‘Huge effort from everyone’ got Virgin Australia’s $3.6bn sale over the line

Deloitte partner Vaughan Strawbridge says he finds it ‘really motivating’ to get an opportunity like Virgin.

Deloitte partner Vaughan Strawbridge says he finds it ‘really motivating’ to get an opportunity like Virgin. Picture: AAP

Despite months of high-profile stress nursing an airline with $7bn in debt through a successful sales process during one of the worst years ever for the aviation industry, Virgin Australia administrator Deloitte partner Vaughan Strawbridge says he loves his job.

A veteran of several voluntary administrations, including clothing company Harris Scarfe and accessory company Oroton, Strawbridge says he finds it “really motivating” to get an opportunity like Virgin “where you want to make a difference and see a business come out the other side”.

For the cool headed New Zealand-born Strawbridge, who finalised the $3.6bn sale of the airline, the past seven months involved juggling the interests of some 20 possible buyers, creditors from around the world, aircraft lessors, state and federal governments and unions — all while looking out for the interests of some 9000 staff and thousands of contractors.

While jobs will be lost at Virgin, pulling off the sale of an airline that was $7bn in debt during a period when much of the company’s fleet was largely grounded due to COVID-19 travel restrictions and no significant government assistance — unlike other major airlines around the world — was a major feat.

The deal with Bain will see employee entitlements paid out, customers flight credits honoured with between $450m and $600m in cash being paid out to unsecured creditors including bond holders, trade creditors and aircraft lessors.

While Australia’s aviation history has its fair share of failed airlines, including Ansett, Strawbridge was able to pull the debt-ridden company out of the fire, determinedly working through a careful process of lengthy consultation, negotiation and Zoom meetings, all the while keeping an upbeat public face and a daily watch on the airline’s dwindling fuel gauge of cash.

Huge effort by everyone

“It has been an amazingly huge effort by everyone to get through to today,” he said.

“It’s quite extraordinary what we have been able to achieve through COVID and the challenges that has thrown up to us — and continues to throw at us.”

The process has involved several crunch points — culminating in a sale process signed on June 26 that saw Bain agree to inject $125m cash into the airline, with agreements to buy the airline either by a deed of company arrangement or through an asset sale — ahead of the final meeting of creditors.

It also saw Bain allowed to come into the restructuring process at Virgin from July 1, working alongside the airline’s management and Strawbridge’s team to achieve changes at the airline at a speed which would have only been possible under the powers of a voluntary administrator.

“The voluntary administration process enables you to restructure a business quickly,” he said.

“(Virgin chief executive) Paul Scurrah did have a transformation plan for the airline, which would have taken him three years to achieve.

“We have achieved in four months what would have taken him three years to achieve.”

Just when it appeared that Australia was set to open up completely, Strawbridge had had to deal with rapid closures as a result of the COVID outbreak in South Australia this week.

Rollercoaster ride

“All the way through this it has been a real rollercoaster ride around what has been thrown our way.”

A feature of the deal process has seen a close relationship between Strawbridge as administrator and his team and chief executive Scurrah who was already working through a turnaround program for the airline when it was forced into administration on April 21 as a result of COVID-19 travel shutdowns.

“We developed a really strong relationship with Paul and the management team and our advisers,” Strawbridge said.

“It was run like one big team. Everyone knew what their role was, everyone had each other’s back. Working together has meant we could navigate the challenges and get through.”

Strawbridge admits that he has “never encountered circumstances like this” in his career.

The process has involved regular briefings for a committee of inspection of stakeholders including major creditors of some 35 people as well as around-the-clock meetings with potential buyers. “At one stage, over a five-day period (after the initial long list of 20 was reduced to a shortlist of five), we held over 100 meetings,” he said.

Ironically, the changes as a result of the very virus that which has caused the pandemic — a big shift too video conferencing — allowed a global negotiation process to take place in a relatively compressed period of time

“Outside of COVID you would never have done that before — you couldn’t actually organise 100 physical meetings.”

“With COVID, people have become used to using Microsoft Teams and Zoom, we did find a way to make it work.

“We had people globally, at all hours of the night on these calls, which meant we were able to fast track the sales process, hold all the meetings of key stakeholders and interested parties and get them through their due diligence requirements to meet our timetable.”

Quite extraordinary

“It was quite extraordinary. Everyone got on board and made it work.”

One of the key challenges, was keeping an eye on the airline’s cash flow.

While Strawbridge was publicly maintaining the airline had enough cash to keep trading, the cash position was being managed on a day-by-day basis, made possible by deals with creditors and airline lessors to reduce costs, including being able to pay by the hour to use aircraft.

“It bought us time to run the sale process we were able to run.”

Bain’s ability to inject cash upfront from July 1 was also a key part of the deal to allow the airline to keep trading — a critical point in the sale process that was not quite as evident to some other bidders.

Strawbridge says his main anguish during the process came after the deal was done with Bain but a group representing some bond holders attempted to derail the process taking Strawbridge to court.

The bondholders put up a deal that Strawbridge did not regard as credible but it saw Virgin staff worried that the sale process to Bain could be derailed and the airline could go into liquidation.

“The hardest thing was the human impact on the staff,” he says of that period.

“We knew there wasn’t any substance to their offer … but some of the staff were worried what it meant for them and whether they would have a job.

“It was really difficult to see the staff go through that. We worked hard to communicate to them that we were going to achieve an outcome that would see the airline survive, but it was really difficult.”

With the successful restructure and sale of Virgin now done, Strawbridge will step back, possibly planning a break.

“Each time I finish one of these big deals I say I am going to take a holiday,” he said. “Then I go straight into a new role.”

With COVID still creating economic havoc around the world, there’s no doubt there will be many new challenges ahead for one of Australia’s leading corporate doctors.