What is Virgin Australia's strategy (post-administration)?

[henrus]

Operationally things are rather messy…

Flew Gold Coast to Melbourne yesterday. Initially booked on VA752 a 7:55pm departure, about 48 hours before departure this was scrapped and I was moved automatically to VA756 the 9:25pm departure.

I called and asked for something earlier as I didn’t want to be arriving at basically midnight, over the phone I was offered VA742 the 2:55pm departure which I took. VA742 picked up an hour delay but eventually boarding was called in the lounge at Gate 12. I took my time but when I got to gate 12 it hadn’t started yet (but a massive queue), then about 2 minutes later an automated announcement that VA744 the 3:55pm departure had a gate change to gate 12, then without announcement VA742 changed to cancelled.

I high tailed it back to the lounge was the 2nd person at the desk but the person in front had a checked bag and the lounge couldn’t help anyone with a checked bag. Luckily I snagged the last J seat on VA744 which ended up departing at 5pm (so late anyway).

It’s a first for me to have had my flight called for boarding only to be cancelled minutes later.

 

[Saab34]

It looks like that the aircraft operating 742 was pushed to now operate 744 and the aircraft originally scheduled for 744 was kept on the ground at OOL to operate the first flight out the following morning as they had a late night arrival cancelled.

Sydney caused a mess yesterday.

 

[AIRwin]

first flight out the following morning

Looks like it was the second?

 

[Saab34]

Sorry overnighting aircraft I should say

 

[RooFlyer]

Some media reports are saying that Bain has now formally shelved all attempts to offload VA2 this year, due to lack of interest.

Will apparently go back to drawing board and try again in 2024 at earliest….

Cook up some nice new numbers! (And maybe try to fix some of the operational issues first?)

https://www.theaustralian.com.au/business/dataroom/virgin-australia-in-a-holding-pattern-as-bain-delays-float-plans/news-story/4c67c01468a8589e1189fc01a2b5b237?amp&nk=813b4424d8779e28496ea8cb5fc15d8c-1694210852

I suggest that's a bit of a naïve take on it.

The context of the story, which was overlooked, is that 2023 is turning into a bad year for IPOs and the like:

The only major company listing this year has been Redox, and while it is finally trading above its $2.55 per share issue price, it traded below that level for some time.

not to mention ...

Some think the final nail in the coffin for a listing this year was the share price of major rival Qantas.

Qantas shares have fallen from over $6.60 in July to $5.83.

Ooops.

As I've said before, if the business is turning enough coin, Bain won't be in a particular hurry to offload some of it. Why leave more on the table than you need to?

The concern from some is that the airline may have missed its window, with earnings soaring on the back of strong demand from passengers in the aftermath of the pandemic.

The 'numbers' to be 'cooked up' are forecasts. No-one cares about what has gone on historically, except as a pointer to future earnings. The forecasts are only likely to get worse, as the pent-up demand eases off, together with air fares and the base that the projections are made off, gets lower. I do hope they put a bit of money fixing up the things that need fixing, but I doubt that will change the forecasts a lot.

 

[RooFlyer]

PS Don't forget that in an IPO that I think is contemplated - a major investor, plus some local funds and smaller investors to make up the spread - then "getting it away" probably isn't too much of a drama, unless they are greedy (not unknown!). They may have an insto book-build, depending on how much the instos are offered, but the market would have to be a lot warmer than now, for a book-build.

What is probably just as important, or more important, is the aftermarket. If the market is rising, then that's not a problem, as the instos will bid to get the stock they missed out on and small investors might come along for the ride. Price supported and rising. If the market isn't rising, then there is no incentive for instos to buy in, although smaller investors might. Its the aftermarket that can make or kill an IPO, as a trend downward devalues the stock that Bain still hold, and that will kill their returns.

Here's the ASX200 for this year and Transurban



Auckland Airport and Qantas



So, anyone keen to float a transport company at the moment?

 

[Must...Fly!]

