Bain Capital takes Control of Virgin Australia

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Wow.... (excerpt below for those who don't have a subs)

The coup by Bain had been meticulously planned. While the cast of executives were holed up in a Brisbane hotel quarantining for two weeks, the finishing touches were made and then early this week (and cleared of COVID), the execution stage began.

The first step was to deal with Virgin’s boss, Paul Scurrah. He was T-boned a few days ago - the formal announcement of his departure was made on Thursday.

Private equity firms, such as Bain, are renowned as ruthless owners of assets with profits being their first, second and third priority.

The aviation industry had been waiting for the other shoe to drop at Virgin - they just hadn’t expected it to be a steel-capped boot.

And so was set in motion one of the most breathtaking corporate bait and switches in memory.

Everyone was played.

This included the unions, the staff, Scurrah, the customers and Deloitte - the administrators that had chosen Bain’s $3.5 billion bid in part because it promised to protect the maximum number of jobs, retain Virgin’s culture, most of its routes and its positioning as a full-ish service carrier.

It’s now becoming increasingly clear that Virgin will re-emerge post-COVID as a budget airline with lip gloss.

Of course there will be howls of protest from Bain and Deloitte at that suggestion. But sources inside Virgin, who wished to remain anonymous, said Virgin 2.0 would look a lot more like Jetstar than the pre-administration Virgin.

 
I am so glad I sent all my VA points to KF a few days before they stopped it.


I did that months earlier, as I saw nothing but potential issues with Virgin.

No points or SC earn on Etihad Biz trips to Europe (or any ANY partner carrier) is the killer for me.

No lounges, no partner earn, a muesli bar for Breakfast in Biz domestic - it is Tiger Mark 2, with the CEO of Jetstar in place to show them how that worked.

Very sad to see.
 
I did that months earlier, as I saw nothing but potential issues with Virgin.

No points or SC earn on Etihad Biz trips to Europe (or any ANY partner carrier) is the killer for me.

No lounges, no partner earn, a muesli bar for Breakfast in Biz domestic - it is Tiger Mark 2, with the CEO of Jetstar in place to show them how that worked.

Very sad to see.

** Muesli bar is on request according to their PR release
 
I note that Vaughn Strawbridge (one of the administrators) said:
“I know there has been speculation about the shape of the airline into the future, and I have reaffirmed with Bain Capital that Virgin Australia will not be repositioned as a low-cost carrier. Virgin Australia will be a ‘hybrid’ airline, offering great value to customers by delivering a distinctive Virgin experience at competitive prices. This will appeal to the full spectrum of travellers, from premium corporate through to more budget-focused customers.”

However this is not confirmed by Bain Capital Managing Director, Mike Murphy who didn't say anything on the topic about being a hybrid carrier.

 
"Given the environment, we need a hands-on CEO with deep aviation, commercial, operational and transformation experience," Mr Murphy said.

So they appoint the ex CEO of A-2 Milk.

It is like a Monty Python script. :rolleyes:
 
Jayne Hrdlicka? Just trying to get my tongue around the pronunciation of Hrdlicka.

Is it pronounced as in hard liquor/hard licker?
 
American born Jayne Hrdlicka in July 2018 was appointed managing director, chief executive officer and director of The a2 Milk Company, an Auckland-based dairy company. She stepped down from a2 Milk in December 2019. Reportedly as she argued with the board - and lost.

"Given the environment, we need a hands-on CEO with deep aviation, commercial, operational and transformation experience," Mr Murphy said.

Just the kind of leader Tiger #2 needs. :rolleyes:
 
I note that Vaughn Strawbridge (one of the administrators) said:
“I know there has been speculation about the shape of the airline into the future, and I have reaffirmed with Bain Capital that Virgin Australia will not be repositioned as a low-cost carrier. Virgin Australia will be a ‘hybrid’ airline, offering great value to customers by delivering a distinctive Virgin experience at competitive prices. This will appeal to the full spectrum of travellers, from premium corporate through to more budget-focused customers.”

However this is not confirmed by Bain Capital Managing Director, Mike Murphy who didn't say anything on the topic about being a hybrid carrier.


