Virgin Australia to be sold to Bain Capital

[equus]

deal looks after the employees (number of creditors) and secured debt (value)

Secured debt is irrelevant - because it is secured. They don't get to vote unless they relinquish their security. It is only UNSECURED debt that is important, and gets to vote - hence the position of the bondholders being so prominent.

Of course, if the debt is secured against something you need (like the planes you own) you need to deal with them, but they don't get to vote on the DOCA. If the security is way less than the value of the debt, and they think that the return to unsecured creditors may be more, then they may do this, but in a situation where the items representing the security are vital to the ongoing concern (even if not worth the full value of the debt), they will retain the security. The DOCA cannot revoke the security, so cannot force a haircut on the debt, except insofar as the realisation of the security did no cover the debt, in which case the remaining outstanding would fall into the unsecured bucket (but by then, had no say in the vote).

 

[muppet]

Secured debt is irrelevant - because it is secured. They don't get to vote unless they relinquish their security. It is only UNSECURED debt that is important, and gets to vote - hence the position of the bondholders being so prominent.
.....

Ummmm..... direct from ASIC:

A secured creditor is entitled to vote for the full amount of their debt without having to deduct the value of their security interest.

Found here for reference:

Voluntary administration: A guide for creditors | ASIC

asic.gov.au

 

[muppet]

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?

An airline has so be 51% Australian owned to get access to Australia’s share of traffic rights to fly to countries without an open skies agreement. i.e. the US.

To ensure VAI was always 51% Aussie owned a seperate structure was put in place and shareholders at that time were frozen and continue (i think) to own the international business - even though SIA, Etihad etc. owned most of VAH.

Bain will need to maintain that somehow or lose AUS-LAX when it opens up.

Kind of explains:

Travel Daily | New structure for Virgin Australia

traveldaily.com.au

 

[HS-TQE]

Current shareholders (SIA, EY, et al) may get 'nothing' in Bain's buyout of VAH.

Not a surprise there. As reported earlier, SIA wrote off their losses in VAH

Shareholders, though, will probably get nothing, Deloitte said.

Virgin Australia was almost entirely owned by four foreign aviation groups - Singapore Airlines, Etihad Airways, HNA Group and Nanshan Group - that each held 20 per cent stakes.

Tycoon Richard Branson's Virgin Group owned about 10 per cent.

Shareholders like SIA may get nothing in Bain's buyout of Virgin Australia

SYDNEY • Bain Capital agreed to buy collapsed Virgin Australia Holdings in one of the biggest single bets on the airline industry since it was shattered by the coronavirus pandemic. Read more at straitstimes.com.

www.straitstimes.com

 

[moa999]

Bain will need to maintain that somehow or lose AUS-LAX when it opens up.

It's definitely an interesting question how equity and a bunch of debt gets wiped out, but possibly a grandfathered equity interest in a sub somehow remains.

Or some alternative structure (whether that be some debt conversion by Australian holders, or some co-invest by Australian investors in Bain funds).

Until more info comes out we are all just speculating.

 

[RooFlyer]

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

I've been reading that its equity, but who knows at this stage. Free money to an overseas, multi-billion private equity fund? That would look bad, especially when the jobs just remain as they are, with no tangible uptick (and there will be lots of job losses & can't avoid head office, if they haven't gone already).

 

[jakeseven7]

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?

Absolutely not. Airlines that fly under the Australian flag to international destinations have to be operated under a min 51% Australian owned entity. VA1 had a hideously complicated accounting structure to ensure VAi1 could exist. Bain will have to do something similar.

But I’m sure apart from shutting down VAi , international won’t be a focus for Bain. They’ve said NZ, Fiji, Bali only as a maybe to start with (at some point); with anything else a long way off...

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

Bain could gift the QLD taxpayers 100% ownership of VAi2 for whatever remains of their international network....problem solved!

Now VA2 is going to be 100% foreign owned it’s going to cause them some headaches down the road I’m sure. But the Aussie bids were clearly not as strong.... so that’s what they are now!

 

[jakeseven7]

Did anyone read the article saying that J would only be retained for ‘major routes’? Under Bain?

I can’t find It now but I’m wondering what that means.... does it mean routes with slim premium traffic VA2 just don’t sell J - like they were doing in Tasmania - just block the J cabin out with no one sitting thereonly seat premium pax there if plane is full etc?

EDIT:
Here is one ref:

The resurrected airline will pitch to more of a mid-market segment, with less emphasis on corporate customers than it had before COVID, however, it is understood Virgin 2.0 will still offer a business class product on major routes.

Severe lay-offs on the radar as new-look Virgin rises from the ashes

Virgin's new private equity owners are set to track Qantas' job-shedding route, with the rescued airline looking to slash about 30 per cent of its 9500-strong workforce.

www.google.com.au

 

[RooFlyer]

Did anyone read the article saying that J would only be retained for ‘major routes’? Under Bain?

Here's what the Oz on-line is saying today (see last para in italics):

Virgin Australia is poised to undergo its second major transformation in 10 years to rebuild the carrier into a leaner, profitable business.

Under new owners Bain Capital, 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 VIP lounge The Club will be the first addition to go, closely followed by the $400,000-a-year contract with “celebrity chef” Luke Mangan who has overseen the Business Class menus for the airline since 2011.
...

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. While that might sound like a lot, Bain’s Australian managing director Mike Murphy has suggested that they will operate 40 to 50 aircraft on a day-to-day basis, with the remainder on standby for those inevitable technical issues. It is a strategy designed to ensure a high reliability of service, which was one of the top priorities of customers identified in research undertaken by Bain.
...

