Virgin Australia: update – bidders start public relations campaign
Officially the next chapter in the fight for Virgin Australia, currently in voluntary administration, doesn’t begin until June 12 when ‘binding bids’ are due to the administrator, Deloitte. Unofficially, the field is expected to be whittled down to 2 by Monday 1 June
In the meantime, this week, bidders are jockeying for position in the Public Relations stakes, particularly Bain Capital.
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Last week the final four were announced, consisting of:
- Bain Capital
- BGH Capital
- Indigo Partners / Oaktree Capital Management
- Cyrus Capital Partners
Up until preliminary bids were submitted, only two of the final four had been making any noise outside the process. Now everyone seems to be publicly pleading their case.
This last week has seen Bain Capital’s local CEO Mike Murphy, a former Olympic diver (4th in the 3-metre springboard, 1992, Barcelona) with a profile piece in the BOSS magazine of the Australian Financial Review.
Bain Capital is one of the ‘final four’ bidders for Virgin Australia, and this PR campaign is aimed at assuring employees and unions that they are investors for the long haul, rather than private equity flippers. Private equity has a reputation for stripping organisations of employees, selling off bits and pieces, sometimes making a company more efficient, and then selling it off at a massive profit, but usually encumbered with massive debt.
Virgin Australia is carrying about AU$7 billion of creditor debt, most of which is expected to be written down. About AU$450 of that is employee entitlements, which the Transport Workers Union, not to mention the Virgin Employees hope will be paid in full.
Virgin Mark II
The current management team of Virgin Australia, headed by Paul Scurrah, is proposing a ‘leaner. fitter’ Virgin Australia. They have presented this plan to the final four last week. The plan is believed to include making the Virgin fleet more efficient by reducing the number of aircraft types they run, including getting rid of the Airbus A330’s they have apparently leased very expensively. The Mark II plan is also thought to include getting rid of regional and international routes that are not proving profitable. There could also be a rationalisation of aircraft on order and aircraft held in the current fleet.
What are Bain planning ?
Extrapolating from what Murphy says in the BOSS article, it looks like they will:
- Make Virgin Australia closer to the old 2000 to 2010 Virgin Blue, than the full-service plan of ex CEO, John Borghetti post-2010
- Achieve this by becoming ‘a little more nuanced and try and sub-segment the corporate market’ – although Murphy is not dogmatic on this
- Open domestic leisure routes first
- Own the airline outright, but interestingly it is talking to governments, and government bodies, including one of its major investors, the Future Fund (Australia’s sovereign wealth fund), and Sir Richard Branson
- The airline will retain the Virgin brand (Bain is a majority owner in Virgin Voyages – the new branded cruise line), and they want Virgin to remain a shareholder
- Bain might be willing to pay between AU$3.5 to AU$4 billion for the airline
Naturally there are other bidders badmouthing one another, one unkindly suggesting that Murphy’s 4th place at the Olympics might be prescient about where the Bain bid might end up.
Well, I did predict this would happen soon, and it looks like they left it until the beginning of 2023 to make the announcements.
This is all speculation of course, and with so many interested parties, from the Federal Government’s observer, Nicholas Moore, the four bidders, shareholders, unions, Sir Richard Branson, and the current management team all with a view about what should happen and how to take the company forward, we are just going to have to be patient and see what the Administrator decides.
I have a feeling that we are not going to see anything too radical. Virgin Australia’s problem was its amount of debt, some expensive leasing agreements, a muddled fleet plan, and a bunch of airline shareholders all with different agendas. Administration should allow them to sort most of these issues out, thus making for the possibility of a profitable airline.
The devil will probably be in the detail of which creditors get paid and how much, rather than a cogent plan to go foreward.
Finally, should they cut loose from the Virgin brand? It costs them quite a bit, and I for one are not convinced it is the selling point some think it is. Plus, I hate that Virgin logo.