Virgin Australian "Trade Sale" - who would be best?

[Saab34]

Really need to see some profit figures for the last half to get a good gauge on where this business is actually going. The previous FY was low and surprised many analysts, considering the costs pulled out and pent up demand. If they have gone backwards in the last half vs the prior year, which I believe they might have, some questions need to be asked.

Going to be hard to flog off a business that only pulled in $109m the prior year, and if they record a decrease this year, which does seem probable, how can you justify some sky high price? Its future is as unknown as the present.

I believe the wide body operation has a positive impact on the Velocity earnings also, that is one part that will require considerable capex in future years, I don’t think it’s a part they can ignore.

 

[RooFlyer]

Best for Bain = the highest bidder

Best prices in trade sales usually come with strings attached:

* Deferred payment(s)
* Final amount contingent on profitability 1-2 years or other events
* Ability to off-load some of the risk

Now, Bain might be happy to wait for some of the loot, but they may equally take a lesser amount and run.

 

[docjames]

Best prices in trade sales usually come with strings attached:

* Deferred payment(s)
* Final amount contingent on profitability 1-2 years or other events
* Ability to off-load some of the risk

Now, Bain might be happy to wait for some of the loot, but they may equally take a lesser amount and run.

Indeed, highest bidder perhaps could have been phrased best bid based on price and T+Cs attached to said price.

The point was perhaps more that there are multiple (and some conflicting) perspectives on the outcome here.

 

[Saab34]

What is it worth? $3-4b?

 

[elanshin]

I personally don't think we'll see SQ or NZ dabble in this space again. They tried with VA1 and it didnt go well. If anyone wants in, it'd be either the 2 US carriers if they want to focus on the Aus market. I dont expect LH as they have things at home to fix still too and their own strategies going forward.

Left field for me would be the Chinese carriers - however the Aus government may block such a deal pending how their appetite for having a Chinese majority owned airline flying domestically in Australia.

Besides that at this stage I don't see any other airlines looking at VA going "that's a nice value add to our portfolio".

Bain may want an eye-popping price but the business isn’t strong enough and they won’t get it.

I dont think any realistic investor will "want an eye watering amount" if they realise they don't have a good investment (which Bain may consider this to be). Sometimes they divest just to get rid of the headache.

Virgin didn’t take any market share off Qantas during its troubles over the last year, and VA profits are miniscule. That’s why there’s no IPO (and Hrdlicka got sacked).

I think it's because while QF caught the brunt of the media attack, VA wasn't exactly being stellar either. So many people ended up realising it's just different shades of brown on both sides.
ZL still needs a bigger network to compete.

 

[RooFlyer]

What is it worth? $3-4b?

enterprise value I guess you mean, rather than equity.

Qantas' PE is currently around 5.6. Here is the range of about 60 global airlines (some 2022 (incl Qantas), others 2023

Top airlines by P/E ratio

companiesmarketcap.com

If someone can tell me projected PE of VA3, I can have a bit of a stab!

 

[HS-TQE]

Personally I think the most logical candidates are SQ and Air New Zealand. The synergies particularly in NZ's case are pretty obvious and both would likely come with Star Alliance membership (eventually) which would be great for VA FF'ers. Of course, on the down side both have been burned by Australian investments before (more than once?) and I think NZ in particular would be controversial with Kiwi taxpayers who still own a huge chunk of it. Having said that having (near) full control of VA would be a lot easier for them strategically than a minority investment.

Singapore Airlines had tried 3 times in the Australian market through Ansett (via Air New Zealand), Tiger Airways and Virgin Australia 1.0. They failed big time at all three.

SQ also has a very bad track record of investments overall being involved in the bankruptcy of Virgin Atlantic (leading to Delta buying the stake for less than what Singapore paid for), as well as being involved in the bankruptcies of all Australian investments plus Singapore group's involvement in the bankruptcy and liquidation of NokScoot.

Air New Zealand still has people very bitter about their major involvement in the Ansett bankruptcy and liquidation as sole owner. In addition, they were very lucky to bail out of Virgin Australia 1.0 with Luxon's alleged failed attempt to oust Borghetti failed when all other shareholders 'ganged up' on NZ/Luxon, leading to his resignation and sale of the NZ stake to the Chinese stakeholders.

 

[HS-TQE]

Possibly. Yes they are foreign owned but there is a good chance that they do not have a single foreign controller (rather just a consortium of lots of Bain limited partners). If they had a single foreign controller, there is a chance foreign countries may not treat them as an Australian carrier (ie. will Japan view it as a Singaporean/New Zealand carrier). I do not know the answer to any of that.