For passengers, Bain has promised an airline that does not compete head on with Qantas in the “high-value corporate end of the market” and does not bump noses with low-fare carrier 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.

I'd take everything thats being written at the moment with a maxi-size container of salt. Lots of puffing going on. Even if they start off with the 'OK' scenario alluded to by the Oz (and their briefer), after 6 months or a year it could, and probably will be an entirely different situation. 'Enhancement' will be a popular word.

If they keep J on all planes, to save the cost of a change and loss of flexibility, the J seats can be sold as Y with no J perks (meal, drinks etc) if needs be; a perk for Plats.

 

[Saab34]

Bit like the JetBlue model, Mint is only available selected routes. The other non mint A321s are full Economy and largely leisure runs to Florida etc.

I think it’s safe to say much of the current premium version of Virgin today is dust.

It’s going to be Virgin Blue with lounges. Biz major runs. Economy X. Baggage Pay for. Seat Selection Pay for. No Papers. No Celebrity Chef. No Free food.

 

[dajop]

Bit like the JetBlue model, Mint is only available selected routes. The other non mint A321s are full Economy and largely leisure runs to Florida etc.

Or there's the Eurobusiness model, where you can sell the whole plane as economy, or sell 2 rows as business, or 4 rows, or 8 rows or ...

 

[HS-TQE]

If they keep J on all planes, to save the cost of a change and loss of flexibility, the J seats can be sold as Y with no J perks (meal, drinks etc) if needs be; a perk for Plats.

The leisure routes (e.g SYD-MCY, SYD-LST, MEL-OOL, etc could advertise the current J seats as "Big Front Seat" similar to Spirit in the USA, if we're talking flexibility here. For example, coming off a BNE-SYD run where the J seats are sold as J, turns around as SYD-MCY and the J seats are sold as "Y+" as "Big Front Seat" with minimal to no J benefits.

 

[jakeseven7]

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. While that might sound like a lot, Bain’s Australian managing director Mike Murphy has suggested that they will operate 40 to 50 aircraft on a day-to-day basis

So just checking the Embraers were exited years ago... do VA1 still have them stashed somewhere??

40-50 737s is smaller than pre-Covid Jetstar... going to be interesting to see what they decide to fly.

 

[RooFlyer]

So just checking the Embraers were exited years ago... do VA1 still have them stashed somewhere??

You'll have to ask whoever briefed for the article. Maybe Bain got less than they were counting on?

 

[HS-TQE]

So just checking the Embraers were exited years ago... do VA1 still have them stashed somewhere??

40-50 737s is smaller than pre-Covid Jetstar... going to be interesting to see what they decide to fly.

IIRC, there was still a few E190s that were stored in the USA with VA still paying the leasing rates on the unwanted E190s as the leasing company wasn't able to find other lessors for those aircraft.

Most of the ex-VA E190 fleet though has since moved onto other operators. The handful that didn't get new operators, VA are paying the penalty (pretty much the parking rates) for ending the E190 leases early.

 

[jakeseven7]

You'll have to ask whoever briefed for the article. Maybe Bain got less than they were counting on?

Suprise! Look what we found in the VA1 basement! A plane! That we are still paying the lease on

IIRC, there was still a few E190s that were stored in the USA with VA still paying the leasing rates on the unwanted E190s as the leasing company wasn't able to find other lessors for those aircraft.

Most of the ex-VA E190 fleet though has since moved onto other operators. The handful that didn't get new operators, VA are paying the penalty (pretty much the parking rates) for ending the E190 leases early.

If you recall correctly then no wonder VA1 collapsed. Wow.

 

[eastwest101]

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



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

Yep - the further away that Jayn Hrdlicka is kept from VA management and staff the better Bain will find their fortunes.

If Bain insist on putting her in the drivers seat they will be starting off again with a cultural problem that VA hsn't really had before

Suprise! Look what we found in the VA1 basement! A plane! That we are still paying the lease on



If you recall correctly then no wonder VA1 collapsed. Wow.

Yeah - goes to my thinking that VA1 didn't have a yield or a profitability problem, they had a leasing problem from stupid leasing decisions in the past. Until Covid-19 struck, airlines could profitably operate A330s, E190s and ATRs worldwide, so there was something special in the the VA leases that made them uneconomic to operate, and given that the Mojave desert wasn't full of disused thousands of A330s, E190s and ATRs then the logic would follow that the leasing rates were out of kilter with the rest of the airline industry.

 

[The-Aviator]

I think being realistic, it would be safe to say that Bain will make changes to the soft product first and not the hard product. An end to complimentary food in economy and Luke Mangan menus in Business is almost certain, but I can't see them spending money to rip out the Business Class seats on the 737 any time soon. They'll still be there for corporate travellers, high end leisure and as an aspirational item / upgrade for the mid-tier frequent flyers.

Likewise on the lounges, The Club is definitely gone but I can't see the regular lounge going away any time soon. Perhaps there will be some rationalisation at the smaller ports but they are a necessity in the capitals and major regional centres.

Longer term I can envisage VA going down a path similar to what Air NZ has done for their domestic and short-haul international, i.e. something like Seat, Seat + Bag or The Works / Works Deluxe being available to purchase. Seems a very logical way to give people the services they want in a way that is flexible and manageable for the airline too.

 

[jase05]

It’s going to be Virgin Blue with lounges. Biz major runs. Economy X. Baggage Pay for. Seat Selection Pay for. No Papers. No Celebrity Chef. No Free food.

Oh well, back to QF it is

 

[Must...Fly!]

Another article, another glossing over of VARA fleet...