Bain ready to land Virgin, insider claims

Bain is being backed by those inside the Virgin Australia administration to succeed in its bid for the airline.

Virgin Australia aircraft waiting to return to the skies. Picture: AFP

Bain Capital is in the box seat to succeed in its bid for Virgin Australia despite union backing for rival Cyrus, according to those closest to the bidding process.

Final binding offers are due to be lodged with administrator Deloitte on Monday before the winning bid is chosen on June 30.

Virgin Australia went into voluntary administration on April 21, owing $6.8bn to more than 12,000 creditors.

Speaking on the condition of anonymity, a source familiar with the details of both bids said Bain had three clear advantages — deep pockets, its planned investment in technology and the depth of research and analysis that went into its proposal.

With a global pool of capital running to $25bn, Bain was in a position to provide a significant cash injection to Virgin Australia, and withstand any COVID-19 aftershocks. “Bain can call on all the funds they need to get Virgin going again,” the source said. In contrast, Cyrus was still looking for partners and had much fewer resources on which to draw.

Bain’s Australian CEO, Mike Murphy, had also spoken of the desire to make a major investment in technology at Virgin Australia, to put it on level footing with Qantas.

“Seamless technology, easy-to-use apps, well-run websites can all give an airline a competitive advantage and sadly that’s an area where Virgin has been lacking because it simply hasn’t had the money to bring those aspects of its operation up to speed,” the source said.

“That’s not something we’ve heard much about from Cyrus.”

Thirdly, Bain’s use of its well-resourced consulting arm had given it a deep understanding of Virgin Australia, its customers and the Australian aviation market, the source said.

“The route network and phases of recovery are all carefully considered, researched to the last detail, which is quite extraordinary when you consider the amount of time they’ve had,” he said.

“They are able to do it, because they have the resources in-house, in Bain Consulting.”

The research extended to interviews with 6000 Virgin Australia customers, from which they gleaned that the most important priorities were price and the availability and scheduling of flights.

On many other levels the Bain and Cyrus proposals were similar, with both pledging their support for the management team’s vision for Virgin 2.0 and CEO Paul Scurrah, the source said. Both firms were also certain to retain the Virgin brand and build up the Velocity Frequent Flyer program.

Virgin Group, which has stayed close to the administration process, is expected to make its own capital injection in the relaunched airline in return for a 10 per cent stake.

In the wings of the administration are a number of key groups including unions, two of which have publicly backed Cyrus over Bain.

The Australian Licensed Aircraft Engineers Association and Flight Attendants Association of Australia, which represent about 4000 of the airline’s 9000 employees, both pledged their support for Cyrus this week, saying the company had a “deep understanding of the brand” and was the “best fit”.

Meanwhile, another major player in the process, the bond holders, have brought in Virgin Blue co-founder Rob Sherrard as part of a team of 50 people to help with their fight to win control of the airline.

Mr Sherrard was among those given access to the data room, to help bond holders ascertain the true worth of the carrier before final bids were made. The bond holders are unsecured creditors who are owed $2bn and are arguing that that could be converted into equity.

There are 6000 retail investors who have their money invested in the bonds and around 30 global institutions with about $11 trillion under management.

The bond holders claim while the bonds are trading at 10c in the dollar this does not mean they are worth just 10c because anyone buying the bonds would expect to sell them for more money.

Despite being seen to rank as outsiders against Bain and Cyrus, the fact the bond holders have a vote at the August 22 creditors’ meeting means they are key players.

Centre for Asia Pacific Aviation executive chairman Peter Harbison said the airline model most likely to succeed in the Australian market would not try to compete with Qantas at the high-end corporate level.

“They’ll have something like a business class but they won’t go for the super luxury,” Mr Harbison said.

“They’ll have the basic lounge and a lot less frills and that will appeal to the bean counters because we’re not just talking about a pandemic now, we’re talking about a recession.”

Dropping the big wide-body aircraft in favour of an all Boeing 737 fleet also made a lot of sense, Mr Harbison added.

“No matter what happens, I think Virgin is going to have to absorb a bit of pain in the short term and if they’re not projecting that in their calculations I’d be concerned,” he said.

As for the government’s criticism of the administration process, with senior ministers unhappy with the short-listed bidders, Mr Harbison said Mr Strawbridge should be relieved.

“Unions and government have basically destroyed the aviation industry in Australia for 75 years and in tangible terms,” Mr Harbison said.