Qatar Airways to acquire 25% of Virgin Australia

[RooFlyer]

If you’re buying an airline and you don’t consider what the odds of it failing are, you aren’t very smart. No airline has a 0% chance of failure.

Sure, that applies to any investment in any business, not just airlines. But the point Im laboriously making is that a supposed smart airline management like QR, a successful airline you’d have to agree, has made an investment in VA2 via Bain after due diligence. That would give confidence to other investors that it’s not a bad bet.

The point was not that VA is a risk of failure but these sky high valuations based on an acquisition from a foreign state owned company with an obvious self interest don’t mean they’ll get the same rate from other investors.

That we can certainly agree. That’s why I’m only calling the QR buy-in a yardstick valuation, ( I think I also called it a rule of thumb valuation somewhere) in the absence of any other information.

Just say there are other groups who are doing due diligence now with a view to making an investment. They will be thinking gee, do we have the capacity to absorb ups and downs like QR might? Am I going to have the same leverage in the boardroom as QR will have? Am I going to have a say in the appointment of a CEO? If on balance it’s a ‘no’ for those, then they will value it lower, but Bain will have a hard price starting point of the QR buy-in. It will be up to the other potential investors to argue down from that# and that’s why I think the QR buy-in is of additional value beyond the money tendered.

# and you would think they would be able to successfully do that, but as I’ve said, they’re arguing down from the QR high price not from an investment bankers theoretical valuation or a lower valuation without hard money behind it.

 

[justinbrett]

Just say there are other groups who are doing due diligence now with a view to making an investment. They will be thinking gee, do we have the capacity to absorb ups and downs like QR might? Am I going to have the same leverage in the boardroom as QR will have? Am I going to have a say in the appointment of a CEO? If on balance it’s a ‘no’ for those, then they will value it lower, but Bain will have a hard price starting point of the QR buy-in. It will be up to the other potential investors to argue down from that# and that’s why I think the QR buy-in is of additional value beyond the money tendered.

“Am I going to be able to get VA to wet lease my aircraft and effectively double my capacity into a heavily regulated market?”

I mean if you could find an investor where that could apply, the valuation might be closer to reality.

 

[stm1sydney]

No that was not my point. My point is VA is not brining any inbound travellers. QR is. QR can do that itself, it’s just a work around for the capacity restrictions.

You said: "Although for all the talk of JH recently about the new services bringing in extra tourists, I still can’t see if/how you can book ex Europe..." The new services are likely bringing in extra tourists, even if QR ticketed. They are extra services.

 

[RooFlyer]

“Am I going to be able to get VA to wet lease my aircraft and effectively double my capacity into a heavily regulated market?”

I mean if you could find an investor where that could apply, the valuation might be closer to reality.

Personally, I'm not contemplating another airline entity being a significant investor - for me, would be a passive investor, something like a Canadian pension fund, as they have a history of investment like these in Australia and wouldn't compete with QR's interest.

But hey, maybe there won't be another independent investor - maybe there will be a float for 50% and Bain will go from there. A book-build for instos.

I'll leave it there. This wasn't meant to be a big point for me - "yardstick valuation" is a pretty straight forward concept and everyday in Corporate Finance and equities. Yardstick. Not universally applicable, but an indicator.

 

[justinbrett]

You said: "Although for all the talk of JH recently about the new services bringing in extra tourists, I still can’t see if/how you can book ex Europe..." The new services are likely bringing in extra tourists, even if QR ticketed. They are extra services.

I think it’s disingenuous for JH to make that claim in the context of VA launching its “own” flights, when all that business is going to QR.

The same outcome could have been achieved by giving QR extra capacity, this is just a pointless loophole. There are advantages to launching legitimate Australian based international services but none of these apply on these flights as they are effectively just more QR codeshares.

Still haven’t got an answer for why VA isn’t selling ex Europe? Is QR stopping them? If so that’s not the sign of a constructive relationship.

Personally, I'm not contemplating another airline entity being a significant investor - for me, would be a passive investor, something like a Canadian pension fund, as they have a history of investment like these in Australia and wouldn't compete with QR's interest.

But hey, maybe there won't be another independent investor - maybe there will be a float for 50% and Bain will go from there. A book-build for instos.

I'll leave it there. This wasn't meant to be a big point for me - "yardstick valuation" is a pretty straight forward concept and everyday in Corporate Finance and equities. Yardstick. Not universally applicable, but an indicator.

