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 Well, Cyrus Capital Partners has withdrawn from the process due to a “lack of engagement,” claiming that Deloitte (the administrators) stopped returning phone calls and emails.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
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?