In April Virgin Australia entered voluntary administration, after the carrier’s request for government aid was denied.
At the beginning of the month potential buyers for Virgin Australia were narrowed down to Bain Capital and Cyrus Capital Partners. Well, Cyrus Capital Partners has withdrawn from the process due to a “lack of engagement,” claiming that Deloitte (the administrators) stopped returning phone calls and emails. This leaves Bain Capital as Virgin Australia’s prospective buyer.
In this post:
Bain Capital to take over Virgin Australia
Deloitte has entered into a sale and implementation deed with US private equity firm Bain Capital to sell and recapitalize Virgin Australia. The parties are now working closely together on their vision for the business moving forward.
At this point no return is expected for shareholders, and it’s not yet known how much of a return creditors will get. Soon there’s going to be a key meeting with creditors, who are owed billions of dollars and may want to see that debt converted into equity.
Bain Capital says it’s committed to preserving as many jobs as possible, honoring previous tickets, and to see Australians have access to competitive, viable aviation services for the long term.
As Virgin Australia CEO, Paul Scurrah, describes the development:
“This is a great day for Virgin Australia and a huge milestone as we move forward with Bain Capital.
Bain Capital has spent many hours over the past weeks speaking to us and getting a deep understanding of our business and working to secure a deal with our administrators. We know they are committed to investing in the airline and we are thrilled to be working with them into the future.
It was always the goal to bring our airline out of administration as quickly as possible in a stronger financial position and this announcement brings us a step closer to that. Bain’s investment will cement our future as a major Australian carrier, secure thousands of direct and indirect jobs, and ensure we can continue to bring competition to millions of customers for many years to come.”
Virgin Australia 737 business class
What will Virgin Australia look like with Bain?
Bain Capital’s vision is for the new Virgin Australia to be more of a mid-market airline that focuses on its core strengths, with a smaller and simpler fleet. That means the carrier’s primary focus will be on domestic flying, with international flying possibly being limited to New Zealand and other nearby South Pacific islands.
While no final decision has been made, we could see Virgin Australia discontinue long haul flights as a result of this, at least over the coming years. Bain Capital isn’t completely opposed to Virgin Australia offering long haul service down the road, but that doesn’t seem like a priority.
In a way the intent almost seems to be for the airline to come full circle. When the airline first launched in 2000 it was known as Virgin Blue, and was a low cost carrier primarily serving domestic routes. Then it was rebranded as Virgin Australia, the airline became more premium, and long haul service became a priority.
To me the vision for the new Virgin Australia sounds more like Virgin Blue than Virgin Australia, though perhaps not as low cost.
It’s worth noting that this would be a huge blow for Delta. Delta and Virgin Australia have a transpacific joint venture, and that becomes significantly less useful without Virgin Australia operating any transpacific flights.
Virgin Australia may discontinue long haul flights
Bottom line
With Cyrus Capital Partners withdrawing interest, Bain Capital is left as the only potential buyer of Virgin Australia. On the one hand, I’m happy that Virgin Australia has a path forward. On the other hand, I’m kind of sad that Bain Capital is the winner here, given the company’s vision for Virgin Australia.
I get that might just make the most financial sense, but it’ll be sad if Australia goes down to having just one long haul full service airline.
Regardless, this ownership structure seems significantly simpler than Virgin Australia’s current mess, as Etihad Airways, HNA Group, and Singapore Airlines, all own about 20% of the airline.
What do you make of Bain Capital’s potential takeover of Virgin Australia?
If Bain are the saviours Virgin may as well just shut its doors now and save everyone the inevitable future pain. Bain will strip and restructure, offer a cut of the action to one of the fake "ratings agencies" to write a false report on the glories of the new structure, then publish a fake prospectus and give a risk-free cut to the usual "experts" in return for misdirecting their clients to "invest" in the...
If Bain are the saviours Virgin may as well just shut its doors now and save everyone the inevitable future pain. Bain will strip and restructure, offer a cut of the action to one of the fake "ratings agencies" to write a false report on the glories of the new structure, then publish a fake prospectus and give a risk-free cut to the usual "experts" in return for misdirecting their clients to "invest" in the doomed entity. The suckers will be left holding the bag. This is what they do. They are not interested in running an airline, just stealing what they can from the wreck they bought for cents on the dollar. What would be interesting is to know how the political parties which will sign this off get their cut of the action.
Bain may be notorious as a corporate raider, but Virgin Australia is already saturated with debt. The only upside to the acquisition is that the market space is valuable, and that the brand has strong positioning. VA has been mismanaged for years--the fleet was a mess, and John Borghetti focused on all the wrong things. He loved the big picture; that's not a bad thing, except that he paired it with a deep-seated need to...
