This Virgin Australia Bidder Wants To Slash The Airline’s Fleet

A firm local favorite in the Virgin Australia bidding process is BGH Capital. The Melbourne-based private equity group has been the last of the currently shortlisted bidders to have their plans for Virgin Australia made public. But overnight, their plans leaked out, and it looks like BGH wants to run a very slimmed down airline.

BGH Capital proposes relaunching Virgin Australia with as few as 15 aircraft. Photo: Getty Images

A report in Friday’s Australian Financial Review says that, should the BGH bid ultimately succeed, they’d initially re-boot the airline with a few as 15 Boeing 737s.

When Virgin Australia collapsed in April, it had a mixed fleet of about 130 aircraft, including 79 Boeing 737-800s. Around 30 of the 737s are leased.

Administrator keen to maintain the status quo

The airline’s administrator, Deloitte, and Virgin Australia’s management have been keen for the new owners to maintain much of the pre-existing capacity. The other three bidders, Bain Capital, Cyrus Capital, and Indigo Partners, have mostly gone along with this, although no-one expects Virgin Australia’s currently disparate fleet to remain as-is.

But BGH Capital is the only bidder proposing downsizing the airline to such an extent. According to the Financial Review, the other three bidders are talking about resuming services with around 40 aircraft.

BGH outlaid their plans to the Australian Council of Trade Unions (ACTU) earlier this week. A much smaller airline means a lot of job losses, and the trade unions are in the business of boosting jobs, so BGH’s proposal went down like a brick in Sydney Harbor.

BGH Capital would ultimately like to see up to 80 aircraft in the air. Photo: Bidgee via Wikimedia Commons.

The private equity group argues it is unreasonable to expect a re-booted Virgin Australia to resume services with a capacity similar to what was offered; COVID-19 and the collapse in demand have put paid to that. Ultimately, they’d like to have up to 80 Boeing 737’s flying, but that’s still a significant drop on the current (grounded) fleet size.

Bidders made pitches to trade union council earlier in the week

All the bidders made their pitches to the ACTU on Monday. Brookfield Asset Management, who walked away from the bidding process just before the last deadline for submissions, also gave a presentation. According to the Financial Review, the ACTU was underwhelmed by what the bidders had to say, but particularly so by BGH Capital’s plans.

The ACTU says some 16,000 people rely on Virgin Australia for work. In a statement seen by Simple Flying, the ACTU says it’s interests are to;

“… maximize the number of full time and permanent jobs across all aspects of existing Virgin Australia operations, inclusive of both current Virgin Australia employees and those employed by direct contractors.”

The Council also wants to see all employee entitlements protected and fully paid out. They’d like employees taken on by the new owners to have 100% of their accrued leaves and benefits carried over. Any retrenchment should entail the full payment of all accrued entitlements.

The ACTU is fighting hard to protect Virgin Australia’s employee’s interests. Photo: Bahnfrend via Wikimedia Commons

“Our number one priority throughout the administration procBidsess will continue to be protecting these workers and their jobs,” said ACTU President Michele O’Neil this week.

Has the local favorite cruelled its chances?

BGH Capital is a blue-chip Melbourne firm with a lot of local support. The key movers and shakers in the firm are well known and well regarded in Australian corporate circles. This, combined with their inside knowledge of local aviation conditions, has seen a lot of people tip BGH as the ultimate new owners of Virgin Australia.

But the shortlist will be further whittled down this weekend. Deloitte and Virgin Australia have had a very explicit narrative about where they want to see a re-booted Virgin Australia go. Of the four current bidders, BGH Capital has stepped outside that box the most.

Their thinking may well be grounded in commercial realities, but will it cruel their chances, local boys or not? By Monday, we should know.