I think if they'd had their way, early this year was the time. But the company probably wasn't (and still isn't) in the best position to show it's potential to the market. I tend to agree that if they hunker down, fix the problems that still exist, a float in about 12-15 months time should be quite successful. If the dollar keeps crashing it will hurt them a bit but given they are very domestically focused I would argue it's actually quite advantageous relative to Qantas.

 

[Saab34]

As they are currently silent, which would indicate that clearly nothing is happening, the next window for another roadshow isn’t until late Feb, give or take 6-8 weeks for H1 accounts to be audited.

H1 seems littered with performance issues. Currently the worst performing carrier. I don’t think it would be wise using this half as a benchmark for business performance. Virgin has many issues at the moment, you can’t deny that.

The coming years have many roadblocks ahead. Inflation coming down. Virgin has many EBAs upcoming which might get ugly. New Fleet costs. Potential fuel headwinds. H1/2 FY26 would probably be the earliest I’d go, but depends how long Bain wants to wait. PE don’t like hanging around too long. One thing they will get dragging this on is some rolling earnings numbers. Would be very interesting to see how profitable it is.

 

[HS-TQE]

Also there is the upcoming CapEx spend to refurbish all existing cabins to the MAX-type and the 'denser' Y layout which is pretty much back at their VB-era LCC pitch, increasing the gap between J and the LCC-Y service (where VA's basic Y fare is just seat + carry on + free water/tea).

 

[MooTime]

Many experts that's for sure.

Bottom line. Billion dollar float.

 

[RooFlyer]

give or take 6-8 weeks for H1 accounts to be audited.

Accounts can be audited at any time, at the end of any period, if necessary. Float I took through had account pro-formas as at 31 May.

Also there is the upcoming CapEx spend to refurbish all existing cabins to the MAX-type and the 'denser' Y layout which is pretty much back at their VB-era LCC pitch, increasing the gap between J and the LCC-Y service (where VA's basic Y fare is just seat + carry on + free water/tea).

Assuming the capex spend is always going to happen, then it will be in the forecasts now, and whenever the float occurs.

 

[Must...Fly!]

Remember that most aircraft leases are, if I recall, denominated in USD..?

 

[SCM]

Doesn't VA own outright all aircraft they have left?

 

[HS-TQE]

Doesn't VA own outright all aircraft they have left?

Vast majority of aircraft with VA now are either leased or encumbered/mortgaged. The whole of the 737 'owned' fleet under VA 1.0 were encumbered (or "asset-stripped") by the previous owners of Singapore Airlines, Etihad, et Al.

As for VA 2.0, the Fokkers in WA/PER, VBY/VBZ (the 2 legacy 737-700s) and two very old -800s are the only un-encumbered aircraft in the VA 2.0 fleet. Bain wrote down the value of those oldest aircraft tp "Zero", iirc..

The Fokkers are being phased and are gradually replaced with ex-KLM -700s or mainline =800s.

 

[Saab34]

MAX are all leased. Going rate in the market is 350k usd /month.

 

[pauly7]

Some media reports are saying that Bain has now formally shelved all attempts to offload VA2 this year, due to lack of interest.

Operationally things are rather messy…

I think if they'd had their way, early this year was the time.

Now things have leaked into the public space a little more even if it is through No-News Corp banners () - some Sunday morning coffee reading

- The roadshow did not engage well with stakeholders overall and there will be some
Bain execs that will miss out on some juicy bonuses as a result in missing their target timeline. I’m sure no one here cares about them though!

- A couple of events occurred outside of Bains control during the process such as monetary policy settings drastically changed, inflationary pressures (and market response to), forex projections - all of which were probably at the nasty end of models plus a surprisingly high amount of competitive news; significant (relative) strategic investment by the two other major competitors in fleets/expansions/structure and even to a lesser extent the ‘pesky’ Bonza causing some consternation - no one likes an unpredictable mosquito…

- Meanwhile some events within Bain/Virgins control started to build up through the process that didn’t go unnoticed. Some analysts would unkindly say some band-aids started failing off operationally (or perhaps gaffer tape falling off would be more appropriate for an airline!)… some clearly ambitious utilisation rates started falling apart for multiple reasons with the net net result of relatively poor on time performance and high cancellation rates. Issues with unions, industrial action in some areas, staff morale and attrition, have also thrown some shadows. And as others have pointed out there are some big union wars projected in the near future as well.

