Virgin Australia to be sold to Bain Capital

[RooFlyer]

Before we get too carried away assuming Bain will just walk into the second creditors meeting and get rubber stamped as the new owners of VA2 are we sure that the unsecured bondholders and/or Cyrus wont attempt a last minute stunt like gate crashing this meeting or attempting to remove Deloitte as administrators or pull some other legal spoiling tactic?

A legal spoiling tactic has always been in the back of my mind as a consequence of Deloitte not following their stated course - such as letting latecomers or even the bondholders late into the process. Given that the Administrators were appointed by the board in voluntary Administration, I can't see how they can be replaced, other by the ?board - I guess there technically still is one. Again, a nice thing to know if the old board retains any reserve powers, such as in the advent of a 'rogue' Administrator - probably only via recourse to a Court. I guess the creditors can listen to whomever they please, not necessarily in the Deloitte meeting.

@Anna - any experience in the art of the legals of Administration?

 

[AviatorInsight]

Just for clarification...

Cyrus could definitely pull out of the race, just because it was a binding bid does not mean they were locked in. More on this below.

Now that Bain has been seen as the new “owners”, it is still far from over and Virgin could still enter liquidation.

As of yesterday, Bain is now “at risk”, meaning that they now assume financial responsibility for the running of the business and take over from the administrators. This is known as the signing of the Implementation Deed. This remains in place until the Deed of Company Arrangement (DOCA) is executed following the 2nd creditors meeting on 22nd August. This is when they will assume full control of Virgin 2.0. Until this time Virgin is still ’under administration’.

Because the implementation deed has been signed it is now much harder for Bain to just walk away. For this to happen the administrator needs to default under its obligations of the deed.

So as creditors, we still need to vote. For the vote to pass, there needs to be a majority from creditors in value and in numbers. Should it fail on the first pass then there are a number of conditions for it to fail fully and then it may go into liquidation rather than coming back with another DOCA.

Yes routes will get cut, yes there will be redundancies (I’m still in the firing line), of course the media are picking up lots of numbers being thrown around, this 60-70 aircraft in total I have no idea where that has come from. Bain had done a survey themselves to over 6000 customers and they were told that most of those people didn’t really care that much about the food and other ”perks” so they will be adjusting the business to what the consumer actually wants, not what they think they want.

Nothing from the company or the unions (they have not been fully told yet of the plan or strategy), the meetings will take place now this week with Virgin management on the business plan that Bain want implemented.

Following this the next meetings will be with the unions about any impact to the employees, so we won’t know anything until after the meetings with management.

So that is pretty much all we know up to date. I’m grateful that someone has found value in the airline and has decided to buy it, whether my job is safe or not remains to be seen but that will depend on people buying airline tickets like they’re buying toilet paper.

Edit: Paul Scurrah will remain as CEO (told by him to Virgin employees yesterday).

 

[Stealthflyer]

A lot of Yohy's comments worth expanding on there. All depends on where Bain's VA2 pitch their market, one thing that hasn't been talked about too much is the economy of scale and the frequency/reach of the VA2 network. Will depend on number of aircraft left and number returned to leasers but dropping entire parts of the domestic network off (say CBR, CNS OOL or Tasmania) can be a risky move on two fronts, firstly - your large corporate clients and government travel want to move people anywhere and everywhere within the country, so if your network map has massive "holes" in it, then there is a danger of the perception that VA2 doesn't fly everywhere where we need to fly their people, so they won't really be in contention and most major corporates and government travel will move solely to QF (have a think about where Federal and State Governments, Westfarmers, Banks, mining companies and say the ADF needs to fly people). and secondly any SME businesses whose town gets "dropped" instantly becomes the home ground of the remaining airline (for example see Qantas' failed attempt to Jetstar-ize OOL which resulted in VA being the home ground advantage for VA).

I very much doubt they’ll drop HBA from their network. There’s a reason why I’m a Hobart-based VA WP: they codeshare with SQ. The luggage carousel at HBA always has a significant number of Etihad and Singapore luggage tags. Without direct international flights to Tasmania, VA bridges that gap for non-OW airlines. I know that there are a lot of commentators here saying that Tasmania will be one of the first to go, but anecdotally, my HBA - MEL fights are always pretty full (apart from that awful 9.45 pm one that probably only exists to feed their international partners’ midnight departures). I swapped my allegiance to VA after they kept increasing HBA flights. I doubt that they’d increase frequency if the earnings were as dire as many are making out.

In any case, I hope they don’t restrict their HBA schedule too much. I loathe Jetstar with a passion.

