

Total posts 12

Yes it will be interesting what impact the bondholders have on this. But well said Dan22. Voluntary administration is a risky process for any business. It seems Virgin Australia are near the end of becoming a voluntary administration success story. Yes, the airline will be smaller etc... But what airline in the world isn't right now? With much of it's debt restructured well, they'll be in a better place for years to come.

Qantas - Qantas Frequent Flyer

09 Feb 2015

Total posts 300

I am extremely (and possibly too loyal) to QF, but I for one am pleased that their looks to be a successful outcome for Virgin Australia and most importantly the thousands of people that depend on employment.

I hope VA still continue with a small international network to LAX (which was lucrative for them), Tokyo & around the Pacific region.

Competition is good for us the consumer.

16 Mar 2014

Total posts 21

As a Velocity Platinum member I've got my fingers crossed!

17 Jun 2020

Total posts 29

Hope it is Cyrus so that eventually VA have some international. Good product over to the USA in my experience.

Qantas - Qantas Frequent Flyer

24 Jan 2018

Total posts 255

Disagree with you KW72, it was an exceptional product/service to/from LAX, and that was notwithstanding a total cluster-XXXX of a job by Virgin and Delta coordinating flight arrivals to (a) connect with East-coast bound Delta flights upon arrival into LAX and (b) purchase Delta flights within the Lower 48 using Virgin reward points. And that 'failure' also missed opportunities with Delta flyers to travel in Virgin metal (rather than delta), which the few I met on Virgin flights wished they could do.

I simply don't believe Virgin will exit the trans-pacific market to North America. More likely they'll take advantage of current travel impediments to get the local product settled down well before Christmas and re-launch into LAX in 2021.

(And to avoid 'challenges in these unprecedented times' to Dan22's blood pressure , these comments are merely my $2.00 of speculation - void of any inside knowledge.)

Joe
Joe

03 May 2013

Total posts 479

The ghosts of the MkII's will be lurking......let's hope Virgin sticks to the low cost model - where it always belonged.

Coming out of administration will be a very positive move for VA, but they like all airlines have an almighty fight in front of them if they're going to survive.

Yes what a difference a few months makes. Just a short time ago the media was filled with comments from so called aviation experts predicting the final “Nail in the coffin” or trying to relate Virgin going into voluntary admin to the collapse of Ansett, when they were clearly none of these things.

Ironically a new Virgin with a predominately domestic/regional network is going to be in a stronger position post Covid-19 than many full service legacy carriers. They will have consolidated aircraft fleet, reduced costs and largely retained customer loyalty through the Velocity program. No doubt QF and JQ can and will add seats quickly on domestic routes (deploying widebodys) and ultimately dilute yield to try and hurt VA, but does anyone really want to see a return to the fare war that was so damaging in the mid 2010's to all Australian airlines.

24 Oct 2010

Total posts 2389

Happy to say that Executive Traveller was never a member of the 'Nail in the coffin' club, and for many reasons - including those you've singled out above - the outlook for Virgin Australia 2.0 is in fact an exceptionally strong one. We're fans of competition, we saw (and reported on) first-hand how Qantas lifted its game when Virgin Blue became Virgin Australia and business travellers especially benefitted on east-west routes. Even if the new Virgin Australia is mid-market 'hybrid' rather than 'full-service' - and some would argue that it's already pitched a bit closer to that middle ground - this will still be a positive outcome.

Apologies David, your reporting has been excellent, factual and unquestionably impartial, keep up the good work.


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