Suitors refine Virgin proposals

The four indicative bidders for Virgin are due to have video meetings with management on Wednesday

A Virgin Australia plane grounded at Sydney Airport. Picture: Getty Images

The four “indicative” bidders for Virgin are due to have video meetings with management on Wednesday as they refine their proposals with administrator Deloitte’s Vaughan Strawbridge.

The two strongest bidders are believed to be the BGH Capital/AustralianSuper consortium and Bain Capital, with little known about the two other “indicative bids” from New York-based Cyrus, a hedge fund which has had dealings with Richard Branson — including the launch and sale of Virgin America — and Arizona- based Indigo.

Cyrus Capital did not return calls and emails from The Australian, while a US public relations agency acting for Indigo said that “Indigo is not commenting at this time”.

The administrators are also in ongoing discussions with the federal government on a range of issues, believed to include a financial guarantee for ticket sales, potential assistance for the airline in the future if the sale process drags on, and potential guarantees which could be provided to bidders.

Mr Strawbridge says the administrators, which were appointed on April 21, have $100m in cash, enough to continue to fund the airline until its sale. But there are fears that the process could drag out longer than the initial goal of completion by the end of June.

Virgin has some $7bn in debt ranging from bank loans, landing fees owed to airports around Australia, payments to cleaners, on aircraft leases and to other unsecured creditors. One source, who advised an interested party which did not go ahead with an indicative bid, said it was impossible to put a value on Virgin given the uncertainties over the future of the resumption of flying within Austra­lia, any social distancing require­ments to be imposed on airlines once more domestic travel resumed, a timetable for a resumption of internat­ional travel and the potential com­petitive response of rival Qantas.

The source said it would take a series of guarantees from the federal government for bidders to start putting a price on Virgin, and that could include some assurances around a ticket pricing regime and potential guaranteed revenue from loss-making regional routes if the government wanted the new owner to continue them.

The Federal Court will on Wednesday reconvene to discuss the administrator’s application to avoid personal liability for payments under the federal government’s coronavirus wage relief subsidy, JobKeeper.

More than 8200 of Virgin Australia’s 10,000 employees have claimed a total of $24.8m in JobKeeper payments.

The Australian Taxation Office is in discussions with the administrators to +discuss to what extent they should be liable for any JobKeeper overpayments and whether there should be any exclusions to the limits put on the administrator’s personal liability.

The court’s ruling on the issue could become an important precedent in legal cases regarding the future treatment of the federal government’s JobKeeper legislation.

“The ATO has deployed staff and has been working on developing the resources and the material required to administer the (JobKeeper) Act since it was enacted,” the ATO’s lawyers, HWL Ebsworth, wrote in correspondence with the administrator’s lawyers, Clayton Utz, last week.

“However, those resources have been focused on the mainstream aspects of the provisions which will affect the broadest segment of the Australian community,” it said.

“The orders (sought by the administrators) raise complicated issues regarding how the Job­Keeper legislation relates to the Tax Act and the Corporations Law. Those matters have not had to be considered before and consideration of these complexities will need to be run to ground including by our client liaising with and obtaining advice from legal advisers, the Australian government, the Attorney General’s Department, and other affected agencies with responsibilities for impacted legislation.”

Peter Hanks QC will appear for the ATO at the hearing.