Virgin Australia to be sold to Bain Capital

[Melburnian1]

This is part of an 'Smh'/The Age' online report tonight (probably in print on Saturday 27 June 2020):


'...However, a well placed source close to the sale process said Deloitte was also exploring options, including a technology platform, to let thousands of Virgin customers also vote on the deal, which needs the support of 50 per cent of creditors by both number and value.

Virgin has total debts of $6.8 billion and 12,000 registered creditors, including 9000 employees. The airline's tens of thousands of customers owed points or flight credits could secure the vote for Bain after it promised to honour what they are owed.

Deloitte declined to comment. However, joint administrator Vaughan Strawbridge did say that the creditors' vote would only influence the outcome of Virgin's legal entities, with the deal signed on Friday assuring Bain will buy Virgin's assets regardless.

"The benefit of this is creating certainty around employment, an outcome for creditors and also funding for the business," Mr Strawbridge said.

That structure could prevent any alternative offer - including from bidders already knocked out of the sale process - as well as from Virgin's unsecured bondholders, which proposed swapping their debt for ownership of the airline to avoiding having their $2 billion in debt virtually wiped out in a sale to Bain.

Sources close to the bondholder group, who asked not to be named because their dealings are confidential, said it was considering legal action given Deloitte's references to binding agreements, indicating that there was little room for a rival proposal.

The bondholders are concerned the sale agreement would contain a clause trying to block them from putting forward a competing proposal, they said. One insolvency expert, who declined to be named said: "a court would likely ignore that as contrary to public policy"...'

--------------------------

Interesting spin, but if Deloittes did this (giving all and sundry a 'vote'), imagine the court challenge(s).

 

[jase05]

Sounding like the lounges are gone which with the other cuts to turn them into a LCC means it’s looking more and more likely that I’m going to have to take my business back over to QF

 

[jakeseven7]

Sounding like the lounges are gone which with the other cuts to turn them into a LCC means it’s looking more and more likely that I’m going to have to take my business back over to QF

Have you got another source saying the lounges are gone? I thought they were just closing all ‘The Clubs’?

 

[jase05]

Have you got another source saying the lounges are gone? I thought they were just closing all ‘The Clubs’?

Just was reading the article in the AFR

Virgin's Australia's preferred buyer – US private equity firm Bain Capital – plans to pare back the airline, cut high-end comforts for flyers and relaunch with about half its existing fleet as early as September.

Airport lounges and expensive food will be among the first features to go at Virgin Australia 2.0.

New owners plan to fly slimline Virgin

Virgin Australia's preferred buyer – US private equity firm Bain Capital – plans to pare back the airline, cut high-end comforts for flyers and relaunch with about half its existing fleet as early as September.

www.afr.com

 

[N860CR]

I guess as it was voluntary Administration, the Administration can put in 'managers' as they like; and if the new managers can put in first-ranking secured loans into the company, then it might go as reported.

My understanding is that upon acceptance of the DOA, the administrator begins a handover process and the new owner takes financial responsibility.

There is quite a lot that has been “on hold” for the last few months that can start happening now that funds are being injected. This means we will get a bit of an idea as to what the airline will look like over the coming weeks (well before the creditors meeting).

Realistically, I think we can expect the older 737s to not be returned to service and all other fleets with the exception of the 777 gradually removed. The 73s can do all the intra-wa work and it keeps it “in house” (without the VARA complication). ATR doesn’t do enough to justify keeping (it can be outsourced) and 330s barely need a mention. 777s have the luxury of being owned and largely worthless at the moment, so I’d say they’ll go into storage.

 

[jakeseven7]

Just was reading the article in the AFR

Virgin's Australia's preferred buyer – US private equity firm Bain Capital – plans to pare back the airline, cut high-end comforts for flyers and relaunch with about half its existing fleet as early as September.

Airport lounges and expensive food will be among the first features to go at Virgin Australia 2.0.