Air New Zealand wholly owned Ansett as a subsidiary of (now defunct) ANNZ group. NZ solved this by establishing the ANi subsidiary which was 51% owned by 'Australian institutional investors' to retain their international rights.

VB, later VA 1.0 also did the same method when the international airlines such as EY and SQ came on the VA 1.0 register.

 

[TheInsider]

Instead of having a wish list of who you'd like to own VA and some mystery alliance, what is actually more realistic?

 

[jakeseven7]

Richard Branson

 

[moa999]

Pretty sure they are majority foriegn owned (by Bain Capital) right now and are still operating international flights.

Quoting from an SMH article from 2021.. Bain is basically using the same shell company structure that the former listed Virgin used after it became majority foreign owned by Singapore and Etihad.

While all shareholders in the ASX-listed Virgin entity were wiped out in the administration process, Virgin said there was "no change" to the VAIH ownership structure which "continues to operate in a legally compliant way with the same independent directors".

"The [VAIH] company remains majority owned by Australian shareholders," a Virgin spokesman said. "The structure ensures ongoing compliance with the foreign ownership restrictions under the Air Navigation Act."

Virgin to use shell company loophole to sidestep foreign ownership cap

Virgin Australia might be firmly in the hands of US private equity firm Bain Capital, but its long-suffering Australian investors have not walked away as empty handed as previously believed.

www.smh.com.au

Would be very interesting to see the actual financials. I can only assume there are some very large losses and intercompany loans into VAIH.

So technically there are a few mums and dads (other than Richard) who own a piece of Virgin.

 

[SYD]

Richard Branson

Share buy back!

 

[twiningb]

Instead of having a wish list of who you'd like to own VA and some mystery alliance, what is actually more realistic?

I don't claim to be an expert, but the obvious candidates with aligned interests and sufficiently deep pockets (including potentially bankrolling a widebody purchase) are QR and UA.

 

[twinaisle]

Instead of having a wish list of who you'd like to own VA and some mystery alliance, what is actually more realistic?

Isn't this thread about wannabe arm chair experts and their wish lists?

 

[TheInsider]

Isn't this thread about wannabe arm chair experts and their wish lists?

Of course it is. But this alliance talk, it's been the same for a decade!!
An alliance would be the last of their priorities IMO, even if it got sold to some airline with an alliance.

 

[HS-TQE]

Instead of having a wish list of who you'd like to own VA and some mystery alliance, what is actually more realistic?

"Singapore will finally TAEK OVAH VA!!!11!!! and will rescue them from the dEfIciTcOnS and will bring tehm into sTar AlLiAnCe !!!!!11111!!!!"

Seriously though, there has been no serious contenders from any other companies prior to (and after) the change of QR CEO (that previous QR CEO was reportedly interested in VA as a vehicle to get around their bilateral rights by leasing WBs to VA for DOH flights, for example)

 

[elanshin]

Just curious but hypothetically if QR made a move. Would the Aus government even allow it?

 

[RooFlyer]

Just curious but hypothetically if QR made a move. Would the Aus government even allow it?

Assuming the financial and other hard hurdles are able to be cleared, it might come down to the national interest test.

And we know what the current transport minister regards to the national interest. Quite different from the national travelling public's interest.

 

[dajop]

Singapore Airlines had tried 3 times in the Australian market through Ansett (via Air New Zealand), Tiger Airways and Virgin Australia 1.0. They failed big time at all three.

Although relative to the overall cost of running SQ, the writedowns of those investments to zero weren't that large. In the meantime SQ has expanded its own services considerably, and Krisflyer is arguably #3 airline loyalty program for the country.

Bottom line, if there is another airline that is interested in investing in VA, it's more to be a play thing to drive their overall (parent airline's) strategy than to make money from VA's operations.

With that in mind, who knows, can we even discount Delta, to nudge out UA like they did with LATAM and AA?

 

[tdimdad]

I don't claim to be an expert, but the obvious candidates with aligned interests and sufficiently deep pockets (including potentially bankrolling a widebody purchase) are QR and UA.

Even with those two, you need to ask what's the material improvement to their markets they'd gain through VA3? For both, Australia is far away and would probably work as 1) a domestic feeder (of a small but actively travelling nation) and 2) possibility to expand the route network in South Pacific. How much commercial value would those bring to either suitor?