And all I’m saying is that QR overpaid and I think that’s obvious to most! Pocket change for them in return for increased access to the Australian market.

 

[jase05]

The same outcome could have been achieved by giving QR extra capacity, this is just a pointless loophole.

Blame the QF sycophants in Canberra for that

 

[RooFlyer]

Still haven’t got an answer for why VA isn’t selling ex Europe? Is QR stopping them? If so that’s not the sign of a constructive relationship.

Talk about glass half empty. Of course QR doesn't want VA on the Europe-ME route; the main raison d'etre for the QR investment in VA was to feed Australian traffic to its European network. But if VA did service Europe, it would be wet lease and you'd be complaining about that, too.

 

[jase05]

Talk about glass half empty. Of course QR doesn't want VA on the Europe-ME route; the main raison d'etre for the QR investment in VA was to feed Australian traffic to its European network. But if VA did service Europe, it would be wet lease and you'd be complaining about that, too. These arguments are getting silly.

There are plenty on here that want VA to fail and no matter what VA do it is the wrong decision

 

[SYD]

There are plenty on here that want VA to fail and no matter what VA do it is the wrong decision

No one here would seriously want that. A monopoly player on the domestic market wouldn’t be good for any of us.

Also, the majority believe the Government made the wrong decision not allowing QR additional slots. To then just turn around and approve the new slots anyway via VA is really quite cynical. QR shouldn’t have needed to pay for them.

Forget airfares coming down in a hurry, QR need to recoup that cash.

Talk about glass half empty. Of course QR doesn't want VA on the Europe-ME route; the main raison d'etre for the QR investment in VA was to feed Australian traffic to its European network. But if VA did service Europe, it would be wet lease and you'd be complaining about that, too. These arguments are getting silly.

I don’t think that was a reference to VA operated flights between Europe and DOH (that would be madness) but the ability to purchase VA codeshares originating in Europe. The QF/EK partnership allows it - with QF codes all the way on EK metal.

 

[justinbrett]

Talk about glass half empty. Of course QR doesn't want VA on the Europe-ME route; the main raison d'etre for the QR investment in VA was to feed Australian traffic to its European network. But if VA did service Europe, it would be wet lease and you'd be complaining about that, too. These arguments are getting silly.

Only silly because you twisted my post.

Never suggested VA launches its own flights to Europe. Merely that it can codeshare (actual codeshare, not wet lease) on the flights from Europe to DOH, as it does, but sell those to pax originating in Europe and connecting to its “own” flight in DOH.

As it stands VA is fighting with one hand behind its back as it can only service half of the market and must leave the other half to QR.

There are plenty on here that want VA to fail and no matter what VA do it is the wrong decision

Making sure VA is not being taken advantage of as a way to get around a loophole is not wanting VA to fail. Because once that loophole is no longer required you think QR is going to continue with this charade?

 

[RooFlyer]

I don’t think that was a reference to VA operated flights between Europe and DOH (that would be madness) but the ability to purchase VA codeshares originating in Europe. The QF/EK partnership allows it - with QF codes all the way on EK metal.

OK, if so, sorry for the minsinterp Wasn't 'twisted' deliberately. If codeshare was meant then codeshare might have been written, not 'selling') But I still don't think it bears on the relationship. VA codeshares from Europe, the fares go first to VA. No VA codeshares means the funds go straight to QR. A simple commercial arrangement, likely a condition of investment.

As a regular QR customer to Europe, and VA domestically, it bothers me not a fig.

As it stands VA is fighting with one hand behind its back as it can only service half of the market and must leave the other half to QR.

Yep. Business can be tough. He who pays the piper (and leases the pipe to the piper) calls the tune.

 

[justinbrett]

As a regular QR customer to Europe, and VA domestically, it bothers me not a fig.

Perhaps try to think beyond your own situation, and imagine you moved to the UK or elsewhere in Europe for a few years. You want to retain your velocity status.

You can’t book flights to Australia with VA. Just not possible.

Yes I know why QR would want this, and I bring this back to the earlier discussion, is QR helping VA become a great airline, or is it merely just using it for its own self interests?

We kind of saw that movie before when NZ owned Ansett. It didn’t end well.

If codeshare was meant then codeshare might have been written, not 'selling')

Since when did selling mean flying? Selling ex Europe was the exact phrase. It’s exactly what I meant.

