VIRGIN AUSTRALIA: ASX IPO is now on the cards, with Bain Capital asking advice on timing

Knock me down with a feather! Bain Capital is looking at relisting Virgin Australia on the Australian Stock Exchange now that it is on the verge of profitability.

History

Let me take you back to 2019, at the beginning of the pandemic, when Virgin Australia went into administration, looking for a loss-making financial arrangement with its shareholders and a quick sale to someone willing to restructure and invest in the company to restore it to a profitable airline. And that was Bain Capital, who already had a history of acquiring ailing airlines and flipping them with a large profit margin.

After some corporate argie-bargie, which saw the CEO Paul Scurrah be replaced by an ex-Bain employee who had sworn she wasn’t interested in the job – I’m talking current CEO Jayne Hrdlicka – the airline was sold to Bain Capital for about AU $3.5 billion, where it sacked a bunch of employees, got rid of a flock of planes it owned and leased, and re-started as a domestic carrier, with a few international, regional flights in its sights.

Virgin Australia now

The airline certainly has done well, acquiring about 30 % of the domestic market through the very difficult pandemic times, to emerge now as a serious contender in the Australian market dominated by Qantas. And it has managed to do that without suffering the PR disaster and public shaming that Qantas has suffered. However, in statistical terms, Virgin performed much worse when measuring success by cancelled or delayed flights and misplaced luggage performance markers. Although still not back to the frequency of domestic flights it had pre-COVID, the airline is doing pretty well. It dropped its marginal long-haul service and fleet to the USA but has redeveloped some of its short-haul international routes, at least those that can be reached with Boeing 737s that it inherited from the pre-administration Virgin Australia. The airline is set to start welcoming deliveries of the controversial Boing 737-MAX aircraft this year and through its international partnerships, has even returned to the USA.

ASX IPO

The relisting of Australia’s second-largest carrier is likely to be one of the largest IPOs (Initial Public Offering) for 2023 on the Australian Stock Exchange. Or as the Australian-based partner of the USA-based private equity firm Bain Capital says:

“In the coming months we will consider how to best position Virgin Australia for continued growth and long term prosperity.

It is Bain Capital’s current intention to retain a significant shareholding in a future IPO of Virgin Australia.”

Mike Murphy, Sydney-based partner at Bain Capital.

However, Bain has not stipulated how much it might retain, which is probably one of the pieces of advice it will seek from the investment bank it appoints to oversee the listing. It already appointed Reunion Capital as the financial advisor on the deal, including selecting the most appropriate investment bank.

Despite this appointment, Bain is remaining coy about when or even if it will return the company to the ASX.

2PAXfly Takeout

With an IPO, timing is everything, and with Virgin Australia’s major competitor Qantas predicting a return to profitability for the half-year, next month, sooner rather than later, is probably the right time.

Could Qantas try and de-rail the IPO with a fare and frequency war as it did with the previous incarnation of Virgin Australia, trying to prevent Virgin’s acquisition of a larger corporate and leisure share of the market, we shall see. Returning to underlying profit and share buy-backs means that Qantas’ pockets are deeper than they were during the height of the pandemic. Qantas can play dirty, but that dirty? I don’t think so.