Virgin Australia to be sold to Bain Capital

[dajop]

mate you are so negative on this Virgin sale, really I love to hear both sides of the coin, but take a look at your recent 100 posts, c'mon mate, how about being a little optimistic. Or at least not completely expecting or wanting the worst.

This is good news for time being for so many people.

No doubt good news for now, or at least in the hopefully near future when domestic borders open up.

Longer term there’s every reason to be a bit sceptical. Myer might be a good example of where things can end up once “flipped” by PE.

 

[RAM]

I meant to post this last week after going through the DOCA (192 pages or so), but better late than never...

For Deloittes' work through to 30 June 2020 (from appointment) they charged & have been paid $13m. For their work through to the vote (I'm pretty sure was the date) they expected to be paid another $13 odd million.

It makes the length of time they are involved in paying out the unsecured creditors from the respective pools (various pools labelled A, B, C & D contingent on different events) very relevant to how much the unsecured creditors will receive.

Mind you, disbursements seem to have been charged separately. Certainly some real costs involved in meeting the required legal filings & court appearances in multiple juristictions including the US & Japan.

One item that was new to me - the impact of AASB16. VERY bad for all airlines.

The new leasing standard will bring all leases on balance sheet, which will gross up assets and liabilities, and increase gearing/debt measures. The median increase in company debt levels is expected to be around 22%, while the median increase in EBITDA is expected to be around 13%.
New Leases Standard - AASB 16 - PwC Australia

The VA accounts were re-stated in the DOCA to show its impact going back a few years. Very negative.

Does make me wonder about Q's balance sheet even more now. In the Q results revealed last week the first figures shown is their NTA per share - as at 30 June 2020 was down to 17 cents per share. They presented some 'restated' figures to compare 2020 with 2019 but I haven't compared them with the original 2019 FY figures yet.

If Q'd gone through with paying out their dividend as announced (post CV) they would do 'as it would be illegal not to' - until requested to substantiate that claim - then their NTA would have been down to 3 cents per share or so.

Around 1 weeks cash burn (1.4bn shares x 3 cents = $42,000,000).

"In February 2020, the Group announced a fully franked dividend of 13.5 cents per ordinary share and an off-market share buy-back
of up to $150 million. To preserve liquidity in response to the impact of COVID-19, the off-market share buy-back was subsequently
cancelled in March 2020 and the interim dividend was subsequently revoked in June 2020."

VA also benefitted from the JobKeeper scheme, but to look at it in relation to Q - if Q had not received that JobKeeper money then they would have been significantly negative (estimate around -15 cents per share at best) = no net tangible assets.

All of which makes the quote from the unions today after the VA result somewhat more intriguing:

Transport Workers' Union national secretary Michael Kaine called it a "new beginning and an important day for Virgin and for Australian aviation".

"There have been long and difficult days and our thoughts are with the 3,000 workers who will no longer be with the airline," he said.
He said they had been given assurances from Bain Capital to retain regional operation Vara, tiered cabin classes, airport lounges and the airline's international arm.

"We will also hold the Federal Government to account over its failure to support Virgin and the wider aviation industry," he said.

_____________________________​

Given Q's NTA situation, no surprise with their $500m unsecured debt raising 10 months in advance of paying down the maturing June 2021 bond of $400m.

With that background - VA II IMHO faces more of a wounded, perhaps fatally, giant rather than strong clearly superior competitor. Size may well be a hindrance not an advantage.

VA II now has a massively smaller fleet & lower operating cost per rpk & does not have over half its legacy fleet by number nor around 2/3rds of its fleet by value - grounded & costing money as every day passes - that is Q's international operation. Nor does it have the legacy lease costs for any overseas airport operations. Q is stuck between a rock & a hard place because, unlike with its previous dominant position in Australia, overseas it is a minnow and the laws do not favour it.

One thing for sure - all the media & many talking heads were proven wrong today. VA II now exists.

 

[jakeseven7]

I meant to post this last week after going through the DOCA (192 pages or so), but better late than never...

For Deloittes' work through to 30 June 2020 (from appointment) they charged & have been paid $13m. For their work through to the vote (I'm pretty sure was the date) they expected to be paid another $13 odd million.

$26M wow - and Bain pays for this? Or the remains of VA1? (Edit: I guess the same thing shortly....)