Deloitte disappear in a matter of days, who honestly cares what they say now.... It is clear Bain just told everyone what they wanted to hear to get what they wanted. They won and they can do whatever they want now.
 
@RAM, it's an interesting theory/concept that, not content with running an FF program with an airline on the side, a competitor is also running a serious IO campaign perhaps befitting a state actor.
Airline companies do have form for this and much worse. Such as hiring private detectives to trail 1st class passengers, on a competitor, home so they can identify & attempt to poach them.

Some have even required that suppliers agree to stop working with a competitor otherwise they will not continue with that airline.

For some reason some senior execs put their remuneration ahead of ethics/morals & even the law at times. Some MPs too apparently.
And I'd say it may well be working, certainly I will be making forward bookings with QF only, as they have a demonstrable product.

VA have... well... talk is cheap.
Have a look at Q's Preliminary Final Report (released Aug 20th) on page 3. After getting $1.36bn in on June 26th (in cash) or around 88 cents per share, by June 30th their Net Tangible Assets per share was down to 17 cents.

Remember that VFF was stated to be fully cash backed. Looking at Q's reports - QFF is not. Q shut down or limited redemptions of QFF points before VA did earlier this year. QFF liabilities as at June 30th were $2,817m (pg 37, note 11). Q also reclassified unpaid ticket refunds requested but not yet paid out, a bit like their sleight of hand with losses on fuel hedges becoming non-operational.

Q does not have enough tangible assets to pay out their redundancies ($569m) & associated annual/long service leave for those made redundant (approx $150m), cancelled flight tickets (approx $2bn) and operating cash burn - let alone repay the $400m debt due next June (which was the reason they used for the $500m unsecured bond issue ).

The 17 cents as of 30 June is the equivalent to around 4 to 5 weeks of 'optimistic' operating cash burn only. That does not include paying out the redundancies, refunding the latest 5 months of flights 'officially' cancelled nor costs associated with the grounded international fleet.

As it is now 15 weeks since June 30th it is fortunate that the 'trading while insolvent rules' have been suspended otherwise Q could face some serious issues. But I could be wrong & the numbers in Q's preliminary final report are misleading.

Regardless of the airline - I would not be making bookings other than for use in the following few weeks.
 
I'm predicting some last ditch industrial action from the staff depending on what gets announced by Bain next week.

They really need to calm the farm with their loyal flyers - there's two VA Platinums at my address and VA is not getting another red cent until they come clean with what they are *actually* planning.
 
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Peeps, what Hrdlicka brings to the table (I suspect) is invaluable knowledge regarding every single aspect of where she got knocked back running Jetstar up against Qantas. She knows precisely the "do not cross" fault lines within their two brand strategy.

So while Bain will focus maniacally on slashing costs and pulling out profit by indebting the company (that's what private equity does)... she will position the airline to extract maximum impact on the competition. (Issue is, this is a similar hope previous owners had when employing Borghetti. But... the former owners were a disparate mob with no unifying vision.)

If the Qantas board were smart, they would sack Joyce today (he has become too chummy with the labour, and not prepare to pitch fork them). Sack every single (over-paid) Qantas airline staff member, and have Jetstar operate all Qantas QF services (as a codeshare) off Jetstar's cost base - as Qantas Group rebuilds itself for a post-covid market.

BUT... they won't, so Bain wins!
 
Deloitte disappear in a matter of days, who honestly cares what they say now.... It is clear Bain just told everyone what they wanted to hear to get what they wanted. They won and they can do whatever they want now.
Not if they want to make money though.

The value in the business is predominantly VFF worth between $1.6 to $2bn - without an incentive to earn & use VFF points for flying then the attraction for VFF is lost and QFF becomes the winner. VFF in 2018/19 took in $411m & made a net profit of $122m

We will probably never hear the true story behind what has happened but what is in public domain I suggest PS' ego got the better of him.

Go back a couple of months and it was clear that Bain had chosen PS over JH. So JH went looking for alternate roles in a CV world. She obtained the role as a Director with Hawaiian Airlines (likely based on her Jetstar experience).

