Virgin Australia: Up to eight bidders expected for ailing airline

Even as bidding gets serious for Virgin Australia with backing from some famous names, the airline could exhaust its current cash reserves in just weeks.

Virgin Australia is said to be down to its last $100 million and could run out of cash even before the ailing carrier is sold to one of a gaggle of potential buyers.

Bidders interested in buying the beleagured carrier had to express an interest by the end of today.

Organisations said to be circling the airline include the Queensland Government, Australia’s biggest super fund, Singapore Airlines’ majority owner, an Indian low cost carrier, Richard Branson’s Virgin Group and mining magnate Andrew Forrest.

Australia’s second largest airline collapsed in April saddled with debts of $7 billion just as the travel market was decimated due to coronavirus restrictions. Of its 10,000 staff, 8500 have been stood down and are on JobKeeper.

It is currently majority owned by the United Arab Emirates’ Etihad airline, Singapore Airlines and Chinese carrier Hainan Air, with a small stake held by Richard Branson’s Virgin Group.

Virgin Australia has continued to fly a limited service between major cities as administrators Deloitte look for way for the airline to get back on its feet.

Up to eight bidders are thought to have expressed an interest in Virgin Australia. Picture: David Clark Photography.

However, there are concerns that even if a new owner can be found, Virgin Australia will have exhausted its reserves of cash before then.

The Sydney Morning Herald reported that Deloitte has confirmed Virgin only had $100 million left in the bank – and that would be gone by mid-June.

Before a new owner is even finalised the airline may have to seek new financing to tide it over until a sale is completed. That could mean a hefty bank loan or even government funds. The new owner is not expected to get the keys to the airlines until August.

“There will be a future funding requirement but that’s not here, that’s not now – it is something that we are working through," Deloitte Administrator Vaughan Strawbridge told the paper.

“The business was after funding prior to our appointment. There are options around additional liquidity, we haven't had to push the button on any of those at this point but we do have options.”

Virgin Australia could become IndiGo Australia if an Indian group looking at Virgin takes control.

EIGHT GROUPS SERIOUS ABOUT VIRGIN

Eight companies or consortia are thought to have met the Friday deadline to register a non-binding offer for Virgin Australia.

The leading contenders are said to include an Australian bid from private equity firm BGH Capital and superannuation fund Australian Super. This consortium could include financing from Temasek, a Singapore Government owned investment company that itself has a majority stake in Singapore Airlines.

Canadian asset manager Brookfield is also taking a serious look, as is US investment firm Bain Capital.

The company behind Indian low-cost carrier IndiGo, InterGlobe Enterprises (IGE), is also thought to have lodged a bid with the administrators.

A number of interested parties are unlikely to actually bid in the first round and instead see if they can join up with one of the leading contenders in the weeks to come.

The Queensland Government, through the Queensland Investment Corporation (QIC), could pump up to $200 million into Virgin with the aim of ensuring the airline’s head office remains in Brisbane and connections within the state are maintained.

It’s a controversial bid, which would bring Virgin partly under government control. Home Affairs Minister Peter Dutton said it was “laughable” that Queensland taxpayers should be stumping up for an airline in the middle of an aviation crisis.

Miner Andrew Forrest is also thought to be keen on Virgin.

However, QIC is already a big player in Australian infrastructure and owns a string of shopping centres including the Canberra Centre.

QIC chief executive officer Damien Frawley said it had not made a direct offer to the administrators on Friday.

“We want to ascertain what happens after Friday and see who’s left in the ring,” he told The Australian.

“Then we will continue our engagement with some of those consortium.”

Andrew “Twiggy” Forrest, who used to run miner Fortescue Metals, is also keeping his powder dry but may team up with one of the major contenders later in the process.

As could Branson’s Virgin Group that owns 10 per cent of Virgin Australia and had licensed the Virgin brand to the airline for as much as $15 million a year. Branson’s involvement would almost certainly see the Virgin Australia name stay on the side of planes.

However, some of the bidders, including India’s IGE, are thought to be happy to see the Virgin name disappear and a new brand created for the airline. It could take on the IndiGo name that is huge in India.

Deloitte will whittle the offers to the three most viable contenders next week.