Virgin Australia to be sold to Bain Capital

[AIRwin]

The two airlines with the best model for serving the Australian domestic market right now are probably Qantas Link with a healthy dose of competition from Rex (the current Saab only Rex not the one mooted)

And Alliance?

 

[AustraliaPoochie]

Worst case scenario, is of Bain via VFF, is that they bring in annual VFF fee.

 

[jakeseven7]

Worst case scenario, is of Bain via VFF, is that they bring in annual VFF fee.

They certainly really seem to be splitting Velocity up a lot from 'the airline' VA2 in their language which has some people nervous. I wonder if Bain would flip VFF off in a couple of years as part of an exit strategy....

 

[RAM]

They certainly really seem to be splitting Velocity up a lot from 'the airline' VA2 in their language which has some people nervous. I wonder if Bain would flip VFF off in a couple of years as part of an exit strategy....

You could be on the right track but wrong side of it - more likely to keep VFF & sell VA II.

Everybody likes a growing annuity-like profit generator.

 

[andrewpf]

Here's what got my attention in an email I've just received:

"The Future Flight credit can be used for booking on Virgin Australia ... bookings using your credit will be subject to seat availability within the fare class reserved for Future Flight credits ...."

So essentially - Virgin has taken customer's money, refused to give customer's refunds for cancelled flights, has said to customers and their banks that they have given us 'credits', and not clarified until now that those credits will not be able to be used as a normal credit (i.e. applied for dollars against any future fare), but only to specific fare buckets.

 

[Carrots]

Here's what got my attention in an email I've just received:

"The Future Flight credit can be used for booking on Virgin Australia ... bookings using your credit will be subject to seat availability within the fare class reserved for Future Flight credits ...."

So essentially - Virgin has taken customer's money, refused to give customer's refunds for cancelled flights, has said to customers and their banks that they have given us 'credits', and not clarified until now that those credits will not be able to be used as a normal credit (i.e. applied for dollars against any future fare), but only to specific fare buckets.

It's still better than the alternate option of zero credits if put into liquidation.

 

[Matt_01]

It's still better than the alternate option of zero credits if put into liquidation.

Not necessarily, if they when into liquidation the non delivery of goods and services would normally be covered by credit card schemes.

 

[Carrots]

Not necessarily, if they when into liquidation the non delivery of goods and services would normally be covered by credit card schemes.

Current commentary on charge backs isn't as black and white as that unfortunately, it's like 50 shades of grey depending on each individuals scenario.

 

[Matt_01]

Current commentary on charge backs isn't as black and white as that unfortunately, it's like 50 shades of grey depending on each individuals scenario.

I am aware of that as I have been posting my outcomes with AMEX elsewhere on this site. Whilst in administration agree may be like 50 shades of grey however if VA went into liquidation it would be easier to claim non delivery of goods and services. From experience (not airline related) the liquidators provide a letter or some other offical document to creditors that details the organisation is in liquidation, in our case we sent a copy to the CC provider and the money was returned within days.

 

[azza_1992]

"The Future Flight credit can be used for booking on Virgin Australia ... bookings using your credit will be subject to seat availability within the fare class reserved for Future Flight credits ...."

So essentially - Virgin has taken customer's money, refused to give customer's refunds for cancelled flights, has said to customers and their banks that they have given us 'credits', and not clarified until now that those credits will not be able to be used as a normal credit (i.e. applied for dollars against any future fare), but only to specific fare buckets.

Do you think the fare class(es) reserved for Future Flight credits is likely to at the cheaper end (like reward fares, with limited availability) or at the expensive end (like flexi fares, to burn through the credits faster)?

 

[Melburnian1]

This is part of a lengthy article from 'The Australian', placed online at about 1700 hours on Friday 7 August 2020.

The [unsecured] bondholders' model assuming profits not so far away is far-fetched (although they have more info than I do!):

..."Virgin Australia’s [unsecured] bondholders who support a planned $800m capital injection would receive 50-67c in the dollar and the airline will be worth up to $2.8bn under a proposal to get the airline flying again put on Friday afternoon to Virgin’s administrator.

The proposal to Deloitte’s Vaughan Strawbridge comes two days after Virgin management and Bain Capital outlined their strategy for the resurrected Virgin, which will see 3000 jobs lost.

But that plan had no detail on what returns would come to the [unsecured] bond holders and Mr Strawbridge reiterated on Wednesday he would not put their proposal to a meeting of creditors which is now taking place on September 4.

There is speculation Bain could impose a huge [unsecured] bondholder haircut of around 90 per cent.

The new funding support from the [unsecured] bond holders, in the form of a convertible note, would be underwritten by Singapore’s Broad Peak Investment Advisers and Hong Kong’s Tor Investment Management (BP&T), which together hold $300m in unsecured notes issued by Virgin Australia.