Possibly emboldened by this, PS thinks he is untouchable now that JH is off the scene & looks to 'stamp' his authority. May have said my team is required for the future - they cannot be broken up. Bain says it is not his call. PS thinks JH would in no way come back after Bain dumped her for any future role - so presents ultimatum, 'If they go then I go.'

Bain responds, 'Close the door on your way out please!'
________________________________________​

With the valuations for airframes down 20% or more since 31 Dec 2019 (official valuers' figures) then sale & leaseback has a problem. Many airframe leasing companies are themselves facing bankruptcy as they operate on a leveraged basis. Seeing a 20% drop in asset values even if they're receiving lease payments will see their financiers reluctant to roll debt over. Quite a few airlines have stopped lease payments altogether.

Equally these leasing companies have big orders for the A350, B777-9/10, B787 Max, Airbus Neos placed on the basis of the pre-CV projections. Things are grim everywhere so very little ability for Bain to enter into sale & leasebacks even if their fleet was new.

VA MkII is not sitting on a pile of readily saleable fixed (hard) assets - not land, buildings nor tangible assets. Which is exactly the position Q is in as it happens - the big difference is Q has not entered administration yet.

So Q has 2,000,000 sqm of property leases around the world of which around 90% is on airport. Q cashed out on their existing leases in Australia for Brisbane, Melbourne & Sydney which saw them enter into new long term leases after pocketing around $1bn for breaking their leases early. This $1bn profit funded the bulk of the franking credits used to buy back Q's shares (& boost EPS) which had the happy coincidence of see Q's senior execs et al pocket healthy bonuses for meeting revenue & profit related KPIs.

Q also has many airframe & engine leases. However Q seems to have negative Net Tangible Assets now, they were down to just 17 cents per share as at 30 June and Q's creative 'cash burn' calculation is chewing through around 4 cents per share a week.

So with this 'competitive'environment facing VA - their arch-competitor hamstrung with high long term leases vs VA mk II's take it or leave it renegotiated lease costs - VA mk II has many advantages in pursuing the middle road.

I may be missing something here, but cash is king in this environment & Q is still haemorrhaging cash with a higher legacy cost structure complicated by having well over half its fleet by value (& cost) grounded through to likely at least July 2021 (their international fleet). VA mk II virtually does not. Q will face a massive cash requirement once it needs to re-certify its international fleet - once put into long term storage then AFAIK it is akin to a car becoming unregistered - just massively more expensive to regain the certification (which is why the A380s may never come back into service given their specific issues).

VA Mk II cannot justify a full valuation for VFF unless VA Mk II remains a draw for redemptions. Q's results show that QFF redemptions on JQ are 3/10th of nothing compared with the redemptions on mainline Q.

So I am waiting to be blind-sided by Bain....

Or not!

In the next few days the much delayed August international aviation stats will be published (delayed by over a month) followed closely by the domestic figures. The domestic figures will provide a much clearer picture of how both airlines have been coping.
 
Back many months ago the word "Bain" was mentioned as likely successor. It was clear from that point on, regardless of any smooth talking words, the sole focus after taking control would be how much slashing and burning is required to quickly achieve a profit and tart up the books for a sale in 2-3 years time. IMHO thinking anything else is delusional. Importance of previous loyalty - meh!
 
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Back many months ago the word "Bain" was mentioned as likely successor. It was clear from that point one, regardless of any smooth talking words, the sole focus after taking control would be how much slashing and burning is required to quickly achieve a profit and tart up the books for a sale in 2-3 years time. IMHO thinking anything else is delusional. Importance of previous loyalty - meh!
Yep, private equity. i just farted virgin loyalty out
 
Back many months ago the word "Bain" was mentioned as likely successor. It was clear from that point one, regardless of any smooth talking words, the sole focus after taking control would be how much slashing and burning is required to quickly achieve a profit and tart up the books for a sale in 2-3 years time. IMHO thinking anything else is delusional. Importance of previous loyalty - meh!

Indeed. One of the sore points for Bain in the purchase is the 'lack' of assets at VA to strip.

SQ/EY/HNA et al has already beaten Bain to the 'asset strip' by encumbering (mortgaging) the owned fleet (737s and 777s) against the banks by using them as collateral
 
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