- So net, probably the roadshow and data set was looking pretty reasonably robust at the start of the process and the forecasted sell period, I think the edges starting getting tattered and tired as they progressed and certainly by the time some key meetings overseas happened - it was leaked out by some analysts that they were dead in the water in terms of hitting their timeline and had paused, which is now pretty much accepted as the result from the years effort.

- My personal opinion - I suspect some groups that were engaged during the process may use some of these events and the fact Bain missed their window, opportunistically to drive down the price and up the conditionals on any investment. I wouldn’t be surprised if it’s offloaded next year but not where Bain first wanted it. I also think some key Bain/Virgin HQ team will be gone as a result of what’s happened / not happened this year and the protracted timeline - there have been public reports of this already happening.

So hopefully for us as end customers on AFF, they will focus on fixing up some of these operational issues that bug bears and we can all munch on popcorn and watch with interest what Bain do next!

Opinions are my own / all publicly discussed topics and information.

 

[anyonebutqantas]

Lease the Qatar A380 and launch daily services MEL-DOH and SYD-DOH with VA crew.

 

[MooTime]

Lease the Qatar A380 and launch daily services MEL-DOH and SYD-DOH with VA crew.

Wouldn't that be something!

QR aren't using all their A380's are they from what I've read.

 

[jakeseven7]

Now things have leaked into the public space a little more even if it is through No-News Corp banners () - some Sunday morning coffee reading

- The roadshow did not engage well with stakeholders overall and there will be some
Bain execs that will miss out on some juicy bonuses as a result in missing their target timeline. I’m sure no one here cares about them though!

- A couple of events occurred outside of Bains control during the process such as monetary policy settings drastically changed, inflationary pressures (and market response to), forex projections - all of which were probably at the nasty end of models plus a surprisingly high amount of competitive news; significant (relative) strategic investment by the two other major competitors in fleets/expansions/structure and even to a lesser extent the ‘pesky’ Bonza causing some consternation - no one likes an unpredictable mosquito…

- Meanwhile some events within Bain/Virgins control started to build up through the process that didn’t go unnoticed. Some analysts would unkindly say some band-aids started failing off operationally (or perhaps gaffer tape falling off would be more appropriate for an airline!)… some clearly ambitious utilisation rates started falling apart for multiple reasons with the net net result of relatively poor on time performance and high cancellation rates. Issues with unions, industrial action in some areas, staff morale and attrition, have also thrown some shadows. And as others have pointed out there are some big union wars projected in the near future as well.

- So net, probably the roadshow and data set was looking pretty reasonably robust at the start of the process and the forecasted sell period, I think the edges starting getting tattered and tired as they progressed and certainly by the time some key meetings overseas happened - it was leaked out by some analysts that they were dead in the water in terms of hitting their timeline and had paused, which is now pretty much accepted as the result from the years effort.

- My personal opinion - I suspect some groups that were engaged during the process may use some of these events and the fact Bain missed their window, opportunistically to drive down the price and up the conditionals on any investment. I wouldn’t be surprised if it’s offloaded next year but not where Bain first wanted it. I also think some key Bain/Virgin HQ team will be gone as a result of what’s happened / not happened this year and the protracted timeline - there have been public reports of this already happening.

So hopefully for us as end customers on AFF, they will focus on fixing up some of these operational issues that bug bears and we can all munch on popcorn and watch with interest what Bain do next!

Opinions are my own / all publicly discussed topics and information.

Thank you so much for sharing your insights (we know you have to tread a fine line given your position). An amazing summary. Between this and the great ATC thread it’s nice to see this kind of sharing!

Your post is quite funny too - I will always think of Bonza as an annoying mosquito now! But I can also see how even their small presence would complicate a sale process further.

Do you think the court cases had an impact on the sale timeline not going to plan? (Not the class action, the other ones?).

 

[RooFlyer]

we know you have to tread a fine line given your position). An amazing summary.

Ah ... so we have an insider posting here. Excellent, thanks.