Virgin Australia to be sold to Bain Capital

[Melburnian1]

Apologies if this repeats anything, and some of the comments in this article online at 'The Oz' on Sunday 28 June are from Friday 26, but here's a couple of parts:

'...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.

But it is uncertain what the deal means for the airline’s unsecured creditors, owed $2bn, who lodged their own bid for Virgin this week and could play a key role in the meeting of creditors, due for late August, which still has to approve a proposal by Mr Strawbridge.

Bond holders fear that a deal done while Virgin is on its knees in the current COVID-19 environment could mean that they get almost nothing as part of the sale process.

The bond holders have not yet been told the details of the Bain offer.

A spokesperson for the bond holders said on Friday they were “disappointed that the administrator had announced a successful bidder for Virgin Australia without due consideration of our recapitalisation proposal”.

He said the bond holders believed their recapitalisation proposal represented “the best option for Virgin, the employees, creditors and the Australian community.”

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

-----

and later on in the article, this:

...Bain is also now battling concerns that it could go ahead with major lay-offs, with its chief deal-doer, Bain Australia managing director Mike Murphy, telling media hours after it signed the deal with Mr Strawbridge that the Bain agreement could see the loss of up to 4000 of the 9000 jobs at the airline over time.

The Bain camp was scrambling on Friday afternoon to talk down the media reports of major job losses, which come as Qantas announced plans to lay off some 6000 workers as a result of the COVID-19 crisis.

Bain sources were explaining that the exact number of staff to be kept by its new owner would depend on market conditions and the ability of Virgin to resume domestic flights.

But by coming out so quickly with estimates that Bain could slash staff by as much as 4000, Mr Murphy has raised questions at a sensitive time for the airline, when its workers are under pressure and two key Virgin unions are already concerned about its bid, publicly backing Bain rival Cyrus...'

('Mr Murphy' is Mike Murphy, Bain Australia's CEO).

 

[Mr Pumblechook]

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.

Yes VA were still paying leases for the E190s stored in Mojave and the ATRs stored in Nelson. And at the same time paying Alliance (20% owned by QF) to fly in their place.

 

[RAM]

Why didn't Deloitte just run an open data room,

Because either Qantas affiliated consultants or consultants wanting to get future Q business would have gone in & investgiated every facet of VA in order to send VA Mk2 broke as quickly as possible.

I have previously posted about my view on this Administrator, given their group's previous earnings from VA in many different facets, however one thing they did do was early on publish an event timetable & stick to it.

The unsecured debt holders & other bidder IMHO do not have a legal leg to stand on & all was being done to try & force a political intervention in their favour. The fund mgr names mentioned (some posts above) are not generally seen providing 'talking heads' as experts in the media. A vulture fund who may have bought up some of the USD unsecured debt issued offshore for a cent in the dollar is just taking a punt - subtract their funds under mgmt and it is a very different story. Possibly more like an unsavoury case of Ambulance chasing - especially a 'team of 50 working on the unsecured debtholders' behalf' - that sure generated some fees paid for by someone on the unsecured side or perhaps they were all just 'Humanitarians'...

 

[HappyFlyerFamily]

Apologies if this repeats anything, and some of the comments in this article online at 'The Oz' on Sunday 28 June are from Friday 26, but here's a couple of parts:

'...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.

But it is uncertain what the deal means for the airline’s unsecured creditors, owed $2bn, who lodged their own bid for Virgin this week and could play a key role in the meeting of creditors, due for late August, which still has to approve a proposal by Mr Strawbridge.

Bond holders fear that a deal done while Virgin is on its knees in the current COVID-19 environment could mean that they get almost nothing as part of the sale process.

The bond holders have not yet been told the details of the Bain offer.

A spokesperson for the bond holders said on Friday they were “disappointed that the administrator had announced a successful bidder for Virgin Australia without due consideration of our recapitalisation proposal”.

He said the bond holders believed their recapitalisation proposal represented “the best option for Virgin, the employees, creditors and the Australian community.”

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

-----


('Mr Murphy' is Mike Murphy, Bain Australia's CEO).

just a quip:

I don’t know what the bond holders are on about - their $125 Million does not really come close to Bain’s $1.65 billion. Even if you have a margin of difference where one counts Qld’s $200 million inject for Bain and not yet for the bond holders.

 

[RAM]

There's been much WRONG information posted in this & predecessor threads about what can & cannot happen during a voluntary administraton, creditors' meetings, who can/cannot vote.

For example a few have stated that secured creditors cannot vote = WRONG.

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."

