In April Virgin Australia entered the voluntary administration after the operator’s request for government aid was rejected.
Earlier this month, potential Virgin Australia buyers were narrowed to Bain Capital and Cyrus Capital Partners. Well, Cyrus Capital Partners withdrew from the process due to a “lack of commitment,” alleging that Deloitte (the administrators) stopped returning phone calls and emails. This leaves Bain Capital as the potential buyer for Virgin Australia.
Bain Capital will take over Virgin Australia
Deloitte has entered into a deed of sale and implementation with US private equity firm Bain Capital to sell and recapitalize Virgin Australia. The parties are now working closely together on their vision to move the business forward.
At this point, no return is expected for shareholders, and it is not yet known how much creditors will get. There will soon be a key meeting with creditors, who are owed billions of dollars and may want that debt to be converted into equity.
Bain Capital says it is committed to preserving as many jobs as possible, honoring past tickets, and seeing Australians gain access to competitive and viable long-term aviation services.
As Virgin Australia CEO Paul Scurrah describes the development:
“This is a great day for Virgin Australia and a great milestone as we move forward with Bain Capital.
Bain Capital has spent many hours over the past few weeks talking to us and deeply understanding our business and working to secure a deal with our managers. We know that they are committed to investing in the airline and we are delighted to work with them in the future.
It has always been the goal to get our airline out of management as quickly as possible in a stronger financial position and this announcement takes us one step further. Bain’s investment will cement our future as a major Australian airline, secure thousands of direct and indirect jobs, and ensure that we can continue to provide competition to millions of customers for years to come. ”
Virgin Australia 737 business class
What will Virgin Australia be 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 flight, with international flight possibly limited to New Zealand and other nearby islands in the South Pacific.
While no final decision has been made, we could see Virgin Australia discontinuing long-haul flights as a result of this, at least for years to come. Bain Capital is not completely opposed to Virgin Australia offering long distance service in the future, but that does not appear to be a priority.
In a way, the intention almost seems to be for the airline to complete the circle. When the airline first launched in 2000, it was known as Virgin Blue, and it was a low-cost airline that primarily served domestic routes. It was later renamed Virgin Australia, the airline became more premium, and long-distance service became a priority.
To me, the vision of the new Virgin Australia sounds more like Virgin Blue than Virgin Australia, although it may not be as cheap.
It is worth noting that this would be a major blow to 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 remains the sole potential buyer for Virgin Australia. For one thing, I am happy that Virgin Australia has a way forward. On the other hand, I’m a little sad that Bain Capital is the winner here, given the company’s vision for Virgin Australia.
I understand that that might make the most financial sense, but it will be sad if Australia boils down to having just one full-service long-distance airline.
Regardless, this ownership structure seems significantly simpler than Virgin Australia’s current clutter, as Etihad Airways, HNA Group and Singapore Airlines own approximately 20% of the airline.
What do you think of the potential acquisition of Virgin Australia by Bain Capital?
