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TWU rebuffs Virgin ‘bondholder bid’, Queensland shows hand

written by Adam Thorn | June 22, 2020
Virgin Australia Boeing 737-800 at Brisbane's
Virgin Australia Boeing 737-800 at Brisbane’s International Terminal Building (Source: Chris Frame)

The TWU and Virgin’s administrator have both rebuffed an apparent intervention by bondholders to enter the bidding war for the airline at the 11th hour.

The union’s national secretary, Michael Kaine, called the move “unsettling”, while a statement released by Deloitte hours after the final deadline passed pointedly made no mention of a third bid.

Meanwhile, in a new twist, The Australian Financial Review has reported that the state of Queensland has tied up a deal with both remaining bidders, Bain and Cyrus Capital Partners, to keep the business in Brisbane in exchange for $200 million in benefits.

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The dramatic afternoon of revelations came after the ‘final’ third deadline for bids expired at 10am on Monday, ahead of a decision expected by 30 June.

Administrator Vaughan Strawbridge released a statement hours after the final deadline passed that made no mention of a much-rumoured intervention by Virgin Australia’s bondholders.

It came after a separate report in The Australian Financial Review suggested the group had been “secretly working for weeks” on a plan to launch their own bid, which is being headed by restructuring experts Faraday Associates and Corrs Chambers Westgarth.

Overall, there are 6,000 retail investors who have money tied in Virgin’s bonds, and $2.1 billion of the business’ $7.1 billion of debt is allocated to bondholders.

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Instead, Strawbridge paid tribute to both bidders, whom he said had put in “an enormous amount of work to get here today, are well-funded and are enthusiastic supporters”.

Shortly after, the TWU broke cover to announce the bondholders involvement was “unsettling”, blaming the government for its refusal to get involved.

The TWU has previously not taken sides in the bidding process, so the comments will be viewed as hugely significant, particularly as union support will be vital in deciding who will win the contest.

The airline’s employees together account for 9,020 of the total number of creditors and are owed $451 million.

Finally, in a separate development, the AFR confidently reported that the Queensland government’s representatives have struck a deal with both Bain and Cyrus to keep the airline based in Brisbane.

The newspaper claimed the deals were signed late on Sunday, on behalf of the state’s fund manager QIC to be a “large investor” in either consortium.

The money has been set aside from its new Future Fund, and also involved investment bank Jefferies Australia.

Earlier today, Virgin Blue co-founder Rob Sherrard was linked with an 11th-hour bid to acquire the airline.

Selected reports said the stricken airline’s bondholders have drafted in a team of aviation experts, including Sherrard, to formulate an audacious bid that would involve swapping their $2 billion of debt for equity.

Sherrard famously wrote up the initial concept of Virgin Blue with Brett Godfrey on the back of a beer mat in a London pub. The pair was surprised that Australian airfares were so much higher than equivalent routes in Europe.

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10 Comments

  • Rod Pickin

    says:

    Learnt in the Air Force many years ago, Order, Counter Order, Disorder.

    • Fred

      says:

      Or in Army speak, ‘snafu’.

  • Who would ever want to invest in an Australian airline when the TWU has so much influence over your operations.
    Reality is that under the 2 bidders the bondholders, many of whom are “mom and pop” investors who bought into the Scurrah story stand to lose 90c in the $ yet the TWU expect them to just sit back and watch $2.1 billion just get wiped out with the foreign shareholders/governments.
    The bondholders don’t have to follow the Deloitte timetable under corporate law and can wait until the creditors meeting in August to make their bid to change their investments into equity and agree to put in sufficient funds to keep a reorganised airline trading on the stock exchange. As it is Bain and Cyrus are still foreign so if/when VA emerges it will still be non-Australian owner.
    TWU only want an owner who will maintain the current EBA’s even if 4,000 employees are made redundant. The airline industry is the stalking horse for the TWU to get better conditions in other segments of Australian industry.

    • Bart

      says:

      It’s about time whatever Austn Govt power-that-be gets in & investigates why the TWU is having such a stranglehold on Strawbridge & Deloitte’s, & its’ managing of the Vol Admin process.
      It’s a private company, & a private process, so why is TWU, in the guise of ‘looking after employees’, there at all? They should be banned.
      If the Administrator had more ‘experience’, this is the FIRST airline collapse he’s done, he’d steer well away from unions’, so too, the US ‘bidders’.
      This is not going to end well, in any way.

    • Hein Vandenbergh

      says:

      Sound analysis, Neil.

  • Mike

    says:

    who cares what a union thinks ? They are partly responsible for Virgin woes.

    • Hein Vandenbergh

      says:

      Indeed…

  • Neil (BNE)

    says:

    Your article states “so the comments will be viewed as hugely significant, particularly as union support will be vital in deciding who will win the contest.“
    I certainly hope that this is not the case: that a union has “significant” and “vital” input into an commercial decision.
    The said union has absolutely no qualifications or real business experience so not sure how their “significant and vital input” is relevant.
    The union’s role is to look after their member’s welfare and entitlements. They have to cop the decision of the administrators like everyone else and stop playing politics.

    • Adam Thorn

      says:

      Hi Neil,

      Unions are in a uniquely powerful position in this deal. Firstly, they are representing a block of creditors but secondly, Virgin 2.0 will want to keep the TWU onboard during the tricky next 12 months. Previously, the TWU has had a strong relationship with Virgin and a poor one with Qantas – the recent strikes pre-pandemic show how costly that can be.

      So far, the TWU has played nice and been supportive of everyone, so having a pop at the bondholders felt like a significant move.

      Thanks,

      Adam

      • Andrew

        says:

        and thirdly the TWU is a major Kingmaker for ALP politicians as well as a source of funds.

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