If you spend 10 minutes reading this (remarkably well written in almost plain English) summary on ASIC's website then everything will become clear.

Voluntary administration: A guide for creditors | ASIC

asic.gov.au

There are also summaries for your rights as an employee (WORTH reading).

Next steps...

Voluntary administrator’s statement

The voluntary administrator’s statement must include the voluntary administrator’s opinion, with reasons, on each of the options available to creditors, as well as an opinion on which option the voluntary administrator believes is in the best interests of creditors. As noted above, the options are:

• end the voluntary administration and return the company to the directors’ control
• approve a deed of company arrangement (if one is proposed)
• wind up the company and appoint a liquidator.

So (A) is out.

(B) will see unsecured creditors get something > Zero (without any inside knowledge of Bain's offer I would guess 3.5 cents in the dollar). Unless a company is an absolute basket case then the successful bidder will offer unsecured creditors Zero, and as after a possible legal stoush the Courts will rule that unsecured means they rank ahead of share holders and behind everyone else including employees = they get a Negative amount as they have the total legal costs awarded against them.

(C) means unsecured creditors may have to wait over twenty years to get a final liquidation statement & be able to claim a tax deduction for losing everything possibly 20+ years earlier.

Bain's agreement (which any Court would uphold) is likely to have a condition that if for any reason their offer is rejected then Bain ranks ahead of everyone but the ATO & possibly some employee entitlements = gets 100 cents back in the dollar for all their costs incurred & funds advanced. This guarantees a total loss (plus any funds advanced to Faraday's 50 strong team) for unsecured lenders if they vote against the DOCA.

Voluntary administrator’s liability

Any debts that arise from the voluntary administrator purchasing goods or services, or hiring, leasing, using or occupying property, are paid from the available assets of the company as costs of the voluntary administration. If there are insufficient funds available from asset sales to pay these costs, the voluntary administrator is personally liable for the shortfall.

Remember the administrator applied to be exempt for any liability. So another nail in the unsecured creditors' coffin.

Manner of voting

A vote on any resolution put to a creditors’ meeting may be taken by creditors stating aloud their agreement or disagreement, or by a more formal voting procedure called a ‘poll’.

If voting is by verbally signalling agreement, the resolution is passed if a majority of those present indicate agreement. It is up to the chairperson to decide if this majority has been reached.

After the vote, the chairperson must tell those present whether the resolution has been passed or lost. If the chairperson is unable to determine the outcome of a resolution on verbal agreement, they may decide to conduct a poll.

Now this next part is VERY interesting and crucial...

When a poll is conducted, a resolution is passed if both:

• more than half the number of creditors who are voting (in person or by proxy) vote in favour of the resolution
• those creditors who are owed more than half of the total debt owed to creditors at the meeting vote in favour of the resolution.

This is referred to as a ‘majority in number and value’. If a majority in both number and value is not reached under a poll (often referred to as a deadlock), the chairperson has a casting vote.

So say by number of creditors it fails but by value it passes then the Chairperson decides the outcome. As they've recommended acceptance - guess what happens?

Deed of company arrangement

If creditors vote for a proposal that the company enter a deed of company arrangement, the company must sign the deed within 15 business days of the creditors’ meeting, unless the court allows a longer time. If this doesn’t happen, the company will automatically go into liquidation, with the voluntary administrator becoming the liquidator.

The deed of company arrangement binds all unsecured creditors, even if they voted against the proposal. It also binds owners of property, those who lease property to the company and secured creditors, if they voted in favour of the deed. In certain circumstances, the court can also order that these people are bound by the deed even if they didn’t vote for it. The deed of company arrangement does not prevent a creditor who holds a personal guarantee from the company’s director or another person taking action under the personal guarantee to be repaid their debt.

And then get prepared for often the greatest surprise of all....

Have you guessed it?

Approval of administrator’s fees

Both a voluntary administrator and deed administrator are entitled to be paid for the work they perform. Generally, their fees will be paid from available assets, before any payments are made to creditors. They may have also arranged for a third party to pay any shortfall in their fees if there aren’t enough assets.

Some 'invoices' I've seen make a normal QC's fees seem cheap in comparison.

_________________________________________________________________________________________________________________________​

Hopefully this will finally answer (or stop) questions about who or what or why with the process.

So we can get down to the more important matters such as when will SIA be signed on once more?

 

[RAM]

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).

WRONG.

ASIC Website - Voluntary Administration:

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

 

[jakeseven7]

...Bain is also now battling concerns that it could go ahead with major lay-offs, with its chief deal-doer, Bain Australia managing director Mike Murphy, telling media hours after it signed the deal with Mr Strawbridge that the Bain agreement could see the loss of up to 4000 of the 9000 jobs at the airline over time.

