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Private equity investors circle over Virgin

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At least two private consortia are circling to take over Virgin Australia, reducing pressure on the federal government to bail out the ailing airline.

Sources inside government and the aviation industry confirmed to The Australian Financial Review that one consortium involves a private equity investor partnered with a "a strategic airline investor".

The other is believed to be an investment bank partnered with an Australian infrastructure investor.

Virgin Australia's majority shareholders have refused to pour more money into the struggling airline.  Bloomberg

While Qantas has the economic capacity to ride out the coronavirus-induced shutdown, Virgin has asked the government for a $1.4 billion loan to tide it over and threatened to tip the airline into voluntary administration if it does not receive help.

The government has refused, believing that will end up owning the airline that was already saddled with a $5 billion debt before the crisis struck. and that was seeking a loan worth more than twice its market capitalisation.


"We want to see two airlines in the domestic market but we're not in the business of owning an airline,'' Treasurer Josh Frydenberg said on Thursday.

There are many market-based options that are currently being pursued, and I would wish those discussions every success.

— Prime Minister Scott Morrison

Prime Minister Scott Morrison alluded to the interest from private equity yesterday when also ruling out a government bailout.

"We appreciate the value of two competitive viable airlines in the Australian economy,'' he said.

"Any responses the Commonwealth government will have will be done on a
sector-wide basis, and that's the way we will continue to pursue those issues.

"I'm aware that there are many market-based options that are currently being pursued, and I would wish those discussions every success."

One Virgin source said it was not the company's preference to be taken over by "corporate raiders'' with little or no airline experience.

Virgin remains in a trading halt and has appointed UBS and Morgan Stanley to drum up an equity injection or restructure. Virgin shareholders Etihad Airways, Singapore Airlines, Nanshan Group and HNA Group, who together own 80 per cent of the company, have refused to tip in fresh funds for the airline.


Two paths ahead

Without government support for Virgin, there are thought to be two ways that the Virgin situation could play out. One of those is through a pre-agreed deed of company arrangement, which would require agreement from unions and governments, and then cleans out unsecured creditors.

It would need creditor approval, which would likely include employees, frequent flyer point holders and more.

The other would be placing Virgin in voluntary administration, which would remove any certainty around who would end up owning the airline. This option might be less politically attractive.

It is understood that the interest from the private sector prefers Virgin going into voluntary administration, enabling new investors to restructure the debt and take control by removing or shaving down the existing shareholders.

This would enable the new owners to restructure the company into one that makes a profit. This could involve significant job losses.

BGH Capital is among the most speculated private equity firms for the asset. BGH's Ben Gray ran the local arm of private equity giant TPG when it bid jointly for Qantas. BGH declined to comment.


Virgin pilot and vice-president of the Australia Federation of Airline Pilots, George Kailis, said a previously flagged option by the government of allowing Virgin to fail and then facilitating a new airline into the market was a "complete fallacy''.

Captain Kailis said that after Ansett collapsed in 2001, it took five years to get 40 planes in the air and 12 years before there were 70 aircraft flying.

And that was in a post-September 11 environment, when there was a surfeit of pilots and aircraft.

"You just can't start up and get 70 new planes in the air. That's just a complete fallacy,'' he said.

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Summary | 6 Annotations
private consortia are circling to take over Virgin Australia
2020/04/17 00:34
government has refused
2020/04/17 00:41
"We appreciate the value of two competitive viable airlines in the Australian economy,'' he said.
2020/04/17 00:42
Without government support for Virgin
2020/04/17 00:52
voluntary administration,
2020/04/17 00:52
involve significant job losse
2020/04/17 00:52