But it will also be offered on a pro-rata basis to all the compromised unsecured creditors.

Broad Peak and BP&T are among 30 institutional bondholders said to have about $11 trillion under management and 6000 mum and dad investors owed a total of $2bn. Virgin has $7.1bn in debt.

The [unsecured] bond holders plan involves retaining approximately two-thirds of the existing 9,000 employees to support the revitalised and right-sized airline. It also involves paying all employee entitlements in full.

“In our view, Virgin’s strengths lie in its domestic business, supplemented by a streamlined international business that is focused on servicing nearby segments such as New Zealand and Bali. Our plan envisages retaining substantially all of the 737s and returning the remaining aircraft,’’ the document presented to Mr Strawbridge says.

The [unsecured] bond holders expect the 2022 financial year will be the first normalised year of Virgin’s operations, following the devastating impact of the COVID-19 pandemic on the airline.

“Compared to the company’s EBITDAR of $943m for FY18 $844m for FY19, we believe that an EBITDAR of approximately $1bn for the financial year ending in June 2022 (which we are estimating as the first full year of normalised operations) is a reasonable basis to assess the value of the business,’’ the document says.

“We have applied a 3.5-4.0 times multiple to our estimated FY22 EBITDAR for the airline, a conservative assumption vis-à-vis where comparable airlines around the world are being valued currently as shown in the table above and arrive at an Enterprise Value of $3.5bn to $4bn for the company.”

The proposal reiterated the [unsecured] bondholders are seeking access to Virgin stakeholders and information to enable the DOCA proposal to be finalised before the second creditors’ meeting and to avoid any conditions.

“These stakeholders include employees, the Velocity Trustee, and the lessors and other financiers. When the Administrators categorise the [unsecured] bondholder DOCA and recapitalisation proposal as “uncertain” and “conditional” they are only referring to our request to allow us to have those confirmatory discussions in order to finalise our proposal,’’ the document says.

“We believe that if the administrators co-operate with us, we can finalise our diligence and present Virgin creditors with an unconditional DOCA at the proposed second meeting of creditors which will result in the best possible recovery for all creditors..."

 

[woodborer]

Worst case scenario, is of Bain via VFF, is that they bring in annual VFF fee.

I can't see that happening.

They certainly really seem to be splitting Velocity up a lot from 'the airline' VA2 in their language which has some people nervous. I wonder if Bain would flip VFF off in a couple of years as part of an exit strategy....

Velocity always was separate. The old communications and emails from them often didn't even mention Virgin. There are licensing issues at play with this.

 

[Rob.au]

"The Future Flight credit can be used for booking on Virgin Australia ... bookings using your credit will be subject to seat availability within the fare class reserved for Future Flight credits ...."

A huge red flag that one.

Do you think the fare class(es) reserved for Future Flight credits is likely to at the cheaper end (like reward fares, with limited availability) or at the expensive end (like flexi fares, to burn through the credits faster)?

Both price and availability are now big question marks over this. Either way, it is no longer the credit that was offered.

 

[andrewpf]

Do you think the fare class(es) reserved for Future Flight credits is likely to at the cheaper end (like reward fares, with limited availability) or at the expensive end (like flexi fares, to burn through the credits faster)?

I have no idea. I assumed (before receiving this email) that a credit was a credit - i.e. could be applied to any dollar value on any fare, as you would expect (keeping in mind, they have my money and cancelled my flight). Now, its not the same as a credit, because there is limited use - potentially limited inventory, potentially limited fare classes, who knows (I don't).

 

[moa999]

I wonder if Bain would flip VFF off in a couple of years as part of an exit strategy....

If they see it increasing their net return.. absolutely

 

[RAM]

This is part of a lengthy article from 'The Australian', placed online at about 1700 hours on Friday 7 August 2020.

The bondholders' model assuming profits not so far away is far-fetched (although they have more info than I do!):

..."Virgin Australia’s bondholders who support a planned $800m capital injection would receive 50-67c in the dollar and the airline will be worth up to $2.8bn under a proposal to get the airline flying again put on Friday afternoon to Virgin’s administrator.

The proposal to Deloitte’s Vaughan Strawbridge comes two days after Virgin management and Bain Capital outlined their strategy for the resurrected Virgin, which will see 3000 jobs lost.

But that plan had no detail on what returns would come to the bond holders and Mr Strawbridge reiterated on Wednesday he would not put their proposal to a meeting of creditors which is now taking place on September 4.

There is speculation Bain could impose a huge bondholder haircut of around 90 per cent.

The new funding support from the bond holders, in the form of a convertible note, would be underwritten by Singapore’s Broad Peak Investment Advisers and Hong Kong’s Tor Investment Management (BP&T), which together hold $300m in unsecured notes issued by Virgin Australia.

