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If it had not been for COVID-19 we would not be here: Virgin admininistrator

Virgin Australia administrator Vaughan Strawbridge is expecting non-binding bids to be pared back to around eight on Friday.

Deloitte partner Vaughan Strawbridge
Deloitte partner Vaughan Strawbridge

Virgin Australia administrator Vaughan Strawbridge is expecting non-binding bids to be pared back to around eight serious contenders on Friday, less than half of the 19 would-be buyers given access to the airline’s accounts.

In an interview with The Australian, Mr Strawbridge, who heads the NSW restructuring operations of accounting firm Deloitte, said he expected Virgin’s shareholders would be wiped out while creditors should prepare to take a haircut, particularly the $2bn in unsecured creditors.

He noted that some of the $2bn in unsecured debt was being traded privately at only 15c to 20c in the dollar.

“I don’t think anyone is under the illusion that all creditors will get their money back,” he told The Australian. “It is very unusual in this process for all creditors to get their money back.”

He said Virgin was a good business which would not have been placed into voluntary administration had it not been for the shutdown in airline travel forced by the COVID-19 crisis.

“There has been a pandemic which has caused this,” he said.

“If it had not been for COVID-19 we would not be here right now.

“We have 90 per cent of our aircraft grounded and over 80 per cent of our staff being stood down.”

He said the administrators were “really pleased with the level of engagement” they had from potential buyers of the airline.

“The level of engagement from stakeholders has been extraordinary,” he said.

“Our objective is to achieve a restructuring of Virgin and see the business come out of administration as soon as possible,” he said.

“It is not designed to be a prolonged, drawn-out process.”

He said he believed the best outcome would be achieved by a bid that kept the business together and kept as many of the existing staff as possible.

The aim of the process was to “preserve as many jobs as possible” while “achieving the best outcome for all the creditors”.

“We believe that the highest offer will most likely align with the best outcome for employees,” he said.

“It will be keeping the majority of the aircraft fleet together and taking on the majority of the business, with staff receiving continued employment through that process.

“I see the two interests as being aligned.”

While Mr Strawbridge declined to discuss potential bidders, it emerged late on Wednesday that the Queensland government would look to be involved in a bid for Virgin.

Queensland Treasurer Cameron Dick confirmed the interest in taking a direct equity stake or providing a loan, guarantee or other financial incentive to the airline through its $80bn Queensland Investment Corporation. The potential involvement of QIC was foreshadowed by The Australian’s DataRoom column on May 4. QIC could link with Canadian infrastructure investor Brookfield and even Perth conglomerate Wesfarmers in the final round of bidding next month to form a powerful consortium.

While Macquarie Group will not be linked with Brookfield in the indicative bids due to be lodged with Deloitte by Friday, it could yet be involved in a Brookfield consortium.

Another serious offshore bidder is private equity group Bain Capital, which is being assisted by former Jetstar chief executive Jayne Hrdlicka. However, Bain has a limited presence in Australia, which may restrict its ambitions to secure support for the bid from its American parent.

Virgin Australia planes are grounded at Sydney Domestic Airport. (Photo: Getty Images)
Virgin Australia planes are grounded at Sydney Domestic Airport. (Photo: Getty Images)

Indian investor InterGlobe Aviation also emerged this week as another foreign player in the process, while British billionaire Richard Branson is likely to be involved with some consortium given his interest in Virgin’s Australian operation since its launch in 2000.

The Ben Gray-led BGH bid being advised by retiring PwC boss Luke Sayers and Arnold Bloch Leibler partner Leon Zwier is believed to be the sole serious local bidder. Transport magnate Lindsay Fox, the owner of Avalon Airport near Melbourne, has not yet linked with BGH but is said to be watching the process with interest.

Mr Strawbridge has been lead administrator, overseeing the process, since Virgin was placed into voluntary administration on April 20 after failing in its bid to get more financial assistance from the federal government.

Interested bidders have been told to have discussions with the Foreign Investment Review Board before lodging their final bids on June 12.

Mr Strawbridge made no apologies for conducting an “aggressive” sale process that included requiring a high level of information from potential bidders this week about their consortiums and their plans for the airline.

“It’s a fairly aggressive process which is designed and set up for speed,” he said.

“It is designed to create competitive tension — it’s not a popularity contest.

“That’s the way we achieve the best outcome — by having the best competitive tension.”

“We only intend to go through this process once,”

He believed that those who had been privately complaining about the pace of the process were not serious bidders, with the serious contenders now intensively engaged in the process.

“They are coming from people who have been left behind.”

In his interview with The Australian, Mr Strawbridge said while 19 interested parties had been given access to the data room for Virgin, a smaller number of about eight potential bidders had been given the “forward business plan around that Virgin 2.0 would look like”.

“We have worked with them and provided them with the business plan going forward in order to allow them to finalise their indicative non-binding offers. It is that smaller group that we are expecting the bids from on Friday.”

He said the process, which was now narrowing, could see some of the other parties in the broader group of 19 come back into the process at a later stage.

He said parties in the initial 19 had had “different levels of interest in the business and might have a role later on in the process”.

“The process is narrowing down to a really focused group of serious contenders who have done a huge amount of work and are incredibly engaged in the process,” he said.

He said the next stage, after Friday’s indicative bids were received, was to go through a “highly engaged, intensive process with short-listed parties we choose and really focus on diving into the details”.

He said the process was on track to have final bids by June 12 with a decision by the end of June.

He said discussions were “focusing around keeping the business together and bringing Virgin as much out of administration in its current form as we can”.

He said foreign bidders had been told they had to have discussions with FIRB now.

He said it was not his intention to get to June 12 and then find out the conditions that may be imposed on bidders by FIRB.

“If there are any conditions required (by FIRB) they (the bidders) will have already gone through that,” he said.

He said he was working closely with Virgin chief executive Paul Scurrah and the Virgin management team to continue running the airline and continue with Scurrah’s plans to transform the airline.

“The management team has gone through a transformation process and what is needed to do in order to take the business forward,” he said. Virgin had a “strong management team,” he added.

But as administrator, he was able to push ahead with many of Scurrah’s plans faster than would have been the case if the company was not in administration, which could improve the potential profitability of the airline.

“A lot of the plan around Virgin is around accelerating that transformation and using the power of being an administrator to take it one step further.”

This included getting the airline out of loss-making and uncommercial contracts “to reset the cost base”.

Read related topics:Virgin Australia

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Original URL: https://www.theaustralian.com.au/business/aviation/if-it-had-not-been-for-covid19-we-would-not-be-here-virgin-admininistrator/news-story/c3c839bf33d7254d99a21b01beeae0ba