Virgin Australia: Suitor surprise – Singapore Airlines!

With the first creditors meeting of the embattled Virgin Australia airline set for tomorrow, Thursday 30 April, speculation is rife that Singapore Airlines (SIA) is circling as a potential buyer.

Introduction

It’s not Singapore Airlines directly, but the Singaporean sovereign wealth fund Temasek which owns 56% of SIA. They are thought to be partnering up with Melbourne based BGH Capital, already reported as a Virgin Australia bidder. Singapore Airlines currently has a 20% stake in Virgin Australia and has oft been rumoured to be willing and able to buy more or most of Virgin. Although it is set to lose its capital stake in the airline, it may be able to buy the rest of Virgin Australia at close to a bargain-basement price, or at least less than the AU$7 billion dollar debt it is said to be owing.

Singapore Airlines and Virgin Australia

SIA has long been touted as a potential buyer of Virgin Airlines (VA). They are seen as natural allies, since SIA is part of the OneWorld rival, the Star Alliance, and VA is in an alliance membership free zone. Singapore Airlines has previously argued to have a domestic presence in Australia, and even a fifth freedom right to fly from Australia to the USA, (from memory) but has been rebuffed, a campaign that Qantas hasn’t been backward in stepping forward.

Buying Virgin Australia would give Singapore Airlines a direct link to domestic feeder routes in Australia, and the possibility of flying to the USA, which it used to see as a lucrative market, ripe for competition.

Other suitors

There are reportedly around 11 suitors for the remains of Virgin Australia. They include:

• BGH – with or without Temasek or Australian Super
• Indigo Partners
• Brookfield – a Canadian asset manager
• Wesfarmers – cashed up and ready to go with AU$1.1 billion burning a hole in its pocket after Coles sell-down
• Macquarie
• Bain Capital
• Apollo Global Management
• Oaktree Capital Management

A Temasek offer would be interesting, as it could be seen to leverage the AU$20 billion funding pagkage they have already provided for Singapore Airlines to see them through the Pandemic. Needless to say, Qantas will probably head straight to the Foreign Investment Review Board to try and nix such a deal.

Creditors Meeting

Set for Thursday 30 April, it should provide some more information on what is happening and the position some of the involved parties are taking. It will be interesting to see where the junk bondholders, shareholders, employee unions and whether the representative of the Federal Government has anything to offer.

Stand by for press releases and twitter feeds!

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 are lots of interested parties, and that’s just the creditors. Once you put the potential purchasers, a few lawyers and the government representative in the room, things could get interesting. Although the administrators have expressed their view that a deal will be struck short and sharply, negotiations of this magnitude don’t always run smooth, or end successfully. Remember Lindsay Fox and Ansett.

All the creditors have something, or in other cases, a lot to lose. That group includes bondholders, shareholders, the staff collectively, and aircraft lessors. They will all be firming their positions, and that may be shaped by whatever discussions they have had with potential suitors. What the administrators recommend if anything at this first meeting of creditors could be informative.

Not too much breath holding left to be done before the meeting now.