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.