Friday deadline for Virgin Australia's billion-dollar buyers
Virgin's would-be owners ready their initial take-over bids, which will likely see a very different airline return to the skies.
By David Flynn, May 11 2020
The countdown clock is ticking for Virgin Australia's new owners, who have until this coming Friday May 15 to lodge their first offers to take over the airline.
Those will be "non-binding indicative offers" based on full access to Virgin's books and a detailed sale memorandum prepared by airline-appointed administrator Vaughan Strawbridge of Deloitte.
Strawbridge has previously indicated that 20 "interested parties" were scoping out the sale, which he expected to be "a very competitive process" involving "high-quality bidders with fantastic credentials and the ability to restructure this business."
This Friday will reveal which of those parties have coalesced into consortia.
Some of the suitors are said to include:
- Melbourne-based private equity firm BGH Capital, which is reportedly building a locally-financed 'Team Australia' bid as a counterpoint to Virgin being previous dominated by foreign ownership
- Australian-based multinational investment firm Macquarie Group
- Perth-based Wesfarmers, which is said to have its eye on how the Velocity rewards program could be used to bolster FlyBuys
- WA mining magnate Andrew 'Twiggy' Forrest
- Singapore sovereign wealth fund Temasek
- Bain Capital, with former Bain exec and Jetstar CEO Jayne Hrdlicka running point
- US-based private equity firm, airline investor and low-cost champion Indigo Partners, which owns US budget carrier Frontier Airlines and holds stakes in an array of other LCCs, including Europe's Wizz Air, which Indigo co-founded
Friday's first round of indicative offers will need to be shaped into "serious, binding offers" by the middle of June, from which the winning consortium will be chosen.
"We remain confident that our target of achieving a sale by the end of June is achievable" Strawbridge has said.
Virgin's suitors will have been running the numbers across a range of scenarios, ranging from a return to the airline's low-cost Virgin Blue roots, a hybrid mid-market position between Qantas and Jetstar, and a smaller but still full-service 'boutique' model.
Stripping back the fleet will be a strong focus – almost half of Virgin's aircraft are leased, including all six Airbus A330s – while international flying could be abandoned in at least the short term, given the ongoing travel bans due to the coronavirus pandemic, or pared back to a small number of short-range overseas routes including New Zealand.
Virgin 2.0 takes shape
Deloitte's pitch to the would-be owners of Australia's challenger airline highlighted its key domestic routes, including the 'Golden Triangle' of Brisbane, Sydney and Melbourne, which it described as "historically one of the most profitable operating jurisdictions globally for air travel."
Virgin Australia CEO Paul Scurrah, who remains in place during the administration period but would continue to serve only at the pleasure of the airline's new owners, has maintained there is nothing intrinsically wrong with the airline's business model or the plans he had in place "to turn a great airline into a great business."
The biggest issue was that Virgin was weighed down by an estimated $5 billion in debt at the time it went under – debt which could be substantially reduced through administration, freeing up more of the airline's annual revenue to become straight profit.
Administrator Deloitte and Virgin Australia management is said to be pitching Virgin 2.0 as capable of chalking up $1.2 billion in pre-tax profit against an estimated $5 billion in revenue by the middle of 2023, which is when the airline hopes to have pulled out of the coronavirus clouds and be flying steadily in the 'new norm'.
This would be based on the new Virgin Australia being a smaller airline with fewer planes, routes and staff, offset by lower operational costs.
David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.
24 Aug 2011
Total posts 1208
You're right that the new VA will be smaller than the business that went into administration but it seems hard to identify an airline that won't emerge smaller from the Coronavirus crisis. Most US airlines and Air NZ have already publicly stated this. Likewise the European majors are charting a future where they can operate profitably with sustained lower demand. Even the ME3 are trying to work out how their business model exists in a post-virus world.
QF will be a smaller business regardless of what happens with VA. QF domestic will probably return towards its previous size over the next year or so but it seems its international business will be much smaller and may not grow back towards its 2019 size for at least 5 years.
Unfortunately this will mean significant job losses within both VA and QF.
Qantas - Qantas Frequent Flyer
12 Jun 2011
Total posts 148
Grab the popcorn and strap in. Its gonna be a turbulent ride. Things definitely aren't as rosy as Deloitte or VA have been painting it for some time.
25 Sep 2013
Total posts 1242
And with new owners should come new management.
Qantas - Qantas Frequent Flyer
04 Nov 2017
Total posts 344
And if it happens to be the Indigo Partners LCC comglomerate that gets the nod from administrators, expect to say goodbye to everything except for the VARA and Tigerair A320s, as VA 2.0 will be taking the LCC path like Indigo Partner's other LCCs in America and Europe.
Although Indigo will likely make some $$ off the sale of the owned 737s, and possibly the lounges and Velocity. As Indigo are not in the business of maintaining multiple aircraft types as a LCC comglomerate.