But by coming out so quickly with estimates that Bain could slash staff by as much as 4000, Mr Murphy has raised questions at a sensitive time for the airline, when its workers are under pressure and two key Virgin unions are already concerned about its bid, publicly backing Bain rival Cyrus...'

('Mr Murphy' is Mike Murphy, Bain Australia's CEO).

So logically VA’s job losses would be:

- Anyone associated with Tiger
- Anyone associated with VA1i
- Anyone associated with the A330, 777, ATR fleet
- Another massive round of cuts at VA HQ, on top of what PS already announced
- A general cut across the domestic business to be in line for whatever new size VA1 becomes (eg the 40/50 aircraft fleet that has been quoted a few time’s)

Getting 4000 out of all that will be scary. Most commentators have been saying 2–3000 so a little surprising to hear might run deeper.

 

[jakeseven7]

60-70 planes likely means whole routes will be cut, not just reduced scheds. VA2 will look at places like Tas, Hamilton Isl or Broome and many others, and conclude its not worth servicing at all (no lounges to close either..) And with jetstar being QF's cheapest operation, that will mean Jetstar only for a lot of locations.

Bain have been quoted now as saying 40-50 aircraft to start with... whatever that means.

Remember QFLink has a very low cost base, some have speculated not far off JQ so maybe QF will ramp up QFLink services too... who knows.

 

[RooFlyer]

When a poll is conducted, a resolution is passed if both:

• more than half the number of creditors who are voting (in person or by proxy) vote in favour of the resolution
• those creditors who are owed more than half of the total debt owed to creditors at the meeting vote in favour of the resolution.

This is referred to as a ‘majority in number and value’. If a majority in both number and value is not reached under a poll (often referred to as a deadlock), the chairperson has a casting vote.

So say by number of creditors it fails but by value it passes then the Chairperson decides the outcome. As they've recommended acceptance - guess what happens?

Thanks for all that. Interesting about the Chairman's casting vote in case of a pass/lost situation. But no surprise about Administrator's fees - that's been well ventilated in the media with other situations. An Administrator can string things out, and continue to get paid, while the creditors see the pie shrinking.

 

[antycbr]

Thanks for all that. Interesting about the Chairman's casting vote in case of a pass/lost situation. But no surprise about Administrator's fees - that's been well ventilated in the media with other situations. An Administrator can string things out, and continue to get paid, while the creditors see the pie shrinking.

All things considered given the size of VA and it’s liabilities they haven’t strung things out yet. The creditors meeting in August could be sooner but I assume there are statutory requirements for certain notice periods.

 

[RooFlyer]

All things considered given the size of VA and it’s liabilities they haven’t strung things out yet. The creditors meeting in August could be sooner but I assume there are statutory requirements for certain notice periods.

I agree - I was meaning in general, or in other cases.

 

[N860CR]

Bain have been quoted now as saying 40-50 aircraft to start with... whatever that means.

I assume until post-COVID market recovery.

The initial figure of about 70 737s is largely inline with the current fleet size (75 I think) so I would assume the long term plan is for a fairly similar domestic network to what they have now.

 

[Melburnian1]

This article (part shown below) has appeared in 'The Oz' online roughly an hour ago (about 1930 on Sunday 28 June) so it should be in the Monday newspaper:


'Bain’s $1.65bn deal to take over Virgin has raised questions over the role of former Jetstar chief executive Jayne Hrdlicka after the private equity firm starts to take control on Wednesday.
Hrdlicka will not become CEO of the new airline but she is expected to be closely involved with its future under Bain’s ownership as a possible director and operational consultant.

While the Bain consortium has been at pains to say it will retain the current management under chief executive Paul Scurrah, some union leaders have been critical of Hrdlicka’s potential involvement on concerns that she could take a hard line on staffing issues.

Hrdlicka’s employment ties with a2 Milk, where she was chief executive, end on Tuesday, the last day of the financial year, freeing her up to focus on Virgin now Bain has emerged as the winning bidder.

Unions have had a fear that Hrdlicka’s experience running the low budget Jetstar does not auger well for her input into running Virgin, at least as far as staffing levels are concerned...'

then it goes on to discuss the concerns of the Transport Workers Union (big deal).

 

[The Flying Brick]

We must be of the same vintage, I remember when the AN GW were the best seats in the house. Also once upon a time you were allowed to make free local calls from the seats at the end of the couch, the STD calls were managed by the lounge supervisor.

