Interest in Virgin Australia soars as bids fly in for airline

Four serious indicative bids, including Ben Gray’s private equity firm BGH and Singapore’s Temasek, are circling the collapsed airline.

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

Four serious indicative bids for Virgin Australia are expected to be lodged with its administrator on Friday, with a consortium involving the $170bn Australian Super and the Ben Gray-backed private equity firm BGH firming as one of the leading bidders.

Singapore's state-owned investment fund Temasek, which has majority ownership of Singapore Airlines, will be involved through its investment in BGH's initial $2.5bn equity fund, set up in late 2018, but it will not be a partner in the bidding consortium.

However, the Queensland Government, which outlined plans this week to become involved in a potential bid for Virgin, won’t be participating in Friday’s initial bidding process.

The two other major groups in the bidding for the airline, which went into voluntary administration on April 20 with debts of some $7 billion, are Canadian infrastructure investor Brookfield, and private equity firm Bain.

A fourth player expected to make an non binding indicative bid is expected to be Indian investor InterGlobe Enterprises (IGE), which is led by Indian billionaire Rahul Bhatia who co-founded Indian budget carrier IndiGo.

Virgin’s administrator Deloitte’s Vaughan Strawbridge, who has been overseeing the process since he was appointed on April 20, has asked interested groups to lodge non-binding, indicative bids by close of business on Friday.

The bidders are believed to be benchmarking their purchase price on Virgin earning well below $800m next financial year, and potentially as low as $600m.

Virgin’s administrator is projecting its earnings before interest and tax will be around $1.2bn.

Queensland Investment Corporation chief executive Damien Frawley who has been asked to oversee the Queensland bid, told The Australian the state-backed funds arm would not be making a bid on Friday but would be talking to short-listed players from next week.

“We have elected not to commit to Friday’s process,” Mr Frawley told The Australian.

“We want to ascertain what happens after Friday and see who’s left in the ring.

“Then we will continue our engagement with some of those consortia.”

The Queensland government has indicated it could put as much as $200m into a bid for Virgin through a range of options ranging from equity to debt or other forms of assistance.

“We’re good for $200m at least,” Mr Frawley said.

He said the Queensland government had “strategic objectives” for its bid, including maintaining Virgin’s headquarters in Brisbane and making sure the state had access to two competitive airlines, which were critical for its tourism industry.

But he said QIC would also be assessing on financial terms.

“This needs to be assessed on its merits financially,” he said.

QIC's chief executive Damien Frawley. Picture: Lyndon Mechielsen for The Australian

He said QIC would not be recommending a bid to the government if it “didn’t stack up.”

Queensland Treasurer Cameron Dick said on Wednesday that the investment “could take the form of a direct equity stake, a loan, a guarantee or other financial incentives”.

Virgin’s administrator, Deloitte’s Vaughan Strawbridge, has asked interested groups to lodge non-binding, indicative bids by close of business on Friday.

Final bids for the airline are expected by June, with the winning bidder expected to be announced by the end of that month.

Canada-based Brookfield is not expected to make a bid with partners, but could team up later with the QIC and maybe Perth based conglomerate Wesfarmers in the more serious second round of the bidding. Wesfarmers is said to have interest in Virgin’s frequent flyer arm, Velocity.

Former Tiger Air chief executive Rob Sharp is working with Brookfield, as is former Virgin board member and former Wesfarmers executive David Baxby.

Bain Capital, which invests money for the federal government’s Future Fund, is being advised by former Bain consultant Jayne Hrdlicka, given her experience running Jetstar and Qantas’s loyalty program.

But it is unclear if she would have any management role in the airline if the Bain bid was successful or if she would be a director.

Several other smaller players are also expected to lodge non-binding indicative bids by the close of business on Friday.

Richard Branson’s Virgin group, which own some 10 per cent if Virgin Australia, is keeping a close eye on the process with hopes of joining in at a later stage with a leading bidder, assuming the bidder kept the Virgin brand.

It is understood that India’s InterGlobe would not be looking to use the Virgin brand which involves paying an annual royalty fee of $15m to Virgin.

In the mix

Other groups taking an active interest include Virgin shareholder Etihad Airways and the private interests of Fortescue Metals Group founder Andrew Forrest through his newly renamed private investment arm Tattarang.

Temasek owns some 55 per cent of Singapore Airlines which was a 19.9 per cent shareholder in Virgin before it went into administration.

Virgin’s administrator, Mr Strawbridge, told The Australian this week that none of the shareholders in Virgin, which also include Richard Branson’s Virgin, Etihad and China’s Nanshan Group and the troubled HNA, would be getting any of their money back.

The question is how much of the $7bn in creditors will get their money back with expectations are that they will have to take a haircut on their exposure with some $2bn in unsecured investors taking the largest haircut.

The Singapore government sovereign wealth fund Temasek, recently agreed to back a $15bn emergency fund raising exercise by Singapore Airlines.

Singapore Airlines is understood to be closely watching the sale process now underway, as is the Virgin group and keen to retain links with the airline as it emerges from voluntary administration later this year.

Virgin First Officer Ian Morrison performs a pre flight inspection on his aircraft before taking off on a flight to Sydney, at Brisbane Airport. Picture: Lyndon Mechielsen for The Australian

Mr Strawbridge earlier told The Australian in an interview that he was “really pleased with the level of engagement” they had from interested parties in 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.

Competitive tension

Mr Strawbridge has been criticised by some potential bidders for the speed of the process.

In his interview with The Australian, he admitted that the process was an “aggressive one” designed to engender “competitive tension” to get the best outcome for Virgin’s creditors and its employees.

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

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

He said 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.”

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 said he made no apologies for conducting an “aggressive” sale process which 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.”