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Bain commits to Virgin for the ‘long haul’ despite float plans

written by Hannah Dowling | March 28, 2022

Virgin Australia Boeing 737-8FE departs from Brisbane, at sunset. (Michael Marston)

Bain Capital managing director and Virgin Australia chairman Ryan Cotton has confirmed that the private equity firm remains committed to its ownership of the airline despite plans to make the airline public.

Rumours sprouted in January that Bain Capital, which purchased Virgin out of voluntary administration in November 2020, was looking to float the airline on the ASX as soon as 2023.

Sources at the time suggested Bain is planning to wait out the volatility of the COVID pandemic and the Omicron variant before making its initial public offering, which could see the US investment firm offload up to 50 per cent of its ownership in Virgin, less than two years after its $3.5 billion purchase of the company.

At his first address to staff late last week, Cotton said despite rumours, Bain is committed to Virgin Australia for the “very, very long haul”, according to The Australian.

Cotton also stated that any future public listing of the airline would not result in Bain completely offloading its interests in the carrier but would mark the “beginning of another chapter”.

“We didn’t sign up for six months – we didn’t sign up for two years,” Cotton said.

“We signed up for as long as it takes to rebuild a phenomenal airline and to set it up for phenomenal long-term success.

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“If we’re so lucky in the future to have a liquidity event, a ­moment in time where we go ­public or something like that, that’s an incredibly good sign for the ­business,” Cotton added.

“It means we’re healthy, it means we’re strong … It means the market’s excited to welcome us back and participate in the journey along with us as partners.”

Cotton said that Bain is committed to “see this airline through all the way to the other side and to make sure it can survive for generations after us”.

“My personal ‘why’ in life is to build things that will outlive me and that’s what we’re all com­mitted to do here – to build an airline that will outlive all of us,” he said.

It comes after Virgin 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 carrier clawed its way out of administration.

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.

It also comes after Virgin this month won its appeal in the High Court against US aircraft lessors Wells Fargo and Willis Lease Finance, after refusing to spend $500,000 delivering four aircraft engines to Florida.

The lessors sought to recover the engines when Virgin entered administration in April 2020, to which administrators Deloitte agreed – however, refused to foot the bill to transfer the engines back to US soil.

While Wells Fargo and Willis Lease Finance ultimately collected the engines from Australia, the US companies took the matter to the Federal Court, starting a months-long battle to determine if Virgin was under any legal obligation to pay for the delivery of the repossessed goods.

The case made its way through to the High Court of Australia, which this month ruled in Virgin’s favour in a world-first ruling.

The High Court found that under the Cape Town Convention’s aircraft protocol, the airline’s only obligation to the lessor was to provide an opportunity to take control of the repossessed engines in Australia.

The ruling could have significant implications for future cases between aircraft lessors and airline insolvency matters worldwide, according to the law firm that represented Virgin.

Comments (9)

  • Steve A

    says:

    $3.7 billion after tax profit? That would be nice. Don’t you mean a $3.7 million profit?

    • Hannah Dowling

      says:

      Hi Steve, I had to double-take too but surprisingly, no, it’s $3.7 billion! It’s a one-off largely wrapped up in the sale to Bain and billions of $ of debt being extinguished by administrators. Once released, the half-year results through to December will give us a better estimate of how Virgin is actually tracking though! Thanks for reading.

      • Richo

        says:

        As a privately owned company and no longer ASX listed, they are not required to report any results – “Reporting Season”, but may choose to do so if they want to,

  • Charlie

    says:

    Let’s see if Bain puts its’ money where its’ mouth is.

    Why have so many Virgin execs’ left since Bain took over?
    Maybe Bain’s the problem.

  • Rod Pickin

    says:

    This is all a numbers game and I am pleased for VOZ that the news is good. In the meantime their investment bankers will be sussing out the mood within the institutional investors arena looking and hoping that at least a primary 26% bid will be forthcoming asap. As soon as Bain recoups their initial $3.5B still holding 50% then, the game gets real interesting, are they in the private equity business, buy low, turn it around quick into profitability then flog it off at a good profit (as they do) or are they in the airline business? Time will tell.

  • Nicholas

    says:

    This headline is wrong, the detail of his “inspirational” speech to staff said yes Bain is in it for the long haul, 30 seconds later though he said they’d sell next week if they got a good offer.

    So the Headline should be Bain happy to sell whenever.

    I hear the staff distinctly unimpressed and uninspired…..

    • Brendan

      says:

      Yes, Nicholas, this is what a business like Bain does in buying ‘on the cheap’, give it a couple of years’ worth of ‘boosting’, then flog it off to the highest bidder.

      Let’s see what’s happens in the goodness of time……

  • Adam

    says:

    It’s not looking good for Virgin yields, they’ve been forced to try and fill their business class cabins by slashing the prices even further. Cleary not sustainable and you don’t discount that much unless you have a big problem with attracting business and corporate clients.

    Perhaps a better idea would be to open a broader lounge network to attract business.

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