17 Sep 2019
Total posts 7
DanV, you are forgetting Indigo Partners attempted to buy in and gain control 18 months ago when VAA were well and truly a full service airline. So they are obviously open to running a full service airline. Maybe things have changed now the circumstances are different, we don't know yet.
Everyone should just sit back and wait to see what unfolds. Nobody except the inner circle of those involved know what's on the cards - especially the self proclaimed aviation expert journalists who feel they need to type something everyday just to fill a column. They are just regurgitating the same drivel everyday.
Qantas - Qantas Frequent Flyer
04 Nov 2017
Total posts 344
If I recall correctly, Indigo was interested on the proviso they gained majority control. It was reported that Branson and SIA put a stop to that on the rumours that Indigo didn't align with their interests, despite the potential cash injection.
19 Jan 2018
Total posts 30
Singapore Airlines (via majority owner Temasek )taking Virgin will be the best thing to happen to Australian aviation. Cashed up with a $13b injection backed by the Government of Singapore, Qantas will have real competition that it hasn't had in a long while. Will it keep Virgin name..depends if it rescues Virgin Atlantic....either way Scoot or Virgin will bring real competition to Aussie skies.
Qantas - Qantas Frequent Flyer
12 Jun 2011
Total posts 148
Stop trying to make SQ happen...
Qantas - Qantas Frequent Flyer
04 Nov 2017
Total posts 344
Singapore Airlines isn't "taking over" either Virgin brand. That would be Temasek Holdings that's entering the bidding, aka the SG government owned fund.
Virgin Australia and potentially Virgin Atlantic would be "sister companies" alongside Singapore Airlines under the Temasek Holdings umbrella, rather than being "owned" by SIA.
Etihad - Etihad Guest
03 May 2019
Total posts 9
The long running "SQ is the messiah" stuff is becoming quite a joke considering they're not much better than Etihad at investing.
SIA should be making sure that VAH hasn't been trading while insolvent, otherwise SIA (alongside their friends at Etihad, HNA, Nanshan and Branson) are facing huge fines and potential bans from managing or being on the board of an Australian registered ASX company.
In addition, SIA has already publicly stated that Vistara in India is their sole "golden child" investment, not VA. Which is why they chose not to put money in VA in the first place.
I'd also expect Temasek to fizzle out as "fake news" eventually, like the long running "SQ to take over VA" debacles.
Qantas - Qantas Frequent Flyer
02 Mar 2013
Total posts 26
SQ is a shareholder in VA. Since when have shareholders been required to ensure that companies are trading whilst solvent? Directors yes, shareholders no.
QF
11 Jul 2014
Total posts 1004
Australians won't go for another LCC, the only people who fly Jetstar are the bargain basement travellers. People enjoy flying Qantas and Virgin so I really can't see a LCC getting up long term.
Qantas - Qantas Frequent Flyer
12 Jun 2011
Total posts 148
Having that second full service airline went really well didn't it ;-)
Etihad - Etihad Guest
21 Jul 2019
Total posts 190
Your smarmy comment aside. The answer is YES, there is a demand for a second full service airline. I and many tens of thousands of pax split our travel needs between both VA and QF. VA was doing that up till recently, and Ansett in years gone by. They didn't fail for lack of demand and customers. It was management, policy direction and fractious shareholders that got them unstuck. Sooner or later another full service carrier will grace our skies and could succeed in the long term if their business model,management and shareholders are of one accord.
Qantas - Qantas Frequent Flyer
08 Nov 2011
Total posts 121
If there is such sufficient demand and customers why didn't they make any money for the last 7years, during which qantas posted some of its best profits in history?
23 Oct 2014
Total posts 239
Maybe if Virgin had 94% of government accounts the tide would reverse.
Qantas - Qantas Frequent Flyer
12 Jun 2011
Total posts 148
It's a tender process... I mean kind of speaks volumes when they can't even compete on price.
Qantas - Qantas Frequent Flyer
07 Aug 2013
Total posts 248
@tmsmile Channel 10, Myers, Qantas, Billabong are Aus companies to name a few that were on track to fail at times that successfully turned it around. Google and see the number of economic EXPERT articles on all of them (key being able expert which your comments suggest you are clearly not).
Your stance on Virgin is loud and clear - but what a pathetic point to make that there is not enough demand for both QF and VA - they both have similar load factors. Pretty sure bad management and business decisions led to them not turning a profit (yes, similar to Qantas some years ago- or maybe there just wasn't enough demand back then or perhaps just bad decisions flooding the domestic market with A330s and B747 just to compete).
Qantas - Qantas Frequent Flyer
12 Jun 2011
Total posts 148
Have a look at the operating margins of both companies in comparing and see how sick VA's business is. Proof is in profit share. 40% of domestic revenue on airfares, but makes around 10-15% of the profits.
