The boss of Virgin Australia and its receivers, Deloitte, set a positive tone on Tuesday as they fronted the media following the airline going into voluntary administration. With several potential buyers circling, there’s optimism the airline could be sold within weeks rather than months.
No choice but to call in the administrators
Virgin’s boss, Paul Scurrah, said the airline had no choice but to call in administrators after multiple meetings and proposals for funding from the Australian Government failed. Virgin Australia’s board made the decision on Monday afternoon. Numerous media outlets, including Simple Flying, flagged that decision before the formal announcement on Tuesday morning.
But both Virgin and Deloitte were upbeat when they faced the cameras on Tuesday.
“There has been an extraordinary amount of interest in the business and the restructuring of Virgin Australia. We are confident that this will result in a restructuring being achieved in a short period of time,” said Vaughan Strawbridge from Deloitte on Tuesday.Vaughan Strawbridge from Deloitte is the man restructuring Virgin Australia. Photo: Deloitte.
While Mr Strawbridge would not disclose details of potential buyers, he said a broad cross-section of parties were interested in Virgin Australia. This includes international parties. Up to 20 individual companies and consortiums are supposed to be interested in Virgin Australia. Mr Strawbridge simply said the “interested parties” numbered more than ten. He suggested there would be more information when a shortlist was drawn up.
“There are a number of very sophisticated parties who have got the capability to be part of the restructuring of the company. We plan to run that process very hard.”
Voluntary administration allows for a corporate restructuring that should make Virgin Australia a more attractive proposition for buyers. The key to that restructuring process is ridding the airline of its crippling USD$3.5 billion debt.
At least 10 potential buyers are looking at Virgin Australia
If Mr Strawbridge is playing coy about naming potential buyers, he did propose a time frame of three weeks for lodging formal expressions of interest. Some of those ten plus interested parties we’ve mentioned in Simple Flying’s recent reports about Virgin Australia. They include high profile private equity firms out of the United States, such as Oaktree and Bain Capital.
There is a persistent rumor that one such private equity firm has teamed up with a foreign airline to make a play for Virgin Australia. On Tuesday, Etihad was being rumored as that foreign airline. Thus far, it’s just that – a rumor.
A low-cost airline group, the Arizona-based Indigo Partners, is also said to be considering an offer. When asked about this on ABC’s Radio National on Wednesday morning, Mr Strawbridge said:
“We have to be very careful around the identity of the parties … it’s a wide group and does include all interest groups, they’re in there.”
A local private equity firm is considered a front runner. BGH Capital is a newish local firm set up by well-known local bankers and business people with established track records
Local firms could have the inside running
Other Australian names that are reportedly interested include Lindsay Fox, a Melbourne based trucking billionaire who owns Avalon Airport outside Melbourne. Two big Australian businesses also interested are Wesfarmers and Macquarie Group.
Wesfarmers is a Perth based conglomerate with a valuation of around USD$41.5 billion. It has broad interests in retail, mining, chemicals, industrial and safety products. Macquarie is Australia’s largest multinational investment bank, with USD$312 billion in assets under management globally. In addition to probably owning the toll road near you, Macquarie has extensive experience in running airports and other transport infrastructure.
Both have the financial muscle to step up and operate a restructured Virgin Australia. It would also help that both are well known and well regarded in Australia.
Reports Chinese Government-backed carriers were circling have been quashed. While Australia usually welcomes foreign investment, multiple sources are citing national security concerns as a reason for vetoing any such deal.
What about Richard?
Richard Branson’s Virgin Group stands to lose much of its investment in Virgin Australia in the restructure. Virgin Group owned 10% of Virgin Australia. Despite taking a financial hammering this year, Mr. Branson appears keen to maintain an interest in Virgin Australia. In his comments on Tuesday, Mr Branson seemed eager to remain a part of Virgin Australia in its post voluntary administration life. Whether that comes to fruition is up in the air.
The takeout from all this interest is that both Virgin Australia and Deloitte are confident about the future of the airline. That future airline might look and be different from the previous incarnation of Virgin Australia, but right now, the mood is upbeat.
And how does the Virgin CEO feel this morning?
“I’m feeling fine,” he told the ABC.