Virgin Australia: Bain Capital wins. What will they do with the airline?
Well, you turn your back to go on a short domestic break at a south coast beach location for a few days R’n’R, and all hell breaks loose with the Virgin Australia administration and sale.
Content of this Post:
What just happened
First, the bondholders seeing the writing on the wall, that they will get little out of this sale, cobble together a last-minute off-piste proposal that strangely, wait for it, benefits them! Then, the union favourite (Cyrus) in the two horse race between Bain and Cyrus cries foul, claiming the administrators haven’t paid them enough attention, so, boo sucks to them, and we are taking our bat and ball and going home.
Then Deloitte announce, that (probably the reason they haven’t been answering calls from Cyrus is they are LOOSERS!) Bain Capital is the winner.
About the winners Bain Capital
The unions have been viewing the bid by Bain rather unfavourably, mainly because Jane Hrdlicka (If you sound out her name it sounds like the disemvoweling of ‘hard liquor’. OK, yes, juvenile and beneath me), former Group Chief Executive at Jetstar, was a consultant on the bid. Rumour has it that she was set to take the CEO chair at Virgin Australia if the Bain bid was successful. This idea also seems to ignore her history as a previous employee of Bain before she went to the Qantas Group. Maybe they did just want her advice or thought the incumbent, Paul Scurrah would do better in the job.
Unions have never liked the way Qantas deals with them – remember Alan Joyce grounded the entire airline back in October 2011 over a dispute with pilots, ground staff and engineers about pay conditions and the outsourcing of jobs overseas? They definitely didn’t want to see that kind of behaviour from potential new CEO Jane, over at a reborn Virgin Australia.
Boston based Bain have been in airlines before and swears that it will be an investor in Virgin Australia for the long haul.
Virgin Australia under Bain
This is what we know, mainly through Bain’s head honcho in Australia Mike Murphy (former Olympic diver – he came 4th which is why we don’t remember him) from previous and statements made today. Some of it is my projections based on reading between the lines. I thought I better say that unless you mistook the below for gospel truth.
- Mid-market – between Qantas and Jetstar is Virgin Australia’s intended market position
- 60 to 70 x Boeing 737’s (narrowbodies) will be the cornerstone of the re-launched airline
- Domestic and regional operations will be the immediate focus
- 5,000 to 6,000 employees at relaunch in September 2020 (formerly 9,000)
- Value focussed – is that another word for ‘cheap’?
- Lounges – prepare your hanky to wave goodbye
- The Club – gone. No politicians will travel on this airline.
- Will form a relationship with Alliance Airlines on regional routes
- Paul Scurrah to remain CEO
- Bain and Virgin will take full advantage of any JobKeeper extension to hang on to employees (JobKeeper is the government subsidy to employers for retaining employees during the COVID-19 pandemic)
- Brisbane will remain the administration base
International operations will have to wait for the moment. Short haul international before long haul and demand will need to be there.
Its almost as if John Borghetti and his near decade tilt at the same market as Qantas has already been forgotten, except for the debt it attracted.
Creditors to convince
The deal for Bain to take over the airline is still not quite done. Deloitte as administrators still have to take it to a meeting of creditors and get them to vote in favour. If the vote is split, then Deloitte has a casting vote.
They may also need to dodge a lawsuit from the bondholders, who are unlikely to see much of their money and may try to derail the sale process so that their self-interested proposal still gets a guernsey at the creditors meeting.
Well, I did predict this would happen soon, and it looks like they left it until the beginning of 2023 to make the announcements.
Bain is probably right about Australia not being able to support two full service airlines. Because of Virgin Australia’s administration, Qantas has the upper hand during and coming out of (we all hope) this pandemic, when travel returns to normal. It will remain the dominant airline for the foreseeable future. Virgin Australia was a very good competitor to Qantas, but it never had deep enough pockets, or shareholders prepared to stump up the cash for a capacity war.
Let me put it simply – all the time it was a mid-range/discount airline it made money, as soon as it went head to head with Qantas it lost money. There were some bad decisions along the way involving routes, aircraft types and leasing costs, but even if those were done right, until it matched the size and weight of Qantas, it would always be on the second rung.
I’m just pleased they look set to continue, and retain a large percentage of their staff.
But no lounges? That might be a dealbreaker for me.