All these 'experts' kept saying how sound the VA business was for years too. Yet went into admin 5 weeks into travel restrictions, debt ballooning and none of it's shareholders willing to put their hands into their pockets.
Qantas - Qantas Frequent Flyer
07 Aug 2013
Total posts 248
@tmsmile - had this same argument with you in other articles, my personal view - not fact or proven unlike your comments always seem to suggest - is that this was the most strategic decision the business could do going into administration at a time when the whoel country was on edge about how uncertain life would be for Aus, let alone global. This was the best decision in order to future proof the airline - virgin or no virgin name at end of day it is looking like the airline will continue to fly if news articles are correct in suggesting the willingness of the potential buyers circling the airline.
Qantas - Qantas Frequent Flyer
04 Nov 2017
Total posts 344
Also to add, SIA/SQ has a very dismal record at investing in overseas airlines over the past few decades, which is a string of failures including Air New Zealand (with Ansett), Virgin Atlantic, Tiger Airways Australia (where SIA owned 100% of originally) and now Virgin Australia.
Overall SIA are not much better than Etihad Group, and like with Etihad only had 1 modest investment (Air Serbia). The 'Modest' investment that SIA has invested in is the JV in Vistara India.
While SQ should stick to their knitting of running their own airline, getting their parent company to invest in overseas airlines (instead of SIA) is another interesting angle.
Temasek may (or may not) do better than their dismal past and present SIA/SQ management counterparts in overseas airline investments.
08 May 2020
Total posts 86
Temasek would be a good outcome for Virgin as well as SIA with Virgin to continue as their Feeder Airline in Australia & Pacific to collect and distribute Guest to and from long haul flights operated by SIA. If Virgin is downgraded to Low,Low cost budget airline it will play right into Qantas hands against Jetstar. Qantas have already made that statement that they are out to destroy if that will be the case in offering the Low cost fares ahead of a possible Sale of VA. A mixed class Virgin as before, however I don't believe long Haul flights to US, China and Europe No way. Within Australia VA 2 can make a real competition to Qantas as VA 1 Staff have proven to be very efficient.
Qantas - Qantas Frequent Flyer
02 Sep 2018
Total posts 153
The biggest problem I see with Temasek buying them is that it would cement the fact that Virgin is a foreign owned company. Of course, being state-owned by the Singapore Government isn't a bad thing in terms of the available capital and tight connection with SIA.
Qantas - Qantas Frequent Flyer
04 Nov 2017
Total posts 344
Another question is will the FIRB approve a Singapore Government owned corporation (Temasek Holdings inc) taking over in partnership (with BGH) or taking over VA entirely.
Temasek are only rumoured to be interested and are doing their due diligence, only because they are finally realising that their subsidiary SIA is completely dismal, arguably mediocre at best at investing in other companies.
QF
11 Jul 2014
Total posts 1004
Qantas needs to sharpen up on service, copy what VA was good at with lurks and perks, holidaying is ok for Jetstar but mixing business people with Jetstar just doesn't work.
31 Jan 2013
Total posts 44
VA got into trouble, a la Ansett, with their attempts to become a mid-longhaul carrier. Domestically they were doing okay. But please, not Indigo, else we will see VA just become Tiger 2.0, leaving all the cream to QF who will then have carte blanche to charge whatever the like for their premium fares
Qantas - Qantas Frequent Flyer
07 Aug 2013
Total posts 248
Eager to see the outcome of this potential sale, and the difference this business and airline will be - so much speculation out there if it will remain as is, go ultra low cost or become a hybrid model and whether international or more of an Aus owned company. I wouldn't mind a name change away from Virgin brand - a strategic refresh unshackling itself and becoming a somewhat 'new' airline - keeping the existing workforce which has always been outstanding, fresh faced and fun.
10 Dec 2010
Total posts 6
Virgin is certainly not as bad as made out, their 737 Business class has the nicest , pleasant and efficient cabin managers of ANY airline in the WORLD. I have no doubt as to what brought Virgin to it's knees, going International. The debt created from this was enormous, these trips to Abu Dhabi were a large
10 Dec 2010
Total posts 6
These trips to Abu Dhabi were 1 giant ego trip(As wellas Hong Kong) which were a major cause of Virgin's problems.I have been fortunate enough to travel in the premium classes of all the best airlines in the world and VA domestic became my favourite(QF at the bottom).The International business was an ego trip, not commercial, The wasted money here helped to prevent the coming of a wonderful full service airline,I shall miss the wonderful service of the nicest and most efficient cabin manager of all, a VA cabin manager called Chelsea who was Croation and from South Australia, I do hope things work out well for her
QF
11 Jul 2014
Total posts 1004
I was waiting for that, Bond Holder, Game Set and Match unless someone wants to pay them $0.71 cents in the dollar
Hi Guest, join in the discussion on Friday deadline for Virgin Australia's billion-dollar buyers