 

[RooFlyer]

I think most of the options left for VA were PE of one flavour or another.

The 'lender' of last resort, or the 'lender' of second last resort. .

I'm with @jakeseven7 . Private equity aren't in it to be warm and cuddly - to get their required Rate of Return on investment there will be slashing and burning one way or another before the float or trade sale in 3-5 years.

$26M wow - and Bain pays for this? Or the remains of VA1? (Edit: I guess the same thing shortly....)

VA1 has been paying. The Administrators stand in front of secured creditors (but behind the tax man, I think

 

[RAM]

$26M wow - and Bain pays for this? Or the remains of VA1? (Edit: I guess the same thing shortly....)

Rooflyer has answered the first part.

That amount (I think it was) only covered up to the vote - not the final clearing up. Every day this gets drawn out sees $$, that would otherwise go to the unsecured creditors, end up with Deloittes.

Perhaps someone can help me here...

As VA is/has shut down multiple airframe types then there must be a decent stock of spare parts spread around Australia that are soon to be sold off "as is where is" I suspect. I've probably missed these details - can anyone direct me to where there's any info about these 'owned' spare parts?

Similarly there must be quite a few used Airbus food trolleys surplus to requirements unless they've already been offered at an unbeatable price to the lessors of the A330s. Or have I incorrectly assumed that Airbus trolleys will not fit Boeings & vice-versa?

 

[RAM]

No doubt good news for now, or at least in the hopefully near future when domestic borders open up.

Longer term there’s every reason to be a bit sceptical. Myer might be a good example of where things can end up once “flipped” by PE.

A bit like my personal rule of never buying something that certain investment banks are selling.

Without naming names, one investment bank (that no longer exists) had what I believe to be a World Record. Every float it led over a 20+ year period - ended going bankrupt within 7 years.

Really brings meaning to Caveat Emptor!

 

[RAM]

My Friday just got so much better....
Report on a conference today.

Virgin Australia plots its return to New Zealand, USA

Despite being an 'all Boeing 737' airline for now, Virgin eyes a comeback to routes further afield, including Los Angeles.

www.executivetraveller.com

One of Virgin’s current key partners, Singapore Airlines, is likely to remain on board under the relaunched Virgin Australia.

“Singapore Airlines is very important to us, and they acknowledge that we’re important to them,” Scurrah says.

“We’ve had very good discussions with the partners that we had pre-COVID, (and) we’re going to have a very good international offering going forward … a very strong suite of partners overseas from an alliance point of view, a frequent flyer point of view; and those are things we know are very important to the corporate market,” says Scurrah.

However, he tips that “we haven’t ruled out anything in terms of partnerships or alliances,” hinting that some partnerships may begin, or others wrapped up, as Virgin Australia’s future international plans come together.

 

[AIRwin]

However, he tips that “we haven’t ruled out anything in terms of partnerships or alliances,” hinting that some partnerships may begin, or others wrapped up, as Virgin Australia’s future international plans come together.

Star Alliance...

 

[HS-TQE]

Star Alliance...

More likely 'more' 'bilateral alliances', like QF and Emirates.

More likely a new one between VA and SQ (minus the KF/Velocity point swapping), with possibilities from NH and DL.

Post automatically merged: Sep 4, 2020

On another note, VA and Bain looking at "writing off" the deposit for the 737MAX order made by JB and SQ/EY.

Virgin begins upgrade of 737 business, economy class

There’s something for everyone in Virgin Australia’s second-gen business and economy class.

www.executivetraveller.com

 

[exceladdict]

Star Alliance...

Gah, I was away from my computer this afternoon but was hoping to be the first on this thread to post "INB4 I wonder when VA will join Star Alliance ?!?!?!?!11!?"
Let the debate continue

 

[antycbr]

I just want to pause and say thank you Bain for taking the leap of faith in the current climate to save VA.

 

[AIRwin]

Once the DOCAs have been completed, control passes to Bain. This is expected on or before 31 Oct.

And transfer of shares from the current shareholders to Bain...

 

[AustraliaPoochie]

Now we have to wait and see how the Covid thing pans out, and then put our money into new VA bookings.

 

[jakeseven7]

Now we have to wait and see how the Covid thing pans out, and then put our money into new VA bookings.