New owners plan to fly slimline Virgin

Virgin Australia's preferred buyer – US private equity firm Bain Capital – plans to pare back the airline, cut high-end comforts for flyers and relaunch with about half its existing fleet as early as September.

www.afr.com

I’ve seen the killing of all complimentary food and beverages now repeated in a few articles... if this is true I suppose they will move to a Jetstar model of $$ bundles and pay on board from the trolley...

But surely the lounges will stay. I think (and hope) the media are just getting confused with ‘The Club’ lounges v the pleb lounges we all sit in

 

[RooFlyer]

My understanding is that upon acceptance of the DOA, the administrator begins a handover process and the new owner takes financial responsibility.

Yes, that seems to be what is happening, but what I don't get is, what happens in a month or so, when the creditors vote by number and value "Yes, that's all very well, but that doesn't suit us, thank-you. We are going to ..." . Whether or not 'going to' includes 'appoint a liquidator to get our money back' is possible, is a wonder of mine, and then what happens to Bain?

Damn, now I wish I had some Administrator experience.

 

[MooTime]

I’ve seen the killing of all complimentary food and beverages now repeated in a few articles... if this is true I suppose they will move to a Jetstar model of $$ bundles and pay on board from the trolley...

But surely the lounges will stay. I think (and hope) the media are just getting confused with ‘The Club’ lounges v the pleb lounges we all sit in

Lounges close, as well will many virgin flyers to VA2.
You fly often you want / expect some perks.
QF offer the service so some will move over & some will go budget from now on.
I'm happy to pay for a sanga or brewski from trolley.

I don't believe VA lounges will go bust.

I guess we wait n see.

 

[serfty]

Gawd! I hope they keep the lounges ... I remember despairing of the QP offerings of the early naughties in the years after the Golden Wings closed.

 

[N860CR]

Yes, that seems to be what is happening, but what I don't get is, what happens in a month or so, when the creditors vote by number and value "Yes, that's all very well, but that doesn't suit us, thank-you. We are going to ..." . Whether or not 'going to' includes 'appoint a liquidator to get our money back' is possible, is a wonder of mine, and then what happens to Bain?

Bain have also signed an agreement which gives them rights to purchase assets if it all goes cough up, so it looks like they’re fairly committed to the process regardless of the outcome of the creditors meeting (which realistically is going to go in their favor as I can’t see employees voting for guaranteed liquidation).

Lounges close, as well will many virgin flyers to VA2.
You fly often you want / expect some perks.
QF offer the service so some will move over & some will go budget from now on.
I'm happy to pay for a sanga or brewski from trolley.

It’s not all too different an approach to every airline in the USA and many in Europe. Decent service on the ground via their lounges, then zilch once the gear is up.

 

[eastwest101]

I’ve seen the killing of all complimentary food and beverages now repeated in a few articles... if this is true I suppose they will move to a Jetstar model of $$ bundles and pay on board from the trolley...

But surely the lounges will stay. I think (and hope) the media are just getting confused with ‘The Club’ lounges v the pleb lounges we all sit in

The lack of specifics in which Virgin Lounges will be closed (The Club or the normal Virgin Lounges) in that AFR article could just be that the journalist at the AFR is just misinformed or unaware of the two different sorts of lounges that VA had.

Running 'The Club' looks to have been a monumental waste of money because recent history shows that VA gained zero leverage over state or federal government's despite years of operating them.

Closing the normal lounges would be commercial suicide for a Bain VA2 as it would just hand all the high spending customers and business over to Qantas on a plate. They may try to cut costs in the lounges but surely rents would be very "negotiable" with airport owners at the moment?

I will be interested to see if Bain were serious about their employee share ownership scheme to further align staff values with profitability, or if they were just empty promises.

Same with the disconnect between the Velocity web site and the Virgin web site and the stupid IT issues that VA never properly fixed.

Will be interesting to see if the ACCC attempts to do a forced divestment of the 20% stake in Alliance that Qantas picked up. That could end up being a lawyers picnic.

 

[MooTime]

Bain have also signed an agreement which gives them rights to purchase assets if it all goes cough up, so it looks like they’re fairly committed to the process regardless of the outcome of the creditors meeting (which realistically is going to go in their favor as I can’t see employees voting for guaranteed liquidation).