 

[HS-TQE]

VA historically has been slow when it comes to the overseas POS on their own services, as seen with the CNS-HND services where it took over a month for bookings to be enabled on the Japanese side (during that period it redirected to ANA), or to Queenstown initially, which is not part of the unilateral "Travel Agent" partnership with NZ

Will be interesting if Europe POS for VA/QR JV tickets may eventually be enabled (or not) through VA.

 

[Saab34]

The Australian reporting that QR have a consulting like role lined up for Jayne Hrdlicka post the Virgin exit.

It seems like JH has built a strong relationship with the new QR boss. They needed her expertise to get it over the line and it seems like she has delivered.

Don’t be surprised if she walks away with $100m plus post exit.

 

[justinbrett]

Don’t be surprised if she walks away with $100m plus post exit.

I reserve the right to be surprised thanks.

I’m not sure there has been a golden handshake anywhere near that amount in Australian corporate history. Take a zero off, then maybe. The money comes from VA, not Bain or QR.

 

[justinbrett]

Cry me a river. Honestly, such a fuss over not being able to get VA codeshare from Europe - who cares?.

It’s the ability to sell your flights to pax in both directions. Double the pool of prospective customers.

Just common sense. Imagine if AA couldn’t sell to Australians or Qantas couldn’t sell to Americans? Also means no one way flights inbound if you’re the kind to book complex itineraries.

Oh, Lord. Is QR looking after its own self interest? Of course it is!!! How on earth do you think the investment world works? There are a lot of charities out there, but I don't think Qatar Airways is one. It will support and assist VA2 grow and hopefully be more profitable, but that's for its own interests.

Self interests at the cost of the investment itself. Not normally a wise thing to do. VA doesn’t have much of a chance ever flying its own long haul aircraft under shoddy deals like this.

But I think you’ve said the quiet part out loud, much of this supposed support for VA is just support for QR.

 

[jase05]

It’s the ability to sell your flights to pax in both directions. Double the pool of prospective customers.

Just common sense. Imagine if AA couldn’t sell to Australians or Qantas couldn’t sell to Americans? Also means no one way flights inbound if you’re the kind to book complex itineraries.



Self interests at the cost of the investment itself. Not normally a wise thing to do. VA doesn’t have much of a chance ever flying its own long haul aircraft under shoddy deals like this.

But I think you’ve said the quiet part out loud, much of this supposed support for VA is just support for QR.

Of course QR are in it for their own benefits but ultimately I do hope they will invest in the business. I do think they will look at increasing their stake at some time

 

[RooFlyer]

But I think you’ve said the quiet part out loud, much of this supposed support for VA is just support for QR.

My final word (hopefully ) on this is just to say I reckon the people at Bain and the people at QR know what they are doing in both the investment and aviation space and the many, many, many faults you find in the arrangements won't be.

Sorry, I think its silly to say inter alia QR overpaid or the relationship isn't what it could be, or not having VA codeshare through to Europe is a mistake or the deal is 'shoddy'.

What exactly do you or we know about details of 'the deal'?

There could be anything in the Sale and Purchase Agreement; cheap options to QR on IPO; cash support for VA2 later; using QR's balance sheet for new aircraft; agreement to QR and Bain share opportunities globally going forward; VA supported further to fly within the Pacific. How can you declare the deal 'shoddy' when we know virtually nothing about 'the deal'? Lack of 'selling'

Self interests at the cost of the investment itself. Not normally a wise thing to do.

I would have thought its obvious that its in QR's self interest to make VA2, its investment, a roaring success; their self-interests are nicely aligned.

But you don't do stuff like this to make money or a great return overnight, so have a little patience and you may yet get your 'selling ex Europe'.

But I think you’ve said the quiet part out loud, much of this supposed support for VA is just support for QR.

Its been quiet because (almost) everybody knew it and it hasn't previously needed to be spelled out.

 

[Saab34]

I reserve the right to be surprised thanks.

I’m not sure there has been a golden handshake anywhere near that amount in Australian corporate history. Take a zero off, then maybe. The money comes from VA, not Bain or QR.

I should have probably mentioned $100m over her total career with the carrier. A solid 6 years at $5-10m per year. Bain issued 45m shares to the Virgin executive team from the start, unknown what has popped up also along the way.