Brookfield to come back into the bidding for Virgin Australia

Canadian infrastructure company Brookfield is expected to rejoin the bidding for Virgin Australia as early as Friday afternoon.

Virgin Australia planes parked on the tarmac at Adelaide Airport in April. Picture: AAP

The race for control of Virgin Australia has taken a new twist after Canadian infrastructure company Brookfield Asset Management lodged a surprise bid for the airline on Friday, on the condition that its administrators provide more time to restructure the collapsed airline.

The Weekend Australian understands that the Toronto based Brookfield, which last year made a $4bn takeover of private hospitals operator Healthscope, was actively encouraged to lodge a bid on Friday by unions, other creditors and Virgin management — which are keen to see the interests of Virgin staff better protected in the sale.

But Brookfield, which has remained in active discussions with administrator Deloitte’s Vaughan Strawbridge since surprisingly dropping out of the official process two weeks ago, is pushing for the timeline to be redrawn and for Mr Strawbridge’s initial deadline of June 30 to be scrapped.

Mr Strawbridge on Friday received more comprehensive non-binding proposals from the four official short-listed parties, after their initial round of non-binding indicative offers two weeks ago.

These are a consortium of BGH and the $170bn AustralianSuper, the high-profile Bain Capital and two US bidders, New York based Cyrus Capital and Arizona based Indigo.

Brookfield had dropped out of the official bidding process after expressing concerns that the official timeline — which was initially to see binding bids lodged by June 12, with a winner chosen by the end of June — was too tight.

The short-list of four official bidders is expected to be reduced to two by Monday, with binding bids expected to be made by mid-June with the winner to be chosen by the end of June.

The New York based Cyrus Capital appears the most likely to drop out of the race after being short-listed following Brookfield’s surprise withdrawal two weeks ago.

“They (Cyrus) were a late entrant to the party and were only brought in when Brookfield dropped out,” one source told The Weekend Australian.

Brookfield’s re-entry into the race on Friday brings in more competitive tension but could well delay the process at a time when Virgin’s cash position is under close scrutiny, with 90 per cent of its fleet grounded due to the COVID-19 crisis. It could also prompt legal action from rival bidders.

Although it is not one of the officially chosen short-list of four, Brookfield believes that the administrators should only go forward with serious discussions with two parties after early next week.

“Brookfield has been encouraged by many parties to participate because we have done a lot of work and these parties believe it will best protect the interests of the employees,” a source close to the group told The Weekend Australian on Friday.

“We put forward a bid on Friday which outlined the basis upon which we will engage. If that is something the administrator wants to pursue, we will engage.”

Brookfield is understood to want to undertake a month of work to restructure the airline, which would include the renegotiation of enterprise bargaining agreements with the unions, the simplification of the Virgin fleet with aircraft owners, and discussions with airports and other creditors.

While it wants changes to the current timeline, it believes the process can still be concluded in time for creditors to vote on the sale at their next meeting, which is scheduled for August 22.

It is also believed to be prepared to work with other bidders if it will expedite the process.

This is less likely to include the BGH/AustralianSuper consortium as the two have clashed in the past over deals such as Healthscope.

Brookfield is also said to be keen that Virgin maintains a significant fleet of aircraft and will not work with bidders which will dramatically downside the fleet.

The Australian reported on Thursday that Bain Capital’s Australian managing director, Mike Murphy, held introductory discussions with Brookfield Australia’s Len Chersky before first-round bids for Virgin were lodged earlier this month.

Brookfield has also previously sought further certainty from the administrators about how they would fund the airline if their $100m cash position runs out at the end of June and were concerned that the liability would be left with the successful bidder after final bids were lodged.

It remains concerned about this issue.

Brookfield is understood to be a strong supporter of Virgin management led by Paul Scurrah, and has the support of the Transport Workers Union, which is keen to see as many bidders as possible in the race for the airline which went into administration on April 21 with debts of almost $7bn.

The national secretary of the TWU, Michael Kaine, which represents most of Virgin’s 10,000 strong workforce, said he welcomed the move by Brookfield as “a good thing”.

“Brookfield is a serious bidder. It has a track record of building infrastructure around the world.

“Having them in the mix is a positive for the process.”

The TWU is also concerned at potential bidders which could seek to turn Virgin into a low-cost carrier, which could see a loss of jobs.

It also believes that as a purely low cost carrier, Virgin would struggle to compete against the already formidable Qantas/Jetstar combination.

The re-entry of Brookfield into the process could see three possible bidders emerge next week or a separate Brookfield proposal being put to creditors in August.

Mr Strawbridge said in a statement on Friday that the “competitive tension that had resulted from the process to date confirmed all parties had a genuine interest in the future of Virgin Australia and saw real value in the business”.

He said the groups which had put in bids for Virgin on Friday were a “strong group of well funded parties” which also had “significant aviation experience”.

“All have done an enormous amount of work to get to this point and the level of engagement with each has been strong.”

He said administrators had held close to 100 meetings with bidders and stakeholder groups including unions and governments.

The proposals lodged on Friday would be reviewed over the weekend, with a final short-list of “two preferred parties” to be settled upon early next week.

Mr Strawbridge said the he would not speculate on the dollar value of the bids being discussed.

“There is some speculation out there on what dollar value bidders might be placing on the business,” he said.

“This is just speculation and we won’t know what that value might be until binding offers are required in mid-June.”

He said the process from next week, after the two short-listed parties are chosen, would see “further engagement with stakeholders and aircraft financiers as they seek agreements on future terms ahead of binding bids being received”. That process “would be just as intense and defined by an ongoing focus to deliver the best possible commercial outcomes for creditors and see Virgin Australia restricted and out of administration as a strong and sustainable airline.”

Brookfield is advised by former Virgin staffer and former senior Wesfarmers executive David Baxby, who was a non-executive director of Virgin Australia from 2006 to 2017 and a director of its frequent flyer arm, Velocity, from January 2017 to August 2017.

The TWU is continuing to press the federal government to step into the process to supply some minimum guarantees to provide certainty for the bidders.

While a potential five bidding parties are now believed to be interested in Virgin, the union has been concerned that bidders could still drop out of the process if it drags on and there are no guarantees by the federal government to provide them with some certainty about the airline’s potential to ramp up after it comes out of administration.

Additional reporting: Robyn Ironside