Virgin Australia: Bain bid ‘blew them out of the water’

Bain Capital is going to inject $600m cash into Virgin Australia to help get things up and running.

Virgin staff Chelsea Dodd, Phil Vlieg, Anthony Saville, Kelby Buchanan and Peter Armstrong posing in front of Long Beach, 737-800 at the Brisbane Domestic Airport.

Bain Capital is going to inject $600m cash into Virgin Australia to help get things up and running as part of a deal struck on Friday to takeover the airline.

While no details of the deal have been released, The Australian understands that Bain will begin to inject capital into the airline from as early as next week as part of the agreement struck with administrator Deloitte’s Vaughan Strawbridge.

Bain is understood to have proposed an initial cash injection of $1.75bn as part of the deal, including $600m to meet travel credits, $600m cash up front, and another $450m to cover employee entitlements.

This will be in addition to taking on other liabilities including aircraft leases.

No details are available on how much the $2bn in unsecured bond holders will get from the deal.

The bond holders lodged their own bid for Virgin this week in a bid to boost their potential payout.

The private equity bidder Bain is believed to have plans to begin laying off Virgin staff in the next few weeks. While it is expected that Virgin will have to cut back staff from its current 9000, expectations are that it will move quickly to take a tough line with the airline’s workers given its cash burn rate.

Virgin’s administrator Mr Strawbridge confirmed to The Australian on Friday that a cash injection from Bain was agreed as part of the deal.

While Mr Strawbridge still insists he has some $100m in cash to continue to run Virgin, this is largely due to a deal with the Australian Taxation Office to hold off paying pay as you go tax until the airline has been sold.

He has made it clear he needs more capital to continue to run the airline until a proposal can be put to a meeting of creditors to be held by August 21.

Bain is not expected to take over the airline legally until September, but it is expected to step up its involvement in the running of the airline from next week.

The reports of job losses of as many as 4000 Virgin staff in the long term come as two of the airlines unions have backed Bain rival Cyrus which withdrew from the bidding war on Friday morning.

Virgin’s employees have been wary of the Bain bid, with some seeing former Jetstar chief executive Jayne Hrdlicka’s involvement as signalling a hard line with staff.

Jobs on the line

Bain Capital has promised to retain as many jobs as possible at Virgin Australia and “re-establish itself as an iconic Australian airline”.

Bain’s Australian-based managing director Mike Murphy confirmed on Friday that it would buy the airline, with a deal signed with administrator Deloitte’s Vaughan Strawbridge.

Bain has not revealed how much it has offered to pay for Virgin, which went into administration on April 21 with debts of some $7bn, but reports are that the Bain Capital bid was significantly higher than the one being put by Cyrus.

“Bain blew them out of the water,” one source told The Australian on Friday.

In a statement issued on Friday, following the withdrawal of New York hedge fund Cyrus from the bidding war, Bain said it was committed to protecting as many Virgin jobs as possible and would fully fund all employee entitlements.

The issue of how many jobs would be retained has been a key issue for Virgin staff at a time when Qantas has just announced the layoffs of some 6000 employees.

Mr Murphy said Bain would also offer those Virgin staff retained involvement in an employee ownership or profit sharing scheme.

Mr Murphy said Bain was giving an “ongoing commitment to invest in regional services.”

He said it would also move for closer integration between Virgin Australia and its Velocity frequent flyer program.

Mr Murphy said Bain was “excited” to have entered into a sale agreement to become the new owner and operator of Virgin.

26/Mike Murphy, Bain Australia CEO. Picture: John Feder.

He said Bain would now “work with stakeholders” and looked forward to “sharing its vision for the future in more detail with Virgin’s employees, unions, and bond holders” as well as government and regulators.

Mr Murphy said Bain’s plans for Virgin would see it “support and celebrate Virgin’s unique culture and protect as many jobs as possible for the short and medium term.”

He said Bain appreciated how difficult the situation had been for Virgin’s staff.

The Bain proposal will retain Virgin’s current chief executive Paul Scurrah as chief executive.

“Paul Scurrah and his leadership team have worked tirelessly during the administration period and are critical to our future,” Mr Murphy said.

“We are determined to see that Australians have access to competitive, viable aviation services for the long term.

“Under our ownership we will strengthen Virgin’s regional services and ensure the airline emerges offering exceptional experiences at great value while continuing to service business travellers, as well as those of us travelling for fun or to visit loved ones.”

Mr Scurrah said he believed that Bain’s proposal “offers the best possible future for Virgin, its employees and customers.”

He said the Bain Capital team had “demonstrated a deep understanding of aviation” and the Virgin culture.

“We are aligned in our vision for Virgin 2.0 and look forward to working with them to secure the airline’s future.”