Qatar Airways to acquire 25% of Virgin Australia

[justinbrett]

I don't really get why VA agreed to this deal. It doesn't really seem as though they will benefit from it.

On face value it makes sense, VA wants to get back into long haul and this is a low risk way of re-entry; wet lease, guaranteed traffic due to QR demand etc.

The problem is that it's all false lessons, any success here is only due to QR and is not necessarily repeatable with VA metal, and certainly not on VA metal on other routes like US/Asia etc.

The other thing is the QR model is worlds away from VA's model. On VAd, the service is not all that different to JQ in Y - and that's certainly not the QR way. So will QR make VA revert back to VA1? Because that's what made them go bust in the first place.

However I expect QR is only interested in the DOH services and won't be lifting a finger to help VA fly to the US etc. They'd rather take them via DOH.

 

[RooFlyer]

I don't really get why VA agreed to this deal. It doesn't really seem as though they will benefit from it.

Its not VA agreeing to the deal - its the owner, Bain. And Bain benefits to the tune of a reported $1 billion, not bad considering what they paid for it (incl assumed debt) plus other operational returns since.

Another benefit for Bain from the QR deal is that it places a value on the VA enterprise value (or, say, 'shares', if you like). Now they can go to other investors or even the public markets and say - "See, this world class airline thinks we are worth X, its not just a number that we dreamed up. So pay up with confidence."

Does the government need to approve any increase in a stake?

I’m not completely over the make up of it but aren’t VAi and Domestic already set up different and therefore different ownership laws apply. Could QR for instance purchase more of the domestic side of things?

There have been a couple of good stories in the AFR over the past few days on things like that. Much better informed that many comments here (incl mine )!!

Wasn't the concern (and why QR opted for 25%) that if they had too big of a controlling stake, they government might look to block the deal?

It was (almost) 100% foreign owned at Jan 1 and after the QR deal it'll still be (almost) 100% foreign owned. If QR take a further stake, up to, say, 49%, it will still be (almost) 100% foreign owned EXCEPT that much more of it will be owned by an entity that knows how to run airlines very well, as opposed to a Private Equity mob who are just after a maximised return (and good on 'em).

Any government or regulator should welcome the increasing influence of the 'airline' entity as it is motivated to grow and keep the VA flying and profitable, as opposed to the Private Equity mob who have already made a tremendous return and could metaphorically walk away and let the whole thing sink and not think twice, except that they may have left something on the table.

While its been said that the QR purchase monies go to Bain and not VA, while this is true, I think a lot of it will go to VA via intercompany loans. Parent companies lurve intercompany loans. QR may have even put it as a condition of purchase.

Another thing for peeps here to think about is that its not just Qatari QR talking to and buying into Bain controlled VA. Both sides have swarms of investment bankers who have been wheeling and dealing with each other for a long time and would have 'war gamed' every scenario imaginable, for both sides (and some other ones). The IPO scenario would have been constantly updated and no doubt there is a draft offering document fed by linked spreadsheets so it can be populated almost 'live'.

The capital market in Australia has improved greatly over FY23/24 and Qantas (the main proxy for aviation capital appetite here) especially has been strong. Trump of course the new wildcard!

As for IPO, one of the concerns would be the mix of insto investors Vs individuals (AKA mum & dads) and the shape of the secondary market - which is one of the main purposes of the so-called 'roadshows'. Basically brokers will be chosen for IPO allocations based on how much they will shove the stock to their client base and keep it sticky to support the secondary market.

Try and get old of the AFR over this week - there are some good stories on VA/QR in it.

 

[justinbrett]

I think a lot of it will go to VA via intercompany loans. Parent companies lurve intercompany loans. QR may have even put it as a condition of purchase.

And that’s what’s killed Bonza.

 

[RooFlyer]

And that’s what’s killed Bonza.

Well, I don't think that's the case (as in 'what killed' the airline), but never-mind, you can be pretty sure Bain and QR have better financial systems and controls than Bonza.

 

[justinbrett]

Well, I don't think that's the case (as in 'what killed' the airline), but never-mind, you can be pretty sure Bain and QR have better financial systems and controls than Bonza.

