Richard Branson’s link to Virgin bidders Cyrus and Bain Capital

Virgin Group has a 10pc stake in Virgin Australia. Picture: Getty Images

The emergence of New York-based hedge fund Cyrus as one of two well-funded shortlisted parties in the race for Virgin on Tuesday confirms Virgin founder Richard Branson will play a role sometime in the future of the airline.

Little is known in Australia of Cyrus and its plan for Virgin except for its long-running ties with Branson. Cyrus founder and managing partner is the well connected Stephen Freidheim. A Yale graduate, Freidheim is a board member of the Council on Foreign Relations, chairman of the executive committee of the Peterson Institute for International Economics and a board member of the US Olympic Committee since early 2012.

With offices in New York and London, Cyrus, which was founded in 1999, manages some $US4bn in funds. Cyrus has maintained a low-key profile with regard to its Australian bid, but it seems its large chequebook played a big part in it being shortlisted.

Asked what was the main reason behind Cyrus’s surprise selection, one observer said on Tuesday night: “Money.”

Having made the shortlist, Cyrus will now have to become more public about its plans for Virgin, if not with the media then at least with interested parties such as the unions and possibly state and federal governments.

The other question is its ties with Richard Branson.

Cyrus’s ties with Branson date back to 2005 when it became an investor in Branson’s proposed Virgin America. Branson’s Virgin Group announced plans to launch a US carrier in 2004 but it needed US investors because of US law prohibiting foreigners from controlling more than 25 per cent of an American airline.

Virgin America got off the ground in 2007, jointly controlled by the Virgin Group and Cyrus, the two together holding 54 per cent of the airline. The stake was sold to Alaska Airlines in 2016 for $US2.6bn, netting Cyrus and Branson a nice profit.

But the opposite occurred more recently when Branson and Cyrus got the band back together in late 2018 to buy loss-making British regional airline Flybe. Branson’s Virgin Atlantic teamed up with Cyrus and Irish wet lease specialist Stobart Air in a consortium called Connect Airways.

The deal was finalised in February 2019 with Virgin Atlantic holding 30 per cent of the capital of Connect with Cyrus holding 40 per cent and Stobart Air taking another 30 per cent.

But the investment in Flybe, which at its peak operated 40 per cent of domestic British flights, proved to be a disaster with the already financially stretched airline hit by the impact of COVID-19 flight cut backs earlier this year.

Talks were held with the British government in February about granting Flybe a £100m ($183m) rescue loan but ministers in the Johnson government rejected the application.

With the Connect investors opting not to put any more money into it, Flybe went into administration on March 5.

Two weeks later Connect itself entered into administration.

Branson still in the race

On the face of it, Cyrus could be seen as ensuring that Branson is still in the race somewhere.

But Branson also has ties with front runner Bain, which was confirmed as one of the two finalists on Tuesday, and fifth-running Brookfield, which was not in the official shortlist but joined the other five bidders in making another indicative bid on Friday to Virgin administrator Vaughan Strawbridge.

Bain Capital has a joint venture in the cruise industry with Virgin Voyages.

Branson could link up with Bain Capital or Cyrus if either emerges as the leading contender to buy Virgin.

Another Branson connection in the Virgin bid is Branson’s strong links with former Wesfarmers executive David Baxby who was working with the Brookfield consortium. Baxby knows Cyrus from his days as a non-executive director of Virgin America from 2009 to 2013.

He was a non-executive director of Virgin Australia from early 2006 to August 2017, and a director of Velocity Frequent Flyer from 2016 to 2017. He left it to join Wesfarmers as a senior executive, a role he left earlier this year.

His previous connections with Branson also include being co chief executive of the Virgin group from November 2011 to July 2013.

While Baxby has been advising Canadian infrastructure company Brookfield, it is not out of the question that Brookfield could find its way back into the race if, say, it chose to link up with Cyrus.

Branson’s Virgin Group had some 10 per cent of Virgin Australia before it was placed into voluntary administration on April 21 with debts of almost $7bn.

The Virgin Group has a vested interest in having ties with the winning bidder; it receives some $15m in fees a year from Virgin Australia for the right to use the Virgin brand.

Cyrus may well be the rabbit to keep front runner Bain honest, giving its best offer in the race to June 12 when binding bids are due. Either way the Branson connection with Virgin and its many interested parties seems set to continue.