Bain may be notorious as a corporate raider, but Virgin Australia is already saturated with debt. The only upside to the acquisition is that the market space is valuable, and that the brand has strong positioning. VA has been mismanaged for years--the fleet was a mess, and John Borghetti focused on all the wrong things. He loved the big picture; that's not a bad thing, except that he paired it with a deep-seated need to give Qantas a black eye. Instead of thinking about delivering the product, and delivering it well, he tried to do everything Qantas did. More than a "new world carrier," it became a "we can do that too" carrier. That wasn't healthy; it overextended company resources, and the time devoted thereto was time that could have been spent playing the dealt hand better. Sometimes the things that matter to a carrier aren't such big-ticket items--they're things like service standards, customer support, seamless airline partnerships, robust IT, solid revenue management, and an intelligently planned ancillary revenue system. None of these things were priorities under Borghetti. Keeping Paul Scurrah at the helm is a big vote of confidence for the idea that Virgin can work smarter, not harder, toward expansion. The prognostication about "hybrid" carriers draws primarily from the US market, where the industry is very different. What we're going to see is not a huge shift in Virgin's strategy, it's going to involve better segmentation of customers, simplifying the business structure, and investing in a more nimble future.
@Ray, @Ben L and @Larry B,
Count me in as fourth! Ban Capital is infamous for its acquisitions. It sucks everything out and shuts down companies later.
@Kalboz
No! The US Senator from Utah is one of the founders.
"As of 2018, the firm managed more than $105 billion of investor capital."
@Ben L and @Larry B
Exactly. I was a victim of a Bain Capital acquisition.
Bain have confirmed thru the AFR that the fleet will focus on the 737s & domestic will be the core focus, but over time short haul international will come back first & then long-haul using their own 777s. Of course all subject to the Aussie borders re-opening.
Bain have also confirmed over time they will replace the 777s with 787s.
@Jeff - Pretty much what I was thinking. Delta can now break out more of their planes from storage to fly to Oz. Once there, presumably Virgin will be happy to continue the history of code sharing. After all, having a US code share partner adds value rather than removing value.
You can hardly call virgin australia a long haul airline.. Flights to LAX and DPN dont constitute the term "long haul airline"
I wonder if Delta will add in some of the long haul routes they end up dropping.
It remains to be seen what this means for Delta, or indeed which if any international partnerships Virgin will have. It could decide to maintain those partnerships or at least some of them, and provide only the domestic connections for Delta, Etihad and the like rather than also offer long haul in Virgin's own metal.
@Ben L
"Bain is a vulture capital firm that strips value from the businesses they hold until they’re loaded with debt and can be cast off. VA is a dead airline walking."
You're so right. Sell off EVERYTHING that can be sold in the short term, saddle with insurmountable debt, then walk away. (After Bain has generously paid themselves and their inserted execs, paid themselves any manner of fees and royalties for who knows...
@Ben L
"Bain is a vulture capital firm that strips value from the businesses they hold until they’re loaded with debt and can be cast off. VA is a dead airline walking."
You're so right. Sell off EVERYTHING that can be sold in the short term, saddle with insurmountable debt, then walk away. (After Bain has generously paid themselves and their inserted execs, paid themselves any manner of fees and royalties for who knows what.) Vulture capitalism at it's finest.
They should have done what every other airline is doing - tapping available credit, negotiating with their banks and local national government for assistance.
Too bad I'll never have flown Virgin Australia.
Isn't Bain Capital owned by Mitt Romney, a US Senator who's personal net worth estimated at around $250 million?
Wouldn’t DL still have access to VA’s domestic routes that would feed people to the SYD-LAX flight? Seems like it’s not a total loss for DL.
The net result is that Delta Airlines gets kicked in the teeth. That is good news.
Ben, I’m sure you’re happy that you choose to take VA business home from Sydney back in May of 2017. Using VX points from the old Virgin America program nonetheless! It was a product I always wanted to try but never did. At least you were able to see it when it existed.
Virgin is VERY fortunate. Many airlines around the world are taking out loans on top of old loans to survive. Virgin Australia here is starting again with a clear slate & virtually debt free.
The past 4 international owners only cared about having feed onto their international traffic & couldn't careless about profit. Now I think Virgin is in a very strong position moving forward. I'm sure over time Singapore Airlines will squeeze their...
Virgin is VERY fortunate. Many airlines around the world are taking out loans on top of old loans to survive. Virgin Australia here is starting again with a clear slate & virtually debt free.
The past 4 international owners only cared about having feed onto their international traffic & couldn't careless about profit. Now I think Virgin is in a very strong position moving forward. I'm sure over time Singapore Airlines will squeeze their way in, as they (Temasek) were trying to do the late push thru the bond holdings. Sadly the Aussie government too has said our international borders won't reopen until the earliest July 2021 or when a vaccine is around. Thankful we have a very strong domestic market so both QF & VA can re-charge & start again... VA will fly again international with 787 as per the original boards plan within time.
"Yawn, old news, at least V Australia survives."
For a few years, maybe. Bain is a vulture capital firm that strips value from the businesses they hold until they're loaded with debt and can be cast off. VA is a dead airline walking.
Will they stop using the Virgin brand and paying its associated royalties?
Yawn, old news, at least V Australia survives.