Virgin Australia bond holders in plan to get airline flying again

Virgin’s bond holders propose pumping an upfront $800m into the embattled airline under a plan that could halt its sale.

The bond holders’ plan would get Virgin flying again. Picture: David Clark

Virgin Australia’s bond holders are proposing to recapitalise the embattled airline, with a plan to back Virgin management with an upfront capital injection of $800 million to get the carrier flying again.

The bond holders include the Singapore-based Broad Peak Investment Advisers hedge fund, which is backed by Temasek, the controlling shareholder in Singapore Airlines.

The debt-for-equity swap plan lodged with Virgin’s administrator Deloitte on Wednesday morning would halt the sale process for the airline, just as administrators are poised to choose between two final bidders.

Under the plan, 5500 Australian holders of the bonds would become the owners of Virgin shares listed on the ASX. The plan would return them 70c in the dollar, giving the company a $1.4 billion market capitalisation.

“The bond holders have told the administrators they are proposing a capital structure that allows creditors to choose the time of recovery,’’ a spokesman for the group said.

“It will be immediately for those who want cash, or later for those thinking it would be better to wait for the airline industry to return to normal. We are matching the Virgin 2.0 management plan with a capital structure with a lot less debt.”

The plan guarantees full employee entitlements, honours all travel credits provided by the administrator, supports the Velocity frequent flyer scheme being retained and enhanced, backs the airline remaining located in Brisbane and will provide interim funding for the administrators of $125 million through to the creditors’ meeting in August.

There are 6000 retail investors who have their money invested in Virgin’s bonds, while about 30 global institutions are said to have about $11 trillion under management.

Virgin has $7.1bn in debt, of which $2.1bn is accounted for by the bond holders.

Bond holder Broad Peak was involved in the 2008 restructuring and recapitalisation of the then CVC Asia Pacific-backed PBL Media, the owner of the Nine television network, and the later restructuring of Queensland toll road operator BrisConnections before it was sold to Transurban.

The move by bond holders comes as final binding offers for the airline, which went into voluntary administration on April 21, were lodged with Deloitte’s Vaughan Strawbridge on Monday by short-listed bidders Bain Capital and Cyrus Capital Partners.

Mr Strawbridge will choose the winning bid on June 30.

Deloitte has not release financial details of the final offers but says both plan to operate the airline as a smaller, single-branded domestic and short-haul international carrier with growth potential.

More bidder promises

Meanwhile, the one upmanship between the two companies vying to become Virgin Australia’s new owner has continued, with Bain promising to implement a support program for all employees impacted by the COVID-19 crisis.

The pledge, by Bain’s Australian managing director Mike Murphy came as the ACTU called for the firm to be transparent with employees and make its commitments public.

Just over 9000 people remain employed by Virgin Australia, including pilots, flight attendants, engineers, ground crews and administrative staff. Most of those workers are currently stood down and receiving the Jobkeeper allowance.

ACTU president Michele O’Neil said rival bidder Cyrus had provided a written guarantee to unions that 100 per cent of entitlements would be protected, along with as many jobs as possible.

“It is now up to the other bidder Bain to do likewise and show Australian workers their bonafides when it comes to protecting the jobs and entitlements of people working in Australia,” Ms O’Neil said.

“The commitment to keep the headquarters where it is, means protecting the jobs that are already in place. Australian unions support protecting as many as possible of the current jobs and working together to create more jobs as the airline industry recovers.”

As well as honouring all employee entitlements, Cyrus has told the ACTU it would provide a range of future benefits to workers.

This would include a share-based long term incentive plan so employees can share in Virgin Australia’s future success, similar to the scheme implemented at Virgin America.

Cyrus senior adviser Jonathan Peachey also told Ms O’Neil there would be opportunities for employees to take a “career break” while retaining rights to return to Virgin rather than taking a redundancy.

In response, Mr Murphy provided a four-point list of Bain’s commitment to employees, including to cover all entitlements; to protect as many jobs as possible; to develop a broadbased employee equity participation program and to implement a support program for employees impacted by COVID.

With Virgin Australia administrator Deloitte due to choose between Bain and Cyrus by June 30, the companies have issued a host of pledges and commitments.

These include honouring any prepaid tickets for travel with Virgin Australia and all points held by the Velocity loyalty program’s 10 million members.

Both companies have also entered into an agreement with the Queensland Government’s investment arm QIC, to retain the airline’s Brisbane headquarters in return for a $200m injection.

Neither Bain nor Cyrus would comment on an announcement by bondholders they had lodged a recapitalisation plan with Virgin Australia’s administrators Deloitte, that could negate the need for a sale.

It’s understood the firms believe it is a matter for Deloitte although there is concern the proposal could push out the sale process beyond June 30, adding extra pressure to Virgin Australia’s dwindling cash reserves.

The airline went into administration on April 21 owing $6.8bn to more than 15,000 creditors.

Despite its financial predicament, Virgin Australia has continued to operate a network of mostly government-subsidised flights.

There are plans to increase services in coming weeks to 320 flights a week by early July