 

[RaRa]

Bain's plans for VA Mk 2 (Source: Executive Traveller).
Link: Here's what Bain Capital's Virgin Australia 2.0 will look like

Thanks for sharing the link. my views

1. Single aircraft fleet of B737 is fine and will serve eastern states well, incl the lucrative mel-syd route.
2. The east-west will lose out on premium pax. still a better decision after learning their a330 was leased out at ridiculously higher cost. There was this opportunity to renegotiate leases at a discount and continue with a330, but this will negate the principle above of single aircraft type, so in scheme of things this is fine
3. Integrate velocity into the core airline business incl merging of IT systems, websites, apps. The best decision of all. The benefits of data analytics into consumer behaviour is a huge plus
4. Leave lounges intact , this is good and will appeal mid market. Yes, the ’elites’ or snobs may react of potential overcrowding, but this is a good move to unlock a huge critical mass of mid market pax to lure over to virgin. If the lounges are adequately staffed and serviced, this can be managed to a reasonable outcome
5. Closure of the club, I can’t comment, never been to one. This may impact less than 1% of their existing customer base, maybe
6. Future of B777 is tied down to the future of international travel in general. The only question is, if the intl travel market pick up in next 2-3 yrs, VA won’t be ready to make the most of the opportunity. As of now, this is not a surprise decision

In general, I don’t fully understand what Bain’s definition of mid market product is. For domestic travel, VA was always an offering below QF , unsure how much of its position in market will change. Overall, a good outcome in challenging times. All the best to PS and his team (assuming he is retained as the ceo)

 

[moa999]

Cyrus could definitely pull out of the race, just because it was a binding bid does not mean they were locked in.

So as creditors, we still need to vote. For the vote to pass, there needs to be a majority from creditors in value and in numbers. Should it fail on the first pass then there are a number of conditions for it to fail fully and then it may go into liquidation rather than coming back with another DOCA.

Nothing totally binding until it's signed.

Which was seemingly why the administrator locked themselves in a room with Bain and didn't return Cyrus's call.

My knowledge about the technical aspects of administration is limited, but I'd think the main risk at the moment is the creditors in the middle (including the bond holders and possibly some lessors) try and stymie the deal on the basis it's not fair to them, and an alternative could deliver better value.

On paper the vote should go through as it appears from limited info released that the deal looks after the employees (number of creditors) and secured debt (value)

 

[Anna]

@Anna - any experience in the art of the legals of Administration?

To use some horrific industry jargon, only at the back end, not at the front end.

 

[jakeseven7]

To use some horrific industry jargon, only at the back end, not at the front end.

I wonder if our resident AFF consultant who was heavily involved has been released yet and can talk to us.... should we page them?!

 

[jakeseven7]

I very much doubt they’ll drop HBA from their network. There’s a reason why I’m a Hobart-based VA WP: they codeshare with SQ. The luggage carousel at HBA always has a significant number of Etihad and Singapore luggage tags. Without direct international flights to Tasmania, VA bridges that gap for non-OW airlines. I know that there are a lot of commentators here saying that Tasmania will be one of the first to go, but anecdotally, my HBA - MEL fights are always pretty full (apart from that awful 9.45 pm one that probably only exists to feed their international partners’ midnight departures). I swapped my allegiance to VA after they kept increasing HBA flights. I doubt that they’d increase frequency if the earnings were as dire as many are making out.

In any case, I hope they don’t restrict their HBA schedule too much. I loathe Jetstar with a passion.

My bet would be VA2 would retain HBA-MEL and that’s probably it.

Remember all airlines could interline with QF including SQ, EY etc if they wanted to cover off international travellers. Happens all the time.

 

[jakeseven7]

Bain had done a survey themselves to over 6000 customers and they were told that most of those people didn’t really care that much about the food and other ”perks” so they will be adjusting the business to what the consumer actually wants, not what they think they want.

Anyone can make market research say whatever they want it to say for whatever reason they like. And the biggest weakness is that it’s static, what people want today, not tomorrow. Always has been.

Bain went in with a need to validate their predetermined strategy of needing to strip costs out of the business that would impact end consumer facing services - a necessary change but pre-determined. So they have backed that up in market research for the purpose of winning the bid and assuaging concerns around their strategy to people who had to vote / work for them.

We all hope the move down market isnt too severe like unbundling luggage etc which was a real PITA for any kind of business traveller BUT at the end of the day if it means we have some sort of competitor to the QF group then we just need to take it!

 

[OATEK]

Just for clarification...

Cyrus could definitely pull out of the race, just because it was a binding bid does not mean they were locked in. More on this below.