It was most certainly the loans and lease arrangements with 777 partners that caused the demise of Bonza. Ultimately the lease not being paid by 777 and leading to repossession.

777 Partners accused of fraud, double-pledging assets in lawsuit

777 owns or has stakes in several football teams around the world and has a sprawling collection of businesses, including Bonza which is in voluntary administration.

www.afr.com

 

[n7of9]

You couldn't pay me to fly an airline called Bonza. If they can't take the naming of their airline seriously I don't trust them to take their aircraft maintenance seriously.

-Ai Jono, I reckon this bolt's a bit coughouse ai.
-Maaate she'll be right, I'm knockin off early, it's a bonza of a day!

 

[Lucass]

I'm hoping, eventually 3-5 years down the track VA can dry-lease some 777s from Qatar and have their own flights to US/Asia. VA are going to have 20 pilots and 40 cabin crew train in Qatar on wide-bodies during 2025 which is promising. VA having dry-leased flights would give them a strong case to extend the Qatar-Virgin wet lease as well (which Qatar will obviously want to keep flying once the 5yrs is up)

 

[justinbrett]

VA having dry-leased flights would give them a strong case to extend the Qatar-Virgin wet lease as well (which Qatar will obviously want to keep flying once the 5yrs is up)

The government has pretty much said that won’t be extended.

 

[Lucass]

The government has pretty much said that won’t be extended.

Oh really? I thought Qatar would want this to go for as long as possible or Would VA have to take over after the 5 years to keep the services?

 

[HS-TQE]

Oh really? I thought Qatar would want this to go for as long as possible or Would VA have to take over after the 5 years to keep the services?

Chances are that Qatar (the country) may be applying above the incremental increase in their bilateral, after the Australian election, thus making the QR/VA wet-lease close to (if not entirely) redundant in 5 years time.

 

[elanshin]

Oh really? I thought Qatar would want this to go for as long as possible or Would VA have to take over after the 5 years to keep the services?

QR doesn't actually want to fly VA branded QR flights. Everyone knows this is just a way to get more flights to DOH. The marketing, some of the loyalty stuff are all a bit murky when it's a codeshare flight and will always be weaker than if it wss just a normal QR flight.

 

[jase05]

Chances are that Qatar (the country) may be applying above the incremental increase in their bilateral, after the Australian election, thus making the QR/VA wet-lease close to (if not entirely) redundant in 5 years time.

Exactly and I think they are a very good chance of being given extra capacity into Australia and they can then turf the VA flights to DOH

 

[Saab34]

This is also a good gauge for QR to see what capacity suits. They might find that say BNE is too heavy and perhaps 10 weekly might work. I think three daily from Melbourne and Sydney will always be key.

They will be itching to dump that regional connection flight no doubt.

Not sold on the 777s, be good to see some A350-1000s.

 

[justinbrett]

Would VA have to take over after the 5 years to keep the services?

Yes thats the whole point of the condition.

Exactly and I think they are a very good chance of being given extra capacity into Australia and they can then turf the VA flights to DOH

I think likely if VA announces it won’t proceed with long haul.

They won’t just increase capacity for QR as that makes it less likely VA will continue.

 

[HS-TQE]

Circumstances may also depend on whether Bain finally initiates the IPO and/or does another direct trade sale to another foreign investor (subject to FIRB clearance).

I can't see Bain still holding the 68% stake in full in 5 years time when the QR/VA JV agreement begins to expire. Bain would've at least got a partial IPO (at the minimum) up within the 5 year timeframe, IMO.

 

[clifford]

VA/Bain aren’t stupid and wouldn’t enter into it if they didn’t consider it to be to their advantage (ie make them $$).

Could one have said that about all previous iterations of VA and DJ?

 

[RooFlyer]

Could one have said that about all previous iterations of VA and DJ?

Maybe, except when you think of the fruit salad of owners and managers of the previous iterations. Current owner (Bain) very accomplished at managing investments and returns and I think the returns they have earned so far demonstrate that.