Virgin Australia administration – Deloitte updates creditors

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More than three weeks have passed since Bain Capital was selected as the preferred bidder for Virgin Australia. In that time, we have heard, well, little.

That was until Deloitte prepared an update sent to creditors. While it did not say much about what the business will look like, it did contain some interesting statistics.

Who is owed money

Category Owed Approx
Secured lenders and aircraft financiers $2,284 million
Unsecured bondholders $1,988 million
Trade creditors $167 million
Aircraft lessors $1,884 million
Landlords $71 million
Employees $451 million
Customers entitled to credits for flights which were cancelled due to the pandemic $604 million

 

Timeline from here

Deloitte provided an updated timeline as follows

  • 12 August 2020:  Bain Capital expected to deliver a Deed of Company Arrangement (DOCA) proposal;
  • 19 August 2020:  Report to Creditors together with notice of second creditors meeting; and
  • 26 August 2020: expected date of the second creditors meeting.

 

26 June 2020

The big news on Friday was confirmation Bain Capital had been selected as preferred bidder. This followed an eventful day, which kicked off with Cyrus withdrawing from the process.

So, now Bain has signed a Sale and Implementation with the administrators. From this point, there will be some continued negotiation prior to the creditors voting on the sale in August. While it is by no means a certainty, it is the likely path. Let’s take a look at what this means for Virgin Australia.

Firstly, let’s start off by saying that we don’t really have the full details of what Virgin will look like going forward. Having said that, Bain has made some statements around the future. They have also signalled some ideas, and we will now take a look at some of what to expect.

The airline will be smaller

It would come as no surprise that the airline will, at least to start with, be smaller. This will see fewer aircraft in the air. It also means that not all employees will remain with the airline. At this point, we do not know how deep these cuts will be.

Current Travel Credits Honoured

If you have a travel credit with Virgin, you may be able to rest a bit easier. Bain has committed to honouring all existing travel credits.

Velocity

First some good news. Bain is promising that all Velocity Points will be honoured.

Further to that, Bain is promising significant investment in the Velocity Frequent Flyer program. In particular, it is looking at a closer integration of Velocity with Virgin Australia. The vision is that we will eventually see a single website and app. This would be a definite improvement over the current situation.

Having said that, it is a little unclear exactly what changes may occur. We can expect some, and there will likely be some changes flow across to Velocity. However, Velocity is clearly seen as an important part of the Virgin story.

Over the next few weeks, we should get further information on these aspects.

22 June 2020

On Monday, Deloitte confirmed that it had received the final binding offers from both Bain Capital and Cyrus Capital Partners. From this point, the bids will be assessed with the final aim of selecting a preferred bidder.

While the details of the bids have not been disclosed, it was noted that both bids had been approved by the Foreign Investment Review Board.

“On the basis of their public statements, both bidders are committed to seeing a strong, competitive and sustainable Virgin Australia operating into the future, employing many thousands of Australians, and supporting the tourism industry and state and national economies,” Deloitte said in a statement.

Having said that, it has been widely reported that the two bidders are looking at a smaller, more focussed operation. For a start, this will focus on their domestic operations, with some short-haul international operations in the mix.

02 June 2020

Deloitte has announced that Bain Capital and Cyrus Capital Partners are the shortlisted bidders in the race to take  Virgin Australia.

Over the next two weeks, the bidders will need to sharpen the pencils, with final and binding bids expected to exceed $3.5 billion. During that time, they will work with Deloitte and stakeholders to finalise their bids.

In a statement to the ASX, Deloitte says

Both Bain Capital and Cyrus Capital Partners are well-funded, have deep aviation experience, and they see real value in the business and its future,

“We will now spend the coming weeks facilitating in-depth bidder engagement with the stakeholders of the business and work closely with both preferred bidders in the lead up to binding final offers being received. It is still the intention to have a binding agreement in place by 30 June, which remains unchanged.

As Deloitte has noted, the selection does not preclude others from still being involved. They would need to do so through one of the two shortlisted players. On that matter, there is speculation in the media that Richard Branson has spoken with all parties.

