The administrators of Virgin Australia have revealed that those interested in buying the beleaguered airline have just over two weeks to put forward an offer.
Deloitte held the first meeting of creditors earlier today, with approximately 1,300 creditors and their representatives joining the call, including financiers, employees, unions, and bondholders.
The administrators informed creditors that a large number of parties have expressed an interest in Virgin, with eight signing non-disclosure agreements and negotiations continuing with a further 12 parties.
An information memorandum was issued to those parties who have signed non-disclosure agreements on Tuesday, and each of them now has access to the data room.
Deloitte’s Vaughan Strawbridge said that while it’s still early days, he’s been encouraged by the level of “sophisticated party interest” in the sale of Virgin, with non-binding offers due by 15 May.
“We are now moving quickly to finalise a business plan to help guide interested parties and, in terms of next steps, mid-May is currently the timeframe for the receipt of indicative offers,” he said.
“Binding offers will then be required in June. We remain confident that our target of achieving a sale by the end of June is achievable.”
“We remain strongly focused on restructuring and refinancing the business, creating a viable operation that will appeal to prospective new owners, and bringing Virgin out of external administration as soon as possible in an outcome that will retain jobs and the airline’s contribution to Australia and its economy.
“Management had already put in place a transformation plan to enhance profitability. Voluntary administration provides a process where that can be accelerated in a way that it couldn’t before.
“I would like to acknowledge everyone at Virgin for the support they have been providing at a time marked by so many challenges. We remain acutely aware of the impact this process has on the 16,000 direct and indirect employees, and it’s important that they’re flying again as soon as possible. “
The meeting also included the appointment of an inspection committee for the administration process. The committee will represent the various creditor groups, and Deloitte said it will consult with members on matters as needed.
Unsurprisingly, Morgan Stanley has been appointed to run the sale process of Virgin alongside Houlihan Lokey.
The administrators also advised their intention to seek an extension of the convening period of three months, based on the scale and scope of their work to position the business for a successful sale.
This would take the period before which a second meeting of creditors was required to approximately 22 August, and is not unusual in a complex voluntary administration such as this.
Virgin Australia continues to operate during the voluntary administration process, with 64 return domestic services each week, contracted domestic charter flights and federal government-supported international flights to Hong Kong and Los Angeles.
Suitor speculation intensifies
While private equity firms BGH Capital and Indigo Partners are both understood to be keen on submitting bids for Virgin, Macquarie Group and Canadian-based asset management specialist Brookfield are also set to make a play.
According to The Australian Financial Review’s Street Talk section, Macquarie and Brookfield are mulling a joint bid for the airline, and are expected to form a consortium with one or two other interested bidders.
It wouldn’t exactly be a surprise if both companies teamed up for a bid, having previously co-invested in Western Australian gas supplier Quadrant Energy. Adding to that is Macquarie’s experience in aircraft leasing.
Moreover, the consortium approach is a popular one to get deals over the line, and is one that BGH appears to be taking with AustralianSuper and possibly Temasek, Singapore’s state-owned investment fund that is indirectly linked to Virgin through its backing of Singapore Airlines (a 20 per cent shareholder in the Aussie carrier).
Wesfarmers is another party that’s been reported by the AFR to be showing interest in Virgin – in particular, its valuable Velocity Frequent Flyer program.
It’s not the first time Wesfarmers has been speculated as a potential investor in a travel company this month, with Macquarie naming Qantas and Flight Centre among a big list of potential acquisition targets for the recently cashed-up Aussie conglomerate.
Bain Capital, Oaktree Capital Management and Apollo Global Management are the other company names that are being thrown around as suitors for Virgin, while the Queensland government and Melbourne Airport have separately sought legal advice on the airline’s administration process, according to the AFR.
TWU calls for government to reveal its plans
The Transport Workers’ Union has called on the federal government to end its role as “passive observer” in the Virgin voluntary administration process and to set out a plan for the airline and the rest of the aviation industry.
TWU national secretary Michael Kaine said the first creditors’ meeting today was constructive and moved forward the process to get Virgin back to full flying and workers back at their jobs.
“Administrators said they had already received inquiries from a number of high-quality interested parties. They said the reason for this level of interest at such an early stage was partly down to the exceptional team Virgin has in its workforce,” he said.
However, Kaine urged the government to reveal what role it is taking in this process and what potential plans it has to ensure Virgin can get back to functioning as Australia’s second airline.
“We want to see the government taking an equity stake and outlining a plan for the aviation industry,” he said.
“Virgin will not be the only aviation company to run into difficulties, and if we are to guarantee jobs in the sector and the businesses and communities across Australia that depend on it, the government needs to end its role as passive observer and reveal its plans.”
The airline had originally proposed a $1.4 billion bailout from the government to help survive the impact of COVID-19, before going into administration.
However, given $165 million worth of funding had just been allocated to help keep Virgin and Qantas flying domestically, on top of the $715 million relief package for Aussie airlines announced last month, as well as a $300 million lifeline for the regional aviation sector, it seemed unlikely that the government would offer specific financial support to Virgin.
Adding to this doubt were the comments of Prime Minister Scott Morrison, Deputy Prime Minister Michael McCormack and Treasurer Josh Frydenberg to the media about the government’s desire for Virgin to be saved by private investors.
The Queensland government also unsuccessfully attempted to bait the federal government into providing support for Virgin prior to its collapse with a conditional $200 million lifeline.
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