It’s not all too different an approach to every airline in the USA and many in Europe. Decent service on the ground via their lounges, then zilch once the gear is up.

Thanks but don't care at all for USA, worst country by so far in many regards, further we are from their flight travel regs I'm happy & Europe I love so much for their culture & language.
Lounges go equals pits for VA2.

They wouldn't do that would they?
Not that their much good, just beats alternative.

 

[jakeseven7]

Running 'The Club' looks to have been a monumental waste of money because recent history shows that VA gained zero leverage over state or federal government's despite years of operating them.

VA1 actually got themselves on most if not all government rosters and some tenders... what ‘The Club’ failed to do was lure in enough big corporates that QF excel in. From that perspective it was a failure and Bain have said they will be letting QF have the big corporates as they move VA2 downmarket, so makes sense ‘The Club’ goes too

I will be interested to see if Bain were serious about their employee share ownership scheme to further align staff values with profitability, or if they were just empty promises.

I thought it was a profit share scheme which would make more sense and knock some commercial sense into the business, aligning them to the same goal as the PE owner.

Same with the disconnect between the Velocity web site and the Virgin web site and the stupid IT issues that VA never properly fixed.

We all hope they clear out VA1 IT infrastructure and start again...

 

[Matt_01]

Gawd! I hope they keep the lounges ... I remember despairing of the QP offerings of the early naughties in the years after the Golden Wings closed.

We must be of the same vintage, I remember when the AN GW were the best seats in the house. Also once upon a time you were allowed to make free local calls from the seats at the end of the couch, the STD calls were managed by the lounge supervisor.

My AN GW baggage tags are somewhere in this pile.

 

[yohy?!]

With lucrative domestic business travel & international flights iced for awhile the most unhappy person about this will be Alan Joyce

Bain sure to slash VAs cost base and retune towards being an LCC whilst the whole market becomes cost conscious, Qantas very top heavy by comparison - this won't be 2001

 

[moa999]

Time will tell. If VA goes to cheap they lose the higher yielding corporates

 

[MH_fan]

From my perspective, I hope Bain don't take VA mk2 too down-market. Many people don't like flying JQ unless they have no choice or are specifically budget conscious. The ethos should be to make VA mk2 an attractive alternative to both JQ and QF. The Club was absolutely unnecessary but The Lounge is absolutely essential. They really only need the lounges in the main airports (SYD, MEL, BNE, PER, ADL, CBR and maybe OOL). That's where the bulk of your corporate, elite-status passengers fly through. Without those lounges, they will pretty much all go over to QF.
As a WP myself, all I need or want from my status is access to the lounges in the main airports (they're already there), priority boarding (which is essentially a cost-free exercise and something they do well), and access to Economy X seats (if they remain, but I can see these going to add an extra row of seats). I don't need to be "fed" on a flight that is under 2.5 hours, as I'd either have already eaten in the lounge or will buy something onboard if I'm desperately hungry. This way, VA mk2 can earn ancillary income from onboard purchases, reduce the cost of providing a "meal/snack" on every flight, and still keep elite-status passengers happy because they'd already had access to the lounge. Win-win situation in my eyes.

 

[eastwest101]

With lucrative domestic business travel & international flights iced for awhile the most unhappy person about this will be Alan Joyce

Bain sure to slash VAs cost base and retune towards being an LCC whilst the whole market becomes cost conscious, Qantas very top heavy by comparison - this won't be 2001

Before we get too carried away assuming Bain will just walk into the second creditors meeting and get rubber stamped as the new owners of VA2 are we sure that the unsecured bondholders and/or Cyrus wont attempt a last minute stunt like gate crashing this meeting or attempting to remove Deloitte as administrators or pull some other legal spoiling tactic?