Now that Bain has been seen as the new “owners”, it is still far from over and Virgin could still enter liquidation.

As of yesterday, Bain is now “at risk”, meaning that they now assume financial responsibility for the running of the business and take over from the administrators. This is known as the signing of the Implementation Deed. This remains in place until the Deed of Company Arrangement (DOCA) is executed following the 2nd creditors meeting on 22nd August. This is when they will assume full control of Virgin 2.0. Until this time Virgin is still ’under administration’.

Because the implementation deed has been signed it is now much harder for Bain to just walk away. For this to happen the administrator needs to default under its obligations of the deed.

So as creditors, we still need to vote. For the vote to pass, there needs to be a majority from creditors in value and in numbers. Should it fail on the first pass then there are a number of conditions for it to fail fully and then it may go into liquidation rather than coming back with another DOCA.

Yes routes will get cut, yes there will be redundancies (I’m still in the firing line), of course the media are picking up lots of numbers being thrown around, this 60-70 aircraft in total I have no idea where that has come from. Bain had done a survey themselves to over 6000 customers and they were told that most of those people didn’t really care that much about the food and other ”perks” so they will be adjusting the business to what the consumer actually wants, not what they think they want.

Nothing from the company or the unions (they have not been fully told yet of the plan or strategy), the meetings will take place now this week with Virgin management on the business plan that Bain want implemented.

Following this the next meetings will be with the unions about any impact to the employees, so we won’t know anything until after the meetings with management.

So that is pretty much all we know up to date. I’m grateful that someone has found value in the airline and has decided to buy it, whether my job is safe or not remains to be seen but that will depend on people buying airline tickets like they’re buying toilet paper.

Edit: Paul Scurrah will remain as CEO (told by him to Virgin employees yesterday).

@AviatorInsight, no one on here would wish you anything but the best outcome, wherever this goes.

I have always preferred VA to JQ for the reason that the service and comfort were excellent. However, I have never considered the international offerings either direct or through other airlines, as a plus, and would think it would be years before any meaningful external travel would be a focus. As someone who travels OS several times a year normally, the OW arrangements through QF have proved their worth to us.

I can see how an emphasis on value and service, not food and lounges, would be an excellent place to start for the rebirthed airline. Consolidating the middle ground should work.

 

[Hvr]

Jayne Hrdlicka: The high-flying executive behind Bain's turbulent Virgin tilt

Bain's high profile, handpicked adviser Jane Hrdlicka was outlining the private equity firm's vision to relaunch the collapsed airline and what its plan would mean for its 9000 strong workforce. But the former A2 Milk CEO and Jetstar boss' use of meaningless management jargon, including terms like "flexibility" and "synergies", was completely lost on the audience. It prompted one straight-talking union leader to request that the remainder of the meeting "take place in English".

It looks like there will be tough times ahead for workers.

 

[HappyFlyerFamily]

Saw a headline in the Australian that Bain blew Cyrus out of the water.....can‘t access article though.

 

[PPS_SYD]

Sounding like the lounges are gone which with the other cuts to turn them into a LCC means it’s looking more and more likely that I’m going to have to take my business back over to QF

Regular lounges aren't going, ‘The Club’ lounges are the one probably disappearing.

 

[toowongman]

Saw a headline in the Australian that Bain blew Cyrus out of the water.....can‘t access article though.

Bain billions keep Virgin aloft as private equity giant takes over liabilities
---

Heavily Abridged Main Points:

Bain Capital plans to inject as much as $600m in cash into Virgin to keep it running.

The upfront cash is part of a package, including $600m to take over existing travel credits for its passengers and some $450m in entitlements owed to Virgin staff.


Bain’s potential cash injection of some $1.6bn will be in addition to taking over Virgin’s liabilities for other creditors, including its aircraft leasing deals.

It is uncertain what the deal means for the airline’s unsecured creditors, owed $2bn, who could play a key role in the late August meeting of creditors,which still has to approve a proposal. Bond holders fear that they get almost nothing as part of the sale process.

The bond holders’ recapitalisation proposal , which involved an upfront investment of some $125m in the airline, would have seen it return to the ASX as a listed company.

The bond holders said they would continue to press their case for their proposal to be considered by Virgin’s administrator.

Bain is also now battling concerns of major lay-offs, telling media hours after it signed the deal the agreement could see the loss of up to 4000 of the 9000 jobs at the airline over time. This would depend on market conditions and the ability of Virgin to resume domestic flights.

