Final bids lodged for Virgin Australia

The final bids for Virgin Australia have been accompanied by a flurry of rival promises including ticket guarantees and equity for staff.

Virgin First Officer Ian Morrison performs a pre flight inspection on his at Brisbane in May. Picture: Lyndon Mechielsen

Bain Capital plans to give Virgin Australia staff that remain with the business after a major restructuring equity in the business and has committed to fully funding the entitlements of those that will be made redundant if it is named the preferred bidder by the administrator Deloitte next week.

The revelation came as Bain and rival Cyrus Capital lodged final bids for the airline with administrator Vaughan Strawbridge from Deloitte, after news had earlier emerged that Cyrus had struck a deal with the Queensland Investment Corporation to keep Virgin’s headquarters in Brisbane.

The Australian understands the Bain bid will offer an extensive employee share plan to the Virgin staff that remain when the business transitions to private ownership, while it will also provide resources and support programs for those that are let go.

Bain final bid for the airline, bid lodged with administrator Deloitte on Monday, also noted that all existing travel credits, purchased directly and through travel agents, would be honoured.

Mr Strawbridge won federal support for the conditional travel credits plan last month instead of offering those that had purchased tickets with refunds.

The Bain bid also stated there will be no change to Virgin’s frequent flyer program, Velocity, including the current point balances of members and the pricing architecture.

Bain is looking to better align Virgin with the Velocity brand, including having a common phone app and website.

On Monday afternoon Cyrus gave a further commitment to the Australian Federation of Travel Agents to protect an estimated $100m worth of prepaid Virgin Australia tickets bought through member agents.

In a letter to AFTA chair Tom Manwaring, Cyrus senior adviser Jonathan Peachey said “consumer and agent confidence in Virgin Australia was of paramount importance” to the company.

“Cyrus acknowledges the important role that agents play in the travel and tourism industry, and we appreciate the faith that agents have placed in Virgin Australia during recent months,” Mr Peachey said.

“I am pleased to confirm without hesitation that if Cyrus becomes the new owner of Virgin Australia, tickets booked and paid will be honoured so that customers can take their flights with the airline.”

Mr Peachey also promised Cyrus would protect and honour Velocity points held by the loyalty program’s 10 million members.

Virgin Australia CEO Paul Scurrah (left) and administrator Vaughan Strawbridge of Deloitte. Picture: John Feder

Final bids, FIRB approval

News of Bain and Cyrus’ latest undertakings came after Virgin received final offers from the rival bidders on Monday. A brief statement issued by Mr Strawbridge revealed the two US companies had already received Foreign Investment Review Board approval.

Mr Strawbridge said both bidders had indicated they were looking to operate a smaller, single-branded domestic and short-haul international airline that had growth potential.

“Both bidders are committed to seeing a strong, competitive and sustainable Virgin Australia operating into the future, employing many thousands of Australians, and supporting the tourism industry and state and national economies,” he said.

“Ultimately the size of the airline will be dependent on the timing and level of demand by customers as travel restrictions are eased.”

Virgin went into administration on April 21 with debts of almost $7bn.

Cyrus bid favours Brisbane

Earlier in the day it was revealed Cyrus had struck a deal with the Queensland Investment Corporation to keep Virgin’s headquarters in Brisbane.

Sources close to the Cyrus bid told The Australian that Cyrus - which has had informal discussions with Virgin management for the past two years, starting from when former Qantas executive John Borghetti was chief executive - had decided to retain Brisbane as the airline’s headquarters.

While Cyrus only emerged recently as a serious bidder for Virgin, the New York based investor has had a long history of links with the Virgin group having been a co investors in Virgin America and a joint investor in UK regional airline Flybe with Virgin Atlantic.

The New South Wales and Victorian governments were also believed to be in discussions with the bidders about moving more of the airline’s operations to their states.

But the Queensland Government has signalled its determination to retain Virgin’s headquarters in Brisbane, announcing earlier in the year that it would be prepared to provide benefits of up to $200 million to a bidder which would retain the headquarters in Queensland.

QIC chief executive Damien Frawley was asked by the government to negotiate with the bidders. The exact source and size of the funding for the QIC led deal is yet to be announced.

The NSW Government is also believed to be keen to have Virgin move its headquarters to western Sydney where an “aerotropolis” is being built in connections with the second Sydney airport.

While Cyrus confirmed recently that it had also had talks with the Victorian Government, it is believed the main bidding pressure will come from Queensland and NSW.

Virgin Australia staff Marcella Pirritano (left) and Jessica Turnbull. Picture: Aaron Francis

Mr Strawbridge said Deloitte, its advisers and the Virgin management team had spent the last three weeks working closely with teams from Bain and Cyrus to enable them to complete their due diligence and be in a position to submit their offers on Monday.

“They’ve also engaged closely with the range of groups that have an interest in the outcome of the process, from federal and state governments and unions to creditor groups that include airports and aircraft financiers,” Mr Strawbridge said.

“As I’ve previously said, both Bain and Cyrus have done an enormous amount of work to get here today, are well-funded and are enthusiastic supporters and see real value in this business going forward.”

Both bidders have said they would retain Virgin’s current chief executive, Paul Scurrah, as their chief executive under new ownership.

Unions weigh bids

Meanwhile the Transport Workers Union on Monday said it would be assessing the details of the two binding bids lodged before it made its decision on which one to support. Two other unions representing the Virgin employees that count among the airline’s creditors have already come out backing the Cyrus bid.

“We will assess the final offers made by the two bids and will be examining details indicating how they will engage with workers, allow a long-term future for the airline and return it to its fullest possible capacity,” TWU national secretary Michael Kaine said.

Mr Kaine also hit out at moves by the holders of $2 billion worth of Virgin corporate bonds to launch a potential recapitalisation proposal for the airline, describing it as “unsettling.”

He said suggestions that the bond holders, who got access to the dataroom for the airline two weeks ago, were looking at their own proposal indicated that there was a “vacuum left by the federal government’s refusal to get involved”.

He said government failure to provide any certainty about any interim or long term funding for the airline had allowed “anonymous bondholders to step in and try to stage a coup”

There was now increasing uncertainty over the future of the airline, he said, saying that workers were now being “held hostage” by that uncertainty.

He criticised the federal government for repeatedly refusing to help the airline when it was hit by COVID-19 travel restrictions, forcing it into voluntary administration.

Since then, the government had provided no indication on its plans for the airline and how jobs and regional service in Australia will be protected.

“It won’t even assure workers that they can get Jobkeeper past September when international air travel will still be at zero and domestic travel will still be curtailed,” he said.

Mr Kaine said governments around the world including in Germany, France, Portugal, Hong Kong and the Netherlands had been prepared to offer financial support to their airlines.

“These governments continue to subsidise wages, take equity stakes in airlines and pump billions into a sector that they know is a key gateway to their economic recovery.

“Scott Morrison keeps saying he wants a strong second airline in Australia but to achieve this he and his Government must now act with targeted intervention before it is too late.”