A lot of Yohy's comments worth expanding on there. All depends on where Bain's VA2 pitch their market, one thing that hasn't been talked about too much is the economy of scale and the frequency/reach of the VA2 network. Will depend on number of aircraft left and number returned to leasers but dropping entire parts of the domestic network off (say CBR, CNS OOL or Tasmania) can be a risky move on two fronts, firstly - your large corporate clients and government travel want to move people anywhere and everywhere within the country, so if your network map has massive "holes" in it, then there is a danger of the perception that VA2 doesn't fly everywhere where we need to fly their people, so they won't really be in contention and most major corporates and government travel will move solely to QF (have a think about where Federal and State Governments, Westfarmers, Banks, mining companies and say the ADF needs to fly people). and secondly any SME businesses whose town gets "dropped" instantly becomes the home ground of the remaining airline (for example see Qantas' failed attempt to Jetstar-ize OOL which resulted in VA being the home ground advantage for VA).

The other effect on the airline market is that if Bain's VA2 just shrinks to the minimum golden triangle MEL-SYD-BNE plus say PER, or "cherry picking" the higher yield part of the market, then that can bring about some market distortions where airfares and competition result in really cheap fares in these markets, offset by increased fares where there is no competition, so all airlines will have to be careful not to provoke a regulatory response to predatory pricing or ridiculous anomalies in pricing that might result in more government interference on where they can and cannot fly, although the current Federal Government hasn't shown too much inclination to interfere in the market so far.

The added complication is trying to guess which parts of the domestic economy will be hurt more than others due to Covid-19 and that effect on the economies of different cities and towns (once state borders re-open). Obviously Covid-19 is going to have different effects on different parts of the economy and the effects in Mt Isa or Perth might be different to say Cairns or Hobart.

So lots of issues for Bain to sort out just to get the domestic network up and going again, and making money, before they can even think about where they want to go internationally, at least they do have a (smaller) workforce and owned aircraft to start off with, and Bain seem serious about fixing all the things that Paul Scurrah was talking about, and now they have their stupid unfocussed ownership problems behind them. Remember this is a very high barrier to entry to starting an airline from scratch so having the government approvals, resources, crew, aircraft and infrastructure is a massive advantage to letting VA1 go into liquidation and having to start again from nothing.

As long as they can position VA2 as cheaper than QFd and a better product and more reliability than JQd with a frequency/network and economy of scale large enough to be a consideration in the BFOD corporate and leisure markets they stand a chance if they do it smart. There are some people who would literally walk rather than fly JQ and there are some people who care about prices and won't pay sky-high QFd fares because its their own money or their employers money so the trick is to grow this market and develop the Velocity/Flybuys ecosystem to carve out their own profitable business. Then once its all working properly, sell it to another owner or IPO it out on the ASX.

 

[kookaburra75]

We must be of the same vintage, I remember when the AN GW were the best seats in the house. Also once upon a time you were allowed to make free local calls from the seats at the end of the couch, the STD calls were managed by the lounge supervisor.

And the fax machine was free to use. I got a lot of business done in the GW lounges. You could base yourself there all day, even if you weren't flying. During a clean up last weekend I found a few of the guest invitations that we used to get each year.

 

[jakeseven7]

With lucrative domestic business travel & international flights iced for awhile the most unhappy person about this will be Alan Joyce

In the short term yes domestic business travel will be subdued. But remember VA1 used to have a share of these travellers too, even if it was small.

Bain sure to slash VAs cost base and retune towards being an LCC whilst the whole market becomes cost conscious, Qantas very top heavy by comparison - this won't be 2001

QF and VA1 cost bases were basically equivalent pre-Covid. JQ below both of them. QF has actually moved faster to address their cost base to adapt to this horrific situation in this week announcements.

So Bain has some serious catching up to do. And its going to begin I suspect with another 2000-3000 staff going almost immediately - on top of what PS already cut.

The thing about cost bases in a business though is this, they need to be working in concert with what you can charge.

QF has a winning formula because they have a competitive cost base AND they are able to extract a price premium from the market for a million reasons, discussed ad nauseum on here. It doesn’t need to be a huge price premium - just enough because an airline is a game of numbers.