Virgin Australian "Trade Sale" - who would be best?

[Saab34]

United wouldn’t gain much. Delta has a stake in VS, but non comparable as they are chasing scale on the Atlantic market plus feed. Very different to the ambitions on the pacific route. They already get the feed.

Anyone would be paying ALOT of money for any so called synergies between two carriers. I don’t see any synergies that would be worth a few billion.

The legal experts might be able to fill us in on if QR could actually be blocked from taking it, if such a stake is able to be refused.

 

[ozstamps]

Remember VA owes Bain precisely zero at this point, as I recall.

WHATEVER they get is all gravy.

 

[TiredOldFlyer]

Does any of this include Velocity or as it seems to be the main money spinner will Bain hang on to it ?.
If Velocity is not included where is the real value of Virgin to any investor ?.

 

[RooFlyer]

Remember VA owes Bain precisely zero at this point, as I recall.

WHATEVER they get is all gravy.

i’ve lost track of how much equity Bain put in, and how much they’ve taken out since acquisition, but I suspect they still need a bit more to meet their investment criteria, especially since it’s dragging out a bit now

 

[ozstamps]

They were in front about a year back. i. e. they have more than their TOTAL investment back already. In real money in the bank.

All just gravy from now on.

 

[Saab34]

it’s more than just getting the ‘investment back’

They would have exit figures they want to hit. That’s the whole reason they are here.

 

[RooFlyer]

They were in front about a year back. i. e. they have more than their TOTAL investment back already. In real money in the bank.

All just gravy from now on.

Sorry, that's not how Private Equity works.

PE won't just want it's investment back. If you invest $1000, are you just after $1000 back at the end of the investment?

PE are far more rapatious than you and me. They might have a target at a 30% rate of return. If they can’t get it one way, then they'll figure out another way to get there. But they might have to be patient in this case.

 

[dajop]

Why do we have three threads now running that have all more or less devolved into discussion of the next moves by Bain by the same posters?

This thread and Jayne Hrdlicka to resign as CEO and What is Virgin Australia's strategy (post-administration)?

 

[ben95]

Would be very interesting to see the actual financials. I can only assume there are some very large losses and intercompany loans into VAIH.

Get a good law firm and corporate finance team and they'll be able to set this up for you in a jiffy.

You'd get some professional managers to be the director and set up the new company (for simplifity let's call it xx_ International Airlines Pty Ltd). The foreign investor then comes in, inject some captial (usually in the form of asset transfer (say a few 737 aircrafts and spare parts) but would not get controlling interest. Part of this capital injection agreement would be some sort of exit-clause, allowing the foreign investor to force the company to buyback the shares or return the assets when it wants to exit the investment. Very rarely the foreign investor would inject "cash" into the International Airline entity. If working capital is needed by the International Airline for its daily operation this will typically be injected in the form of a loan that the foriegn investor can recall at any time.

The company then enters into a series of service agreements with a service entity controlled by the foreign investor. In the context of an airline this typically includes marketing services, IT and Technology supports, engineering support etc. Basically whatever you need to run an airline you don't do yourself but contract the foreign owner's service entity to do it for you EXCEPT the pilots and crew which you'll typically contract yourselves to comply with regulations. These service agreements have very favourable financial terms for the foreign investor's entity, typically charging 10%~20% plus cost. This is the main way the foreign investor extracts profit from the "Australian controlled entity" xx_X International Airlines Pty Ltd.

Finally, there would typically be a "profit sharing agreement" on top to cover any residual profit in the Australian owned entity. The foreign investor's entity will be "rewarded" for its input in making xx_ International Airlines Pty Ltd a success and therefore is eligible for a share of the operations profit. This can be a fixed percentage (any remaining profit will be taken as the manager's rewards in rubber stamping things) or a flexible number that the International Airlines entity will allow the foreign investor's entity to decide.

 

[ben95]

I personally don't think we'll see SQ or NZ dabble in this space again.

On face value VA3 would be a good investment for these 2 airlines. It gives them a profitable domestic Australian operation but also have synergy into its home business, but given the bitter history I think you'd need the idea to come from someone on the very top end and will get a lot of scrutiny.

it'd be either the 2 US carriers if they want to focus on the Aus market

DL may want to buy a piece of VA to give itself a viable partner down under, but unless DL makes a move to force a play from UA I don't see why UA would be interested - it seems happy with the current arrangement. DL does have a track record of buying into strategic alliances (think MU/VS/AF/KL) but I don't see UA copying DL's playbook on this anywhere else.

Chinese carriers - however the Aus government may block such a deal pending how their appetite for having a Chinese majority owned airline flying domestically in Australia

I don't think any Chinese airlines are interested in overseas investment now given the domestic economy is tight and the direction is to improve efficiency and cashflow not burn more moeny. HNA got wiped out with VA2 and after the bankruptcy is a shell to its former glory. CA seems to be contemplating something closer to home (CX), and CZ is flirting with OW carriers (QF/AA/BA are all partners) and are rumored to join OW so doesn't seem like it will want to pick a fight with QF at this point, also being #1 in the Aus-China market already so its not like it needs some local feed from VA.
Relationships are not rosy as they were before but its on the up trend recently. If a Chinese (almost certainly state-owned) carrier were to make a move Aus government blocking it would risk reprucussion from the Chinese. Is a Chinese company owning an Australian airline flying domestically using American or European aircrafts that big of a risk to national security that its worth pissing off farmers and mining companies on their exports to China which arguably is also vital to the economy?

 

[HS-TQE]

On face value VA3 would be a good investment for these 2 airlines. It gives them a profitable domestic Australian operation but also have synergy into its home business, but given the bitter history I think you'd need the idea to come from someone on the very top end and will get a lot of scrutiny.

Their past history of investment in Australia would be called into question by analysts considering both their history at failed multiple investment attempts in Australian carriers over the past few decades.

Arguably a case of stick to running your own airline group well, which both are very good at without the 'distractions' of stakes in overseas carriers including Australian carriers. Although one of them does have the 25% stake in the merged Air India/Vistara (previously they had a larger stake in Vistara pre-Covid).

 

[ozstamps]

Sorry, that's not how Private Equity works.

PE won't just want it's investment back. If you invest $1000, are you just after $1000 back at the end of the investment?

PE are far more rapatious than you and me. They might have a target at a 30% rate of return. If they can’t get it one way, then they'll figure out another way to get there. But they might have to be patient in this case.

Of course they are ONLY about profit. We all realise that. They are rapacious Vikings with American accents. They have more than their initial outlay back in the bank as we know.

In a fire sale even now they'll be a ton ahead of a 30% return. But with key Union fights ahead, pay demands from all quarters, and a mega expensive for them, new fleet update to be looked at real soon, getting out before that mess makes good sense.

As I said earlier they IMHO missed the best time to jump ship and move onto the next Corporate Corpse - 2023.

 

[drron]

Of course they are ONLY about profit. We all realise that. They are rapacious Vikings with American accents. They have more than their initial outlay back in the bank as we know.

In a fire sale even now they'll be a ton ahead of a 30% return. But with key Union fights ahead, pay demands from all quarters, and a mega expensive for them, new fleet update to be looked at real soon, getting out before that mess makes good sense.

As I said earlier they IMHO missed the best time to jump ship and move onto the next Corporate Corpse - 2023.

You are getting ROI and IRR mixed up. IRR means the rate of the return per year. So in September if their IRR is 30% they need a ~ 286% return on their investment. They are no where near that. Even if they were to only require an IRR of 20% they still need a return of just over 200% on their investment. Doubt that they are near even that.