Brookfield plans $500m Virgin Australia cash injection

Brookfield is proposing to inject more than $500m of upfront cash into Virgin Australia to recapitalise the airline.

The final bidders for Virgin will not be known