Court ruling means Bain will take over Virgin next week

written by Adam Thorn | November 11, 2020
Cyrus Capital’s Jonathan Peachey says the company plans to scrap the Tigerair brand if successful (Source: Australian Aviation archives)

The Federal Court on Tuesday knocked back a final plea from shareholders to halt the sale of Virgin Australia to Bain.

The decision means the company will finally exit administration early next week but will leave many of those who invested in the company without any return at all.

On 25 August, administrator Deloitte revealed the sale would see unsecured creditors, including bondholders, receive between just nine and 13 cents in the dollar on their investment, while shareholders would walk away with nothing.

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Employee entitlements and customer travel credits, however, will be covered in full.

While many of the larger shareholders, such as Nanshan, Etihad and Singapore Airlines, accepted the write-off, a number of small parties fought on.

However, Justice John Middleton sided with Deloitte and ruled that, while there were valuable aspects to the former business such as loyalty scheme Velocity, the outstanding liabilities were too great.

Tuesday’s court case was unlikely to change the direction of the deal, which was rubber-stamped by stakeholders at a meeting on 4 September.

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While Bain beat out Cyrus Capital Partners in May to become the administrator’s preferred bidder, the decision needed to be waived through by parties owed money. The airline’s bondholders had threatened to table a rival bid, but pulled out late in August leaving Bain’s victory as a formality.

A comprehensive restructuring of the business means it will emerge from administration with 3,000 fewer jobs and without the Tigerair brand.

However, it will significantly continue to fly international routes and continue to offer domestic lounges and business-class flying.

The new network will operate with a slimmed-down fleet, operating a 737 mainline fleet for domestic services but removing ATR, Boeing 777, Airbus A330 and Tigerair Airbus A320s. Its regional and charter fleet will also be maintained.

Last month, Australian Aviation reported how the TWU would resume negotiations with Virgin over working terms after suspending talks the day before Paul Scurrah apparently resigned as chief executive.

National secretary Michael Kaine said the organisation, and other unions, would go back to the table with new owner Bain after receiving information “reconfirming” the carrier’s plan to become a mid-market hybrid and not a low-cost carrier.

The news comes after Scurrah last month announced his exit to be replaced by former Jetstar boss Jayne Hrdlicka.

His departure was significant because he was synonymous with the airline’s plan to operate as a mid-market ‘hybrid’ rather than reverting to being a low-cost carrier like predecessor Virgin Blue.

Hrdlicka, meanwhile, also had a notoriously fraught relationship with unions in her earlier role at the Qantas Group.

In July, Australian Aviation revealed the total breakdown of money owed was:

  • Secured lenders and aircraft financiers are owed $2,284 million;
  • Unsecured bondholders are owed $1,988 million;
  • Trade creditors are owed $167 million;
  • Aircraft lessors are owed $1,884 million;
  • Landlords are owed $71 million;
  • Employees are owed $451 million (in the event of liquidation); and
  • Customers entitled to credits for flights that were cancelled due to the pandemic are potentially owed $604 million.

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6 Comments

  • Ronald Spencer

    says:

    I wonder how long it will take to strip the assets and fold up Virgin owing more creditors

  • Nate

    says:

    It’ll be interesting to see how long they last with a PE owner.
    Not long, would be my guess.

  • Very bitter end to a potential good investment!
    I wrongly had faith in Virgin turning their business around .
    I’m just a trade worker and invested 36000 Au dollars in shares.
    The result only serves Baines group !

  • Marum

    says:

    Warren Buffett one famously said. “It would pay me to employ someone to punch me in the head, every time I consider
    investing in an airline.”

    This has – so far – proven to be good advice, including his latest investment in one. I know I do that, every time I consider such an investment. My commiserations to Virgin Shareholders and Bond holders. But that does not out money in their pockets.

    To me, the ramifications are much wider. This except for government and bank bonds, caused investors to be more dubious about the whole bond industry.

    Many of these bond holders would most likely be retirees, who will never make that money back. Why so? Most investment advisors recommend that retirees have an “income ladder” of bonds. I know. For I have received similar advice myself. Such advice, I consigned to the circular file.

    Regards….Marum.

  • Not long name change would be fitting from virgin to vulture group.

  • Dan

    says:

    @Ronald Spencer

    There are very little if no ‘assets’ for Bain to strip. Etihad and Singapore Airlines has already beaten Bain to the ‘asset-stripping’ by mortgaging the owned 737s and 777s fleets against the banks, stopping Bain from ‘stripping’ the owned fleet themselves.

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