Two key Virgin unions are concerned about its bid, publicly backing Bain rival Cyrus. The key Transport Workers Union said on Friday that it “looked forward to working with Bain” as the airline’s new owner.

TWU national secretary Michael Kaine said Bain had “put forward a solid bid to secure the administrator’s recommendation.” He called on the federal government to work with Bain and the trade unions to “develop a plan to secure the long-term survival of the airline”.

Bain is expected to move as early as next week to start working alongside Virgin’s chief executive Paul Scurrah, who will continue to lead the airline under the Bain ownership, at least for the immediate future.

Mr Strawbridge confirmed that part of the deal was Bain providing critical funding to help the airline continue to operate during the period from July 1 to when it legally takes over the airline.

The deal will mean Virgin’s shareholders will not get any return from their investments.

But Mr Murphy’s comments have confirmed some of the worst fears of Virgin unions that the private equity bidder will be taking a hard-line view of its staffing requirements.

Virgin Australia chief executive Paul Scurrah said the airline was a step closer to relaunch as a result of the agreement with Bain.

“We know they are committed to investing in the airline and we are thrilled to be working with them into the future.” and he said it was always the goal to bring Virgin Australia out of administration as quickly as possible and in a stronger financial position.

The Bain deal will see the airline retain the Virgin brand.
-------
Virgin Australia is poised to undergo its second major transformation in 10 years.

Under the deal at least some of the work done by former CEO John Borghetti — who overhauled the airline from budget to premium — will be undone.

It’s almost certain that his exclusive "The Club" will be the first addition to go, closely followed by the $400,000-a-year contract with “celebrity chef” Luke Mangan.

Dozens of aircraft will be sent back to lessors, including A330s.

Boeing 777s, Embraers and ATRs could also be axed from the fleet, leaving Virgin 2.0 with between 60 and 70 Boeing 737-800s — about half their current fleet. Bain’s Australian managing suggested that they will operate 40 to 50 aircraft on a day-to-day basis

Tigerair will be consigned to history.

Bain is focused on making a success of one airline that serves all segments of the market, including the corporate sector, small and medium enterprise, leisure travellers and those visiting friends and relatives; directly competing with neither Qantas or Jetstar.

The small business class section of Virgin’s 737-800s should be maintained, coupled with a range of different economy fares pitched at customers ranging from those who want the bare minimum of everything to those who want a more premium experience.
...

 

[dajop]

Bain billions keep Virgin aloft as private equity giant takes over liabilities

=======================

Informative, thanks for sharing. However even though I am sure you are sharing in good faith, you may want to summarise the article instead , this looks like a direct cut and paste, which IIRC breaches copyright law and also AFF rules.

 

[Saab34]

How do they now get around the regulatory hurdle of being 100% Foreign owned and not being able to now operate International flights under this agreement? VA International Airlines will need somewhat a local investor to be able to operate abroad. They can not operate foreign flights under a 100% foreign ownership.

Unless the AOC sticks at what is already valid and any changes to ownership means nothing? Some places like Indonesia are fairly strict in regards to that, as seen with the Tiger Air attempt at Bali flights.

 

[HappyFlyerFamily]

How do they now get around the regulatory hurdle of being 100% Foreign owned and not being able to now operate International flights under this agreement? VA International Airlines will need somewhat a local investor to be able to operate abroad. They can not operate foreign flights under a 100% foreign ownership.

Unless the AOC sticks at what is already valid and any changes to ownership means nothing? Some places like Indonesia are fairly strict in regards to that, as seen with the Tiger Air attempt at Bali flights.

Not sure what issue you are referring to but when Bain owns Virgin, Virgin will be an Australian resident subsidiary of a foreign parent. Would that be sufficient?

 

[oz_mark]

How do they now get around the regulatory hurdle of being 100% Foreign owned and not being able to now operate International flights under this agreement? VA International Airlines will need somewhat a local investor to be able to operate abroad. They can not operate foreign flights under a 100% foreign ownership.

Unless the AOC sticks at what is already valid and any changes to ownership means nothing? Some places like Indonesia are fairly strict in regards to that, as seen with the Tiger Air attempt at Bali flights.

VAI has had a different ownership up until now, so I am sure they can engineer something!

 

[RooFlyer]

How do they now get around the regulatory hurdle of being 100% Foreign owned and not being able to now operate International flights under this agreement?

How much Australian equity will they need? QLD’s $200 mill will get them a bit ....

 

[HappyFlyerFamily]

How much Australian equity will they need? QLD’s $200 mill will get them a bit ....

But my impression is that would not likely be equity - perhaps free money to ensure Virgin stays in Qld for another 3 years or so