Virgin Australia: The bids are in
10am Monday 21st June was the deadline for binding bids.
Both shortlisted candidates submitted binding bids, with very similar playbooks in line with what Virgin Australia’s current management put forward for ‘Virgin Australia 2.0’.
That plan includes a scaled-back domestic operation, with some short-haul international destinations with one type of aircraft – presumably the Boeing 737 – which would be able to cover both target destination groups. The implication of this is that Virgin Australia would no longer operate flights to America, or Hong Kong, although Bali and some Pacific destinations like Fiji would be possible with this aircraft.
The revised Virgin Australia will not be a budget airline but will target the mid-market – somewhere between Qantas and Jetstar. I think that means kissing goodbye to elite perks like The Club.
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Guerilla action by bondholders
There was an attempt to derail the whole process by the consortium of unsecured bondholders with a mystery financial backer rumoured to be Singapore Airlines/Temasek. Not the first time an outrider has made a bid. Remember Brookfield who walked away from the process, and then entered a late bid in the last round?
The offer from the unsecured bondholders is seen as a backstop in case creditors do not like either of the bids. Its believed that to involve a swap of debt for equity, and maybe some more funds to keep Virgin operational.
Virgin Australia bondholders include The Bank of New York Mellon, FIIG Securities, Northern Trust Asset Management and Sargon CT.
The details of the final bids are pretty sketchy. We only seem to know what the bidders want us to know. The AFR is suggesting that Bain and not Cyrus are the front runner. Both bids come with Foreign Investment Review Board approval.
“On the basis of their public statements, 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,”Deloitte’s statement
Both bidders have committed to being headquartered in Brisbane, and keeping on the current Paul Scurrah headed leadership, apparently.
Cyrus Capital has reportedly partnered with the Queensland Investment Corporation (QIC) which has previously said it would provide up to $200 million in financial support to any bidder who kept Virgin based in Queensland. It also has the support of the Virgin cabin crew and engineering unions.
Bain has committed itself to honouring all employee entitlements, and it has the deeper financial pockets.
The price offered Virgin Australia is going to be important, as it will be in proportion to how much current creditors, secured and unsecured will be made whole.
The administrators plan to give a final recommendation of which bid for creditors to support at a meeting in mid-August
I love digital, except when my phone dies, which happened to me on the last night of my recent visit to New Zealand
Boy, are there a lot of resources being put into these bids. Sources are reporting up to 50 people working on each of the bids. Given the fees these consultants, banks and financiers charge and the weeks of work they have put into these bids – we must be talking millions. And that will be added to all our ticket prices!
I should have finished that law degree I started.