Media reports have suggested different futures for Virgin Australia, depending on which bidder ultimately wins. It is believed Bain is proposing a more mid-mark position. That is stepping toward the ‘new-age carrier’ style of Virgin Blue.

On the other hand, Cyrus is reported to be looking more toward retaining its full-service positioning.

24 May 2020

It’s a Sunday, and probably a day you wouldn’t expect much to be happening. But you’d be wrong.

The administrators may have been hesitant to reveal who was on the shortlist, but now Bain Capital have outed themselves. And they are planning to submit a bid in the second round in an effort to gain control of Virgin Australia.

Binding Bids are due by June 12, and Bain Capital is positioning itself as the ‘strongest’ suitor to turnaround the airline. While they do not reveal much about the business model they will use, they do want to bring back some of the ‘fun’ elements of Virgin Blue.

There are some interesting days ahead of us!

18 May 2020

The first ‘indicative’ bids for Virgin Australia were due last Friday. Over the weekend, Deloitte whittled the bids down to a shortlist of 4. While they have not publically disclosed the shortlisted bidders, the media has generally reported the following:

  • BGH Capital (Private Equity Group)
  • Bain Capital
  • Indigo Partners (US Based Airline Investor)
  • Cyrus Capital Partners

The next deadline is June 12, when the shortlisted bidders are expected to submit their final bids for Virgin Australia.

Between now and June 12, the bidders will get to undertake further due diligence on the company, and refine their ideas of what a new version of Virgin may look like. And importantly, put together a proposal.

Whether all four of them make it to the end line remains to be seen. For those of us looking on as customers (and Velocity members), hopefully we will get a better picture of what is on the table late in June.

30 April 2020

Deloitte held the first creditor meeting on 30 April 2020. The meeting formalised the appointment of Deloitte as the administrator,

Perhaps of more interest to many were statements around the level of interest in the process. At the meeting, Deloittes confirmed that there were 20 parties that had expressed an interest in acquiring the business. This was made up of 8 parties that had signed a non-disclosure agreement and had access to the books of the company. Discussions were still proceeding with the other 12.

Who is in the (data) room?

We don’t officially know who is kicking tyres in this process. Having said that, there have been a number of media reports offering the following parties.

Of course, some of these may be more serious than others. In addition, some may be looking at the company as a matter of course. It is always possible that the final result may be some combination of the above. Or it may be someone else altogether.

21 April 2020

After days of speculation, Virgin Australia placed itself into voluntary administration. The ASX announcement is here.

As a company, Virgin Australia carried a lot of debt. Between the creditors, the total debt is over $5 Billion. Obviously a lot and the management team at Virgin has been addressing the issue.

Unfortunately, the world was hit head-on by Covid-19 before the turnaround was complete. As a result of government actions in containing the outbreak, the travel industry has been hit, and hit hard.

Airlines were not immune to this, and as borders closed, the demand for the services dried up. As reported elsewhere, Virgin was down to just one flight a day at one point.

While Virgin Australia tried to find funds to survive, this was not to be. The Australian government declined to provide a loan. In addition, the main shareholders, each having their own issues through the pandemic, were in no real position to help out.

Given all that, the board opted for Voluntary Administration. The stated purpose of the administration is to “recapitalise the business and help ensure it emerges in a stronger financial position on the other side of the COVID-19 crisis”.

Thoughts

While a difficult situation, this may be the best path for Virgin. There may be some pain, but it should be able to find itself a new owner, and a new structure. Free of its onerous debt, and complicated ownership, it should be able to be a solid airline.

Hopefully, it will be not too dissimilar to the airline today. Maybe smaller, but I hope it doesn’t go downmarket but remains as a viable option to Qantas.

Anyway, time will tell, and over the coming few months, I will update this post with further information as the process progresses.

 

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About Author

Mark is the founder of FlyStayPoints, and caught the travel bug early in life. He discovered the benefits of travel loyalty programs in 2001, and is always learning how they can make travel better. While work takes him between Perth and Melbourne, he is always plotting his next adventure.