My AN GW baggage tags are somewhere in this pile.
View attachment 221198

Can’t see any Chairman’s Lounge or Virgin Club cards in your pile??

 

[Melburnian1]

I assume until post-COVID market recovery.

The initial figure of about 70 737s is largely inline with the current fleet size (75 I think) so I would assume the long term plan is for a fairly similar domestic network to what they have now.

The media article I saw a day ago re that meantioned that the fleet might be 70-75 aircraft but specifically referred to how quite a number of aircraft would be in reserve for (quote) 'inevitable technical difficulties.' (Meaning failures).

 

[antycbr]

I assume until post-COVID market recovery.

The initial figure of about 70 737s is largely inline with the current fleet size (75 I think) so I would assume the long term plan is for a fairly similar domestic network to what they have now.

Will be interesting to see if/how they serve CBR. Flying a 737-800 with 176 seats SYD-CBR doesn’t really work aside from absolute peak times. The E170/90 then the ATRs were an attempt to provide frequency which is what is needed for this market.

 

[The Flying Brick]

From my perspective, I hope Bain don't take VA mk2 too down-market. Many people don't like flying JQ unless they have no choice or are specifically budget conscious. The ethos should be to make VA mk2 an attractive alternative to both JQ and QF. The Club was absolutely unnecessary but The Lounge is absolutely essential. They really only need the lounges in the main airports (SYD, MEL, BNE, PER, ADL, CBR and maybe OOL). That's where the bulk of your corporate, elite-status passengers fly through. Without those lounges, they will pretty much all go over to QF.
As a WP myself, all I need or want from my status is access to the lounges in the main airports (they're already there), priority boarding (which is essentially a cost-free exercise and something they do well), and access to Economy X seats (if they remain, but I can see these going to add an extra row of seats). I don't need to be "fed" on a flight that is under 2.5 hours, as I'd either have already eaten in the lounge or will buy something onboard if I'm desperately hungry. This way, VA mk2 can earn ancillary income from onboard purchases, reduce the cost of providing a "meal/snack" on every flight, and still keep elite-status passengers happy because they'd already had access to the lounge. Win-win situation in my eyes.

Would rather walk, or swim than ever board a Deathstar plane ever again.

And QF red Tail aren’t all that much better either.

Keep up the Virgin friendliness and genuine service and the customers will reward Virgin well.

 

[jakeseven7]

Would rather walk, or swim than ever board a Deathstar plane ever again.

And QF red Tail aren’t all that much better either.

Keep up the Virgin friendliness and genuine service and the customers will reward Virgin well.

I often found the Virgin service to be quite forced ‘fake friendly’. I found out that they are mystery shopped on certain customer intervention points and it’s easy now to see what they are.

But service is such a subjective and personal thing, one thing someone likes, someone hates.

Not saying JQ or QF are perfect either by the way.

I certainly hope from Bains comments In the media about bringing back the old days of ‘Virgin fun’ that doesn’t mean the compulsory reading out of Jokes again though

 

[N860CR]

The media article I saw a day ago re that meantioned that the fleet might be 70-75 aircraft but specifically referred to how quite a number of aircraft would be in reserve for (quote) 'inevitable technical difficulties.' (Meaning failures).

No airline keeps that many operational spares. I would assume it means they’ll “relaunch” with 40-50 and as the market recovers return to 70-75 (ie the current 737 fleet). The aeroplanes are as good as worthless at the moment so there’s no additional loss in leaving them sitting around.

Will be interesting to see if/how they serve CBR. Flying a 737-800 with 176 seats SYD-CBR doesn’t really work aside from absolute peak times. The E170/90 then the ATRs were an attempt to provide frequency which is what is needed for this market.

There are the two 700s (last time I flew SYD-CBR it was on one of those). Not inconceivable to just run a 700 a few time a day to keep the route open and let Qantas take the frequency.

 

[Rob.au]

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.

Yep, I sold all my Virgin Australia shares in 2012, a few months after this structure was set up and to this day Computershare still records that I'm an (Australian) owner of beneficial interests in Virgin Australia International Holdings, the shares themselves owned by a trust company. It is/was essentially impossible for me to divest this interest other than by ceasing to be an Australian citizen, or dying.

VAIH is one of the VA group of companies under administration and it's as fun and messy as it ever was, but I don't think it necessarily has to be wound up at this time. The VAIH constitution has all sorts of provisions for this scenario, but I'm going to assume the practical upshot of it all is that I'm just going to continue to be a zombie Australian on the register for as long as is deemed necessary.