Richard Branson in bid for Virgin Australia 2.0 stake

Richard Branson’s Virgin Group is in talks with Bain Capital to stay involved with Virgin Australia.

Sir Richard may only be prepared to put in half of the $200m required for a 10 per cent stake. Picture: AFP

Richard Branson’s Virgin Group is in talks with Bain Capital over its future involvement in Virgin Australia, which could range from a licensing deal to Virgin taking as much as 10 per cent equity in the Australian airline.

Sources close to the deal say the Virgin group, which is based in the UK, would like to get a stake of up to 10 per cent in Virgin Australia to give it a board seat.

But they said Virgin’s actual involvement could range from a continuation of the current licensing arrangement, under which Virgin Australia pays Virgin Group $15m a year, to Sir Richard’s group injecting equity into the deal in return for a shareholding.

Sources said it could take as much as $200m for Virgin Group to buy a 10 per cent stake, but that Sir Richard may only be prepared to put closer to $100m into the deal.

“Richard wants a seat at the table,” one source told The Australian on Wednesday.

The Virgin Group had a 10 per cent stake in Virgin Australia ­before the airline went into administration on April 21 with debts of some $7bn, and was represented by Warwick Negus on the board.

The Branson group has been closely involved in the bidding process for Virgin Australia but it refused to take sides between the final two parties, Bain Capital and New York hedge fund Cyrus Capital Partners.

But behind closed doors, Virgin Group chief executive Josh Bayliss was believed to be strongly advocating for Bain, with whom the group is launching cruise line Virgin Voyages.

Bain Capital’s deep pockets, planned investment in technology and well-established consulting arm made it the preferred bidder in Virgin Group’s eyes.

Mr Bayliss made it well known throughout the process that Virgin Group was willing to stump up a sizeable capital injection in return for equity.

When Deloitte signed a deal on Friday with Bain to buy Virgin Australia, Mr Bayliss praised the administrator for running “such an effective process”.

“We intend to work directly with Bain and closely with the administrator and management to finalise the recovery plan and bring Virgin Australia out of administration in the strongest form possible,” Mr Bayliss said.

“We believe the investment envisaged by the administrators and Bain is a positive outcome for the company, its creditors and its employees.”

The Virgin administrator, Deloitte’s Vaughan Strawbridge, formally told Virgin shareholders this week that they would not be receiving any money for their shares as a result of the deal with Bain. In a statement to the ASX, he told Virgin shareholders that the offer by Bain was not expected to involve sufficient funds to pay out all of Virgin’s creditors.

Expectations are that the deal will involve Virgin’s $2bn in unsecured bond holders only getting less than 10c in the dollar for their investment.

Mr Strawbridge also sent a letter to Virgin holders officially rejecting a non-binding proposal lodged last week that sought to recapitalise the airline, giving bond holders a better deal than would be the case under the Bain proposal.

In his letter, Mr Strawbridge questioned the bond holders’ source of funds for their proposed deal.

Bain signed a deal on Friday with Mr Strawbridge to buy Virgin Australia in a proposal that is believed to have involved a commitment of $1.65bn in cash, as well as taking over travel credits and staff entitlements. But it could also result in Bain agreeing to take over additional parts of Virgin’s $7bn debt load, particularly aircraft licensing deals.

Details of the bid will not be made public until Mr Strawbridge’s letter to creditors setting out the airline’s position ahead of the creditors meeting, which has to be held by August 21.