State Of Queensland Enters Race To Rescue Virgin Australia

Announced this morning, the Queensland government is confirmed to be in the running to bid for ailing airline Virgin Australia. The number two Aussie airline sank into voluntary administration last month, with nearly AU$7bn ($4.5bn) in debt burden. Since then, several potential bidders have emerged, but with a deadline of Friday to formally submit their offers, will they all follow through?

Virgin Australia
The State of Queensland has declared its intentions to bid for Virgin Australia. Photo: Getty Images

Queensland to enter the race

It was his first act as the new Treasurer for Queensland, Cameron Dick has made quite a splash. As reported in today’s Sydney Morning Herald (SMH), Dick has appointed an investment company to manage Queensland’s bid for struggling Virgin Australia. The exact detail of the proposal is not yet known, although SMH reports that it could be in the form of an equity stake, loan, or some other financial instrument.

Mr Dick is quoted as saying,

“This is a competitive space, but Queensland is a serious contender and our discussions with the administrators have been making progress. We have been very clear. Two sustainable national airlines are critical to Australia’s economy.

“We have an opportunity to retain not only head office and crew staff in Queensland, but also to grow jobs in the repairs, maintenance and overhaul sector and support both direct and indirect jobs in our tourism sector.

“We saw the punishing increase to the cost of flights after the Ansett collapse, and this government will not stand by and let that happen again.”

The loss of the airline would give Qantas a monopoly on international routes. Photo: Getty Images

With no other major carrier in Australia aside from Qantas, a monopoly could indeed be devastating to the nation’s connectivity. Even Qantas itself has said it doesn’t want to be the only airline in that space, so a revival of Virgin Australia is desperately needed.

Queensland Investment Corporation will manage the bid

The SMH notes that it is state-owned Queensland Investment Corporation that has been roped in to manage Queensland’s bid. Led by Damien Frawley, the company will lead on submitting a formal indication of interest by the deadline this Friday, May 15th, as well as putting together the final package by June, which is the target date to wrap up the sale.

My Frawley told the SMH that his company felt well placed to manage the state’s interest. He further said,

“Virgin administrator Deloitte has set an ambitious time frame and we look forward to delivering on this mandate for the Queensland government.”

Virgin provides employment for over 6,000 people in Queensland. Photo: Virgin Australia

For Queensland, Virgin Australia is a highly valued company. Not only does it employ 1,200 workers at its headquarters in Brisbane, but it also supports the livelihoods of a further 5,000 workers across the state.

Queensland had previously offered Virgin a bailout of AU$200m ($130m), on the condition that it kept its HQ in Bowen Hills. At the time, Dick was worried about a competing offer from New South Wales that could see the airline moved to Sydney. At the time, he told the Brisbane Times,

“Back right off. Just don’t go there. If the world knows one thing, it knows this: there is nothing more dangerous than Queenslanders with their backs to the wall.

“New South Wales might want to bring a pea-shooter to the fight, we will bring a bazooka and we’re not afraid to use it.”

Friday will see Deloitte, Virgin’s appointed administrator, taking “non-binding indicative offers” from all interested parties. With Queensland throwing its hat in the ring, its set to be an interesting showdown. However, the state is not alone in the race to revive the airline.

Virgin Australia
As many as 20 parties could be in the race to rescue Virgin Australia. Photo: Getty Images

The other bidders

According to Executive Traveler, there were up to 20 interested parties scoping out the sale. Vaughan Strawbridge, the administrator managing the sale, noted that it was likely to be a very competitive process, saying there were “high-quality bidders with fantastic credentials and the ability to restructure this business.”

Some of the suitors expected to enter their interest this Friday include a private equity firm from Melbourne – BGH Capital, Perth based Westfarmers, Australian investment firm Macquarie Group and a mining magnate from WA – Andrew “Twiggy” Forrest.

But it’s not just Aussies that want to see the airline revived. Also thought to be in with a shot are Singaporean wealth fund Temasek and, perhaps most interestingly, US-based Indigo Partners, owners of several budget airlines including European low-cost champion Wizz Air.

The administrators remain confident that achieving a sale by the end of June is a realistic prospect. With the state of Queensland now in the race too, it will be an interesting six weeks for Virgin Australia and Australian aviation in general.