But it will also be offered on a pro-rata basis to all the compromised unsecured creditors.

Broad Peak and BP&T are among 30 institutional bondholders said to have about $11 trillion under management and 6000 mum and dad investors owed a total of $2bn. Virgin has $7.1bn in debt.

The bond holders plan involves retaining approximately two-thirds of the existing 9,000 employees to support the revitalised and right-sized airline. It also involves paying all employee entitlements in full.

“In our view, Virgin’s strengths lie in its domestic business, supplemented by a streamlined international business that is focused on servicing nearby segments such as New Zealand and Bali. Our plan envisages retaining substantially all of the 737s and returning the remaining aircraft,’’ the document presented to Mr Strawbridge says.

The bond holders expect the 2022 financial year will be the first normalised year of Virgin’s operations, following the devastating impact of the COVID-19 pandemic on the airline.

“Compared to the company’s EBITDAR of $943m for FY18 $844m for FY19, we believe that an EBITDAR of approximately $1bn for the financial year ending in June 2022 (which we are estimating as the first full year of normalised operations) is a reasonable basis to assess the value of the business,’’ the document says.

“We have applied a 3.5-4.0 times multiple to our estimated FY22 EBITDAR for the airline, a conservative assumption vis-à-vis where comparable airlines around the world are being valued currently as shown in the table above and arrive at an Enterprise Value of $3.5bn to $4bn for the company.”

The proposal reiterated the bondholders are seeking access to Virgin stakeholders and information to enable the DOCA proposal to be finalised before the second creditors’ meeting and to avoid any conditions.

“These stakeholders include employees, the Velocity Trustee, and the lessors and other financiers. When the Administrators categorise the bondholder DOCA and recapitalisation proposal as “uncertain” and “conditional” they are only referring to our request to allow us to have those confirmatory discussions in order to finalise our proposal,’’ the document says.

“We believe that if the administrators co-operate with us, we can finalise our diligence and present Virgin creditors with an unconditional DOCA at the proposed second meeting of creditors which will result in the best possible recovery for all creditors..."

Sounds like the old 'two card' trick.

So under their 'plan' (fantasy?) someone (doubt it is the unsecured bondholders) put in $800m and then the unsecured bondholders pull out $1,000m to $1,340m (50 to 67 cents in the dollar)?

Seems like Caveat Emptor to me - I bet there will be a line of banks & other 'unsecured' lenders lining up for that one.... N O T !

& the $300m unsecured debt owned by our two favourite $2 hedge funds with seemingly 1 employee each, perhaps paid as little as 1.5 cents on the dollar to buy that $300 Face Value unsecured debt. So could yield a profit for them (at the expense of those who sold out to them perhaps?) of up to nearly $200m.

Should we start linking these posts to the 'Scams like these' blog?

Scams like these

Only the DHL China Mandarin scammy speaker left messages in my case. Thanks to my newish Android phones I can block calls. A relo gets a million (so to speak) mobile phone missed calls from Vic, not game to answer, no one we know in Vic. Could be a scam call from Victoria but more likely to be...

www.australianfrequentflyer.com.au

 

[moa999]

AFR Street Talk article today that bondholders have sidelined advisor Faraday, and the above proposal now dropped.

Suggestion that Broad Peak/Tor might go it alone with court action.

 

[RooFlyer]

They certainly really seem to be splitting Velocity up a lot from 'the airline' VA2 in their language which has some people nervous. I wonder if Bain would flip VFF off in a couple of years as part of an exit strategy....

You could be on the right track but wrong side of it - more likely to keep VFF & sell VA II.

Yer classic private equity scenario is to sell, and if necessary, lease back everything, including what’s nailed down, as soon as possible after acquisition ( extract cash, maximise return on equity). And of course, sell the airline when they’ve pumped up the value enough ( trade sale, float).

 

[Spongbob]

They certainly really seem to be splitting Velocity up a lot from 'the airline' VA2 in their language which has some people nervous. I wonder if Bain would flip VFF off in a couple of years as part of an exit strategy....

That VA1 was very keen to buy back the part of Velocity they did not own in late 2019 suggests VFF was a key profit centre for the business.

 

[Brissy1]

Yer classic private equity scenario is to sell, and if necessary, lease back everything, including what’s nailed down, as soon as possible after acquisition ( extract cash, maximise return on equity). And of course, sell the airline when they’ve pumped up the value enough ( trade sale, float).

Absolutely. It's their DNA. Position the victim company for maximum short term gain regardless of long term survival. The refusal of the 2015 takeover of qantas by Texas Pacific Group was very wise, imagine what state qantas would be in now otherwise. And if you consider buying VA shares when Bain times it's float...when it is making $ (but has little net assets, like terminals, other than"goodwill") Myer (asset stripped) in the float from TPG private equity, float $4.10, current $0.20