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Bain looks to go public with Virgin next year

written by Hannah Dowling | January 28, 2022

Virgin Boeing 737s in Melbourne YMML, as shot by Victor Pody
Virgin Boeing 737s in Melbourne YMML, as shot by Victor Pody.

Bain Capital, the private equity firm that purchased Virgin Australia out of voluntary administration in November 2020, is reportedly eyeing to float the company on the ASX as soon as 2023.

According to a report by The Australian, sources suggest Bain is planning to wait out the volatility of the COVID pandemic and the Omicron variant before making its initial public offering, ideally by the end of next year.

The sources said Bain could look to offload up to 50 per cent of its ownership in Virgin Australia, less than two years after its $3.5 billion purchase of the company.

Discussions have reportedly already begun in recent months with advisers about future prospects, with the possibility of a float to be further assessed in mid-2022, with a planned IPO in 2023.

According to the report, sources say prospective investors would likely have a better understanding of Virgin’s earning potential by 2023, after the airline’s domestic capacity operates under more usual conditions.

While no investment bank has been appointed at present for a transaction, US-based Goldman Sachs is expected to be involved, given its previous associations with Bain Capital.

It comes after Virgin last month surprisingly reported a $3.7 billion after-tax profit for the year ending 30 June 2021, the airline’s first in nearly a decade, after the airline clawed its way out of administration.

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The result is a significant improvement on its 2019-20 financial year results that saw Virgin report a $3 billion loss. However, the profit came largely off the back of the $4.4 billion in creditors’ claims that were extinguished by its administrators, following the sale of the airline to Bain.

The figures were also bolstered by Virgin’s acceptance of $205 million in JobKeeper payments in the 2020-21 financial year, while the airline also managed to halve its labour costs by the end of 2020, after making more than 3,000 staff redundant and axing budget subsidiary Tiger.

Overall, Virgin saw an underlying before-tax loss of $76.8 million – marking perhaps a better indicator of Virgin’s financial performance in the year to 30 June.

This figure excludes over $600 million in impairment charges, redundancies, penalties, foreign exchange losses and the $110 million spent on administration costs to Deloitte.

In the year to 30 June, revenue fell by nearly 70 per cent due to intermittent border closures, from $4.5 billion in 2019-20 to just $1.5 billion, however Virgin claimed it was similarly able to cut down expenditure, also by 70 per cent.

Domestic passenger and freight revenue together fell from $2.6 billion in 2019-20 to $983.3 million in the year to 30 June, while international sales fell from $966.2 million down to just $8 million.

Meanwhile, the airline’s regional operations bolstered Virgin’s bottom line throughout the pandemic, with revenues up 23 per cent year-on-year to $215 million.

It also comes after Virgin this month was forced to slash its flight capacity for January and February by 25 per cent and place its recently resumed sole international service to Fiji on hold, as it navigates the ongoing Omicron outbreak.

According to the airline, travel demand has subdued due to the new outbreak ripping across Australia, with the country surpassing one million total cases of COVID-19 on Monday, around half of which have been recorded in the last week alone.

Meanwhile, the industry continues to face an ongoing staff shortage, with frontline workers repeatedly sent into seven-day isolation due to being deemed close contacts of confirmed COVID cases.

As a result, Virgin has slashed capacity across its network and suspended all flights on 10 of its routes, including its one international service to Fiji – less than one month after reinstating the service for the first time since the airline entered administration.

Comments (7)

  • Ashley

    says:

    How surprising! Not!

    An airline owner wanting to offload the losing business it bought, within 3 years’ of purchase.

    Maybe REX’s boss might take it on. He’s always up for a ‘challenge’.

    Bain was never going to keep it for the long haul.

  • Rod Pickin

    says:

    We all have been expecting an announcement but maybe not quite so soon. Clearly the VOZ operating environment has been turbulent to say the least and major blame has to be levied at some Oz. state govts. leaving Bain to think, WTF, lets get outa here, this aint normal behaviour. As has been reported no investment banker has been appointed but when so, it will their function to find institutional investors willing to bid for the reported 50% holding released by Bain; – again it will be interesting to see how many of the big names, eg., HSBC etal show interest. Bain will have to seek advise as to if they will or will not be allowed to float the new VOZ under the existing name with the ASX. A new board of directors will have to be appointed and let’s hope that the incumbents have considerable working experience within the aviation/allied industry not those who have freshly graduated with a B.A. degree holding a major in Macramé or similar. That having been done one wonders what is going to happen with the remaining Bain 50% shareholding? – will say 30% be allocated to a friendly airline with a commercial agreement already in place thus becoming the major shareholder and owner even, will that be allowable? the balance of which will eventually pass on to the public investors. Of major importance will be their fleet! – remember, whatever the decision, we as the Oz. folk will be left with the result; a wrong A/C type and a very high debt burden with a departing previous owner would be a very large anchor to retrieve so some serious discussions and consultations must occur here.
    Meanwhile down the road at Coward Street, what will happen with AJ at QF? he has indicated that maybe he will set course for different pastures, maybe with an improving climate now is the time and we will be looking for a new king or Queen. I am not his best supporter by far, I was surprised when he was appointed some years ago but apart from a couple of strays from the path of righteousness he has done a good job, I don’t think any shining lights were overlooked by that appointment. He copped major criticism for shutting down the airline but again, as has been reported, if the Minister of that time had responded to AJ’s calls and done his job there is a huge chance that the closure would not have eventuated. Who will be the new CEO then? I am certainly not in favour of in-house appointments/promotions at that level, generally the folk would be insular and not able to see and do outside of the square. Don’t be surprised therefore if you see a return to the fold namely, The Boss Lady, the new Queen!
    We will see, then of course we need a replacement at VOZ.

  • Bill

    says:

    Bain Capital, will put Virgin Australia up for sale at some stage and cut their losses. Singapore Airlines would be a buyer for a Virgin Australia assets cheaply and without the debt (perhaps together with a strong capital partner and a financial injection from Temasek Holdings, Singapore $340 billion sovereign wealth fund, Singapore Airlines, a world leader in aviation have always wanted a domestic carrier they missed out buying Ansett Australia in 2001, they were unsuccessful with Melbourne outfit BGH Capital bidding on behalf of Temasek, maybe this could be there chance when Bain Capital puts Virgin up for sale
    Note, Singapore Airlines, has been flying in to Australia for over 50 years. In Queensland 35 years with 28 flights a week from Brisbane. Cairns had (Pre- Covid) had weekly flights to Singapore with Silk Air now Singapore Airlines, and up to its collapse owned 27% of Virgin Australia Airlines.

  • Bill

    says:

    @Ashley
    Singapore Airlines would be a buyer for a Virgin Australia

    • Ashley

      says:

      Singapore Airlines’ has said on numerous occasions’, over the past several years’, it’s NOT interested in buying Virgin.

  • John Phillips

    says:

    Wasn’t that always the plan? Cut the losses, sell out to the mugs, and do a runner?

    How surprising, NOT.

    Anybody who takes up shares in this offer needs a good talking to!

  • Marum

    says:

    Haha! Would you buy shares in Virgin after the last rip-off? Remember what Warren Buffett famously said, about investing in airlines?

    May I sell you some shares in the Story Bridge….Marum.

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