Richard Branson spends $50m on stake in Virgin Australia

Branson missed out on the stake he was after in Virgin Australia but he now becomes its second-biggest shareholder.

Sir Richard Branson in Brisbane to promote Virgin Australia’s new Tokyo flights, which were ultimately scuttled by COVID-19. Picture: Liam Kidston

Richard Branson’s Virgin Group will spend an estimated $50m for a 5 per cent stake in Virgin Australia after new owners Bain Capital refused to hand over any more equity in the airline.

The UK-based company will also retain a board seat, which will be filled by chartered accountant Warwick Negus, who has sat on the board of Virgin Australia since 2017.

It’s understood Mr Negus will be the only director from the board of pre-administration Virgin Australia to continue on under Bain, who formally took over on Tuesday.

Branson had wanted a 10 per cent stake in the carrier and had the cash ready to make the investment but it’s understood Bain was determined to retain a 90 per cent share.

The Queensland Government will hold about 3 per cent, following a $20m investment, in addition to other financial sweeteners worth a total of $200m.

Management, including CEO Jayne Hrdlicka may also get a small slice as well, providing that doesn’t encroach on Bain’s share.

The US private equity firm’s determination to hold such a significant chunk of the airline, is thought to reflect their expectation of Virgin Australia becoming profitable.

As well as the 5 per cent equity stake and a board seat, Virgin Group reached an agreement with Bain on the ongoing use of the brand, which previously cost about $15m a year.

Although the group would not discuss the terms of the new deal, Branson said he was delighted the airline was “ready for takeoff once more with a clear direction to fly towards”.

“We’re very optimistic about the future and enormously proud of all the Virgin Australia team,” he said.

Virgin Group CEO Josh Bayliss said even with a 5 per cent stake, they were pleased to be the airline’s second biggest shareholder and to be working with Bain.

“Led by Jayne Hrdlicka we are confident that Virgin Australia’s focus on enabling its incredible people to provide an outstanding service for customers will see the airline provide strong competition to Qantas and an exceptional experience for flyers,” Mr Bayliss said.

It’s understood Branson is keen to return to Australia to meet Ms Hrdlicka and reacquaint himself with the carrier, which was originally launched as budget airline Virgin Blue in August 2000.

In 2011, then CEO John Borghetti oversaw the airline’s transformation to full service carrier Virgin Australia in an effort to take on Qantas, leading to eight consecutive annual losses.

Under Bain, Virgin Australia was poised to relaunch as a “mid-market carrier” positioned between full service Qantas and low fares airline Jetstar.

The plan attracted criticism from aviation consultant Neil Hansford who said it appeared to be a “work in progress” that was at best half-baked.

“I will make a prediction that the plan as released has little chance of delivering venture capital acceptable profits, if any profit at all,” Mr Hansford said.

“This is likely to see further job losses in the short term, which could downsize the airline (from 6000) to 5000 employees.”

He said with a fleet of 57 Boeing 737s and wet lease aircraft from partner Alliance Aviation, Virgin had “no chance of attaining their target of 30 per cent of the domestic airline market”.

“As Alan Joyce has predicted, Qantas and Jetstar will grow their market share to at least 80 per cent,” said Mr Hansford.

“The unions and (administrators) Deloitte picked the wrong horse by backing the Bain bid. In US and Europe it’s the ultra low cost carriers like Wizz and Frontier who have come back much stronger.”