What will be interesting to see play out is corporates attitude to VA2....

Yes I know that VA2 is no longer going to target corporates as they move down market (before someone yells at me!) but some small business / more price conscious SME’s used VA1 plus they went aggressively after some big accounts which may lose now of course...

Will corporates take the risk? Also with a far smaller network they will be less attractive option for a whole of business solution.

 

[RAM]

What will be interesting to see play out is corporates attitude to VA2....

Yes I know that VA2 is no longer going to target corporates as they move down market (before someone yells at me!) but some small business / more price conscious SME’s used VA1 plus they went aggressively after some big accounts which may lose now of course...

Will corporates take the risk? Also with a far smaller network they will be less attractive option for a whole of business solution.

If the future pans out the way I expect both locally & globally - then corporates will be more concerned about not going bankrupt themselves & some will definitely be more open to sending lower level staff on cut-price fares - if they fly at all.

Remember around 7 of the Top 50 listed companies in Australia went bankrupt in the 1990s recession. That recession was the first time since the 1920s that was a 'middle class' recession. The first time since then that accountants, bank managers, doctors & lawyers got fired.

This time around, the starting point for Australia (especially) & the World is a much higher level of household debt, and the small matter of Covid-19.

Given Q's perhaps mortally wounded nature - VA II may well be quite a compelling choice.

As at 30 June - Q's net tangible assets was less than 5 weeks current 'operating' cash burn. That does not include the mandated cash refunds in place of travel credits that the ACCC ordered.

Q's widely reported 'underlying profit' of $124m seems solely due to creative accounting (& the Jobkeeper money approx $250m) than reality.

Unlike every prior year when Q claimed profits on fuel hedging as 'operating profits' - this year they reclassified the fuel hedging losses for the second half as non-operational yet the profits from fuel hedging for the first half of the financial year went into 'operating profits' according to the notes to the accounts.

Amazing what auditors agree to.

If Q hadn't adopted this creative accounting then their reported 'operating profit' would have been a loss of over $400m, & without the $1.4bn new share issue finalised in late June, Q's total equity would have been below $200m having started the year at over $3,000m.

Not a good look for the $24m man.

 

[oz_mark]

If the future pans out the way I expect both locally & globally - then corporates will be more concerned about not going bankrupt themselves & some will definitely be more open to sending lower level staff on cut-price fares - if they fly at all.

It is possible. Prior to some previous downturns, companies often flew their staff around in Business Class (or First), and after the downturn staff found themselves further back in the plane. Up against that is that some larger companies already get pretty decent pricing on flights.

So, I can see it happening, maybe not for the biggest of the big end of town, but some of the more mid range companines.

 

[jakeseven7]

It is possible. Prior to some previous downturns, companies often flew their staff around in Business Class (or First), and after the downturn staff found themselves further back in the plane. Up against that is that some larger companies already get pretty decent pricing on flights.

So, I can see it happening, maybe not for the biggest of the big end of town, but some of the more mid range companines.

It’s all market based anyway so VA2 will just have to deal the hand they are dealt I guess like everyone.

I wonder what VA2 will do in terms of their offer to attract the leisure / budget conscious flyers away from JQ?

 

[HS-TQE]

Article on the VA "Global Alliance" dillemma.

The paragraph on Star Alliance speaks of VA facing the past veto block from NZ (due to the well publicised spat between former CEOs Luxon and Borghetti), along with the current potential veto block from UA (due to the long-standing Delta Air Lines partnership).

Edit: In other words, the DL partnership has "gotta go" for UA to remove their "veto".

Source: Virgin Australia's global alliance dilemma - Point Hacks

 

[antycbr]

Article on the VA "Global Alliance" dillemma.

The paragraph on Star Alliance speaks of VA facing the past veto block from NZ (due to the well publicised spat between former CEOs Luxon and Borghetti), along with the current potential veto block from UA (due to the long-standing Delta Air Lines partnership).

Edit: In other words, the DL partnership has "gotta go" for UA to remove their "veto".

Source: Virgin Australia's global alliance dilemma - Point Hacks

Let’s be able to fly to all state capitals before we get too excited about global alliances...

 

[HokitikaGold]

...The Administrators stand in front of secured creditors (but behind the tax man, I think

I think the tax man has had precedence since way before even Roman times