Virgin Australia: Bidders, what we know one sleep before bids are in

Indicative bids are due at the Administrators (Deloitte’s) on Friday 15 May for the continuing operation of Virgin Australia.

The Administrators have previously said there are 20 interested parties circling, and it appears a slightly smaller number that has been inclined to sign the non-disclosure agreement that would get them into the data room. Some demured as the agreement required some pretty stiff conditions about what they could and couldn’t do with the information. And then there is the requirement for the breakdown of the bid documents:

Strawbridge sent a letter to potential buyers demanding they break their bids into 20 separate components including the amount of the airline’s $6.8 billion debt they will roll over, the level of employees being retained and the support from government.

Chanticleer, AFR, 12 May, 2020

It looks like those with the money – investors, are trying to team up with those with the knowledge of how to run an airline.

Queensland Government

Yesterday we heard Queensland’s new treasurer Cameron Dick (you’d change that name wouldn’t you?) announce that the Queensland Investment Corporation (QIC), a government entity was an interested party. Today we hear that the QIC might team up with Canadian investor Brookfield after apparently Macquarie walked away from a potential joint bid.

Frontrunners

This is all rumour and gossip, with no official statements, but media outlets including the AFR (Australian Financial Review) are reporting that the frontrunners include:

• Brookfield / QIC with ex Virgin Chief Financial Officer, Geoff Smith, and former Virgin executive Rob Sharp
• BGH Capital with legal firm Arnold Bloch Leibler
• Bain Capital with advisors KordaMentha and lawyers Hervert Smith Freehills and ex Jetstar Group boss Hayne Hrdlicka (I hear budget airline bells)
• InterGlobe Aviation – the owner of airline IndiGo – India’s budget and biggest passenger airline with Corrs Chambers Westgarth as lawyers, and Investec Australia
• Indigo Partners – an American aviation investor
• Oaktree Capital Management – who are distressed debt specialists, and also part-owned by Brookfield

There are a few others in the mix, although how much is talk, and what will develop into action will be revealed on Friday. Others who have experessed interest are:

• Lindsay Fox – of transport and Ansett bid fame
• Twiggy Forrest – of Fortescue Metals and Minderoo Group, and COVID-19 antibody test from China and Greg Hunt ambusher fame
• Macquarie Group – has been in the mix
• Platinum Equity
• Wesfarmers – cashed-up post the sale of Coles

That leaves a few still to be named.

What kind of airline will Virgin Australia be post administration?

Well the answer is, we don’t know.

A few of the parties named above are either in the budget airline business (IndiGo), or have teamed up with those experienced in running budget airlines (Bain Capital, Brookfield etc). So that tends to indicate the low-cost direction, possibly only domestic routes, representing a back to the future view – towards the airlines Virgin Blue roots.

On the other hand, the administrators have retained confidence in CEO Paul Scurrah and his management team who believe that Virgin Australia should retain its international routes, and can earn AU$1.5 billion by 2023 – and that includes the pandemic!

2PAXfly Takeout

This is another timely reminder to wear your seatbelt when seated. Holding you close to your seat will protect you from the sort of injuries sustained on this flight, when unsecured passengers flew to the ceiling of the aircraft, and then came crashing down once the ‘drop’ ceased.

The hope will be that this is an anomaly – a ‘freak accident’ in casual parlance. If it is a systemic error either mechanical or electronic, then this is a larger concern for the airlines that fly Boeing Dreamliner 787 aircraft. Let’s hope it isn’t. If it is, it will pile on the woes to Boeing’s existing stack.

There is no doubt in my mind that this ‘sale’ of Virgin Australia could still all end in tears, with no deal. Some investors are betting on that, with talk of Regional Express, better known as REX moving from regional to domestic operations to become Australia’s second airline, next to Qantas.

There is a lot of paper still to flow under the administrators before we know the result.

What we can bet on is that quite a few investment, banker and lawyer types will be burning the midnight oil tonight, and then some, prior to the bid deadline tomorrow.

One more sleep, and then we will know a lot more.