Virgin Australia: Virgin bosses get zoomed by final four bidders

The preliminary proposals were submitted nearly a fortnight ago, and the end of this week is the next deadline when the four shortlisted parties are expected to submit updated bids post discussions with existing Virgin Australia management..

Background

Virgin Australia has entered voluntary administration and has called for interested parties to put forward proposals for the purchase and ongoing management of the airline. The first step of the process, was for preliminary bids to be submitted by Friday 15 May. By Monday 18 May, Deloitte’s, the voluntary administrators had selected 4 preferred bidders:

• Bain Capital
• BGH Capital
• Cyrus Capital Partners
• Indigo Partners/Oaktree Capital Management

Next Steps

The bidders named above have had the opportunity to interrogate management via ZOOM calls on what they see as the most important issues associated with Virgin’s return to profitability. This interrogation follows Virgin Australia’s earlier management presentation.

The AFR is reporting that, unsurprisingly, questions centred around four topics:

• Industrial relations
• Current creditors and lessors
• Management business plan
• Post COVID-19 ramp-up schedule

Interestingly, staffing does not come up as a separate issue, although it is partly covered in the other points.

Binding bids

Deloitte’s are calling for what they have termed ‘binding bids’ by Friday 29 May. These are to contain a business plan, proposed capital structure and price. It’s expected that Deloitte’s will narrow the bidders down to 2 after these ‘binding bids’ have been received.

The final round will be the selection of a ‘preferred buyer’, to work up the final structure of the deal, and to put that to creditors. That step is expected to be complete by June 12. Deloitte’s want the sale complete by the end of June, as that is also the date that current funding for Virgin Australia operations will probably run out.

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.

Bain and BGH have been in the news and apparently making plenty of noise in Canberra over the last few days. Cyrus and Indigo seem to have adopted a lower profile so far.

The amount of noise the parties make is no sign of who is more serious or likely to win the prize. It only tells us how successfully they can make noise.

There are plenty of wheels that could still come off this voluntary administration process, so, we will all need to be patient and watch as the story unfolds.

For me, the big question is does Virgin Australia come back as a full-service competitor to Qantas or some kind of low-cost hybrid that competes with Qantas and Jetstar for only part of the market. That would be a big change from Virgin’s previous approach, where it was seeking a significant piece of the business and government markets that Qantas dominates.

Pandemic patience, please.