Aviation

All over, red rover: Virgin Australia’s creditors approve sale to Bain Capital

Huntley Mitchell

Huntley Mitchell

As expected, Virgin Australia’s creditors have voted in favour of Bain Capital’s takeover proposal for the airline.

Creditors convened earlier today to cast their vote, with Virgin’s administrators recommending all along that Bain’s proposed deeds of company arrangement (DOCAs) would result in the best outcome for them and the airline’s future as it emerges from voluntary administration.

According to the administrators’ report to creditors, Bain’s proposed DOCAs ensures all employee entitlements are paid in full, customer travel credits are honoured, a number of supply and finance arrangements continue, and unsecured creditors receive a return of between $462 million and $612 million (or between nine and 13 cents in the dollar).

While not specifically identified in the report, the total commitment from Bain is valued at around $3.5 billion.

Even if the creditors voted against the private equity player’s DOCAs, the administrators had signed a binding agreement Bain for it to acquire Virgin by way of an asset sale.

The DOCAs will be signed and completed within 15 business days of today’s date.

Once the DOCAs are signed, the administrators will make an application to the Federal Court for the transfer of the shares in Virgin to Bain. The administrators noted that the DOCAs cannot be successfully completed until the court approves share transfer.

With the transfer of shares expected to be completed by 31 October 2020, a proposed creditors’ trust will be created to adjudicate claims and pay distributions to Virgin creditors.

Deloitte will also act as deed administrators of the DOCAs and then as trustees of the creditors’ trust. The timing of the payment of the dividend being to creditors has been estimated at between six and nine months from completion of the sale transaction.

Image source: Virgin Australia Group

Joint voluntary administrator Vaughan Strawbridge said: “Our role as voluntary administrators is always a challenging one, and inevitably undertaken in challenging circumstances. That has certainly been the case here.

“Since our appointment on 20 April, we have worked hard to deliver the best possible outcome for all creditors, and today they have overwhelmingly voted to support our opinion that it is in their interest to approve the DOCAs proposed by Bain Capital.

“This outcome provides certainty for employees and customers, a return to creditors, opportunities for suppliers and financiers to continue to trade with the Virgin Australia Group, as well as maintaining a competitive Australian aviation industry for the benefit of consumers.

“While the outcome of the meeting today is a significant milestone for both the future of Virgin Australia and Australia’s aviation industry more broadly, we also acknowledge those loyal Virgin Australia Group employees who will lose their jobs and the difficulties that this will cause them and their families, as well as the numerous suppliers and investors who will not receive all of the monies owed to them.

“The outcome has also been achieved due to the incredible support from Virgin management and staff, unions who have played an important part in securing the future jobs for so many of their members, financiers, service providers, trade suppliers, and other key stakeholders including the federal government.

“There is still a lot of work to do to complete the restructuring of the airline and complete the sale transaction before the business is ready to emerge from voluntary administration under Bain Capital’s ownership.”

Virgin Australia Group CEO and managing director Paul Scurrah said: “This is an important outcome for Virgin Australia which brings us closer to exiting administration and allows us to focus on the future.

“It’s vital for Australia to have two major airlines for consumer choice, value airfares and to help support the recovery of Australia’s robust tourism sector after this crisis is over.

“While we can feel very proud that we have got to this point, the impact of COVID-19 remains very challenging for our business and industry. These are tough times and we must remain focused and adapt to this new environment.

“It’s been an incredibly tough journey for our people and they should be commended for how they have handled themselves. I’m pleased today gives us some more certainty around the company’s future.”

Virgin’s administrators from Deloitte have faced a number of hurdles since the airline was placed into administration back in April, most notably a group of rogue bondholders who attempted to rival Bain’s offer with one of their own at today’s second meeting of creditors.

However, after having its application for the alternative bid to be voted on against Bain’s rejected in the Federal Court last month, the bondholder group – made up of hedge funds Broad Peak Investment and Tor Investment Management – decided to retreat.

In August, Virgin unveiled a six-point plan for “a stronger, more profitable and competitive business” in preparation of its exit from voluntary administration under the ownership of Bain.

The plan includes axing 3,000 jobs, scratching the Tigerair brand and reducing the size of its fleet.

Image source: iStock/Ryan Fletcher

The Transport Workers’ Union welcomed the approval of Bain’s takeover deal, with national secretary Michael Kaine congratulating Virgin’s workers on the work they have done during the administration process.

“This is a new beginning and an important day for Virgin and for Australian aviation. I want to congratulate Virgin workers who have been instrumental in getting us to the point where Virgin has now been rebooted and is on a plan to get back to flying,” he said.

“There have been long and difficult days and our thoughts are with the 3,000 workers who will no longer be with the airline. Virgin workers stuck together and helped win important assurances from Bain Capital which will put the airline on the best track to survival.

“These include resuming as a fuller capacity airline, maximising jobs, retaining regional operation Vara, tiered cabin classes, airport lounges and the airline’s international arm.

Kaine noted there was still a long road ahead to ensure Virgin’s success, and said the TWU will hold Bain to account on its promises.

“We will do this through our usual channels, but also through the union advisory council that Bain has agreed to set up so workers voices on governance can be heard,” he said.

“The direction the board takes will be instrumental in ensuring Virgin’s long-term survival, and this can only be done through cooperation rather than confrontation with workers.”

Kaine said the TWU will also hold the federal government to account over its “failure” to support Virgin and the wider aviation industry.

“We will remember how the government sat on the sidelines and refused to give Virgin workers, the travelling public and the wider community the assurances they need on ensuring a strong second airline,” he said.

“The broader economy will suffer if [the] federal government continues to fail to deliver a national plan on aviation. It simply won’t be up to the task of helping to pull us out of a recession when restrictions ease.”

This story is been updated since publishing to include commentary from Virgin Australia and its administrators.


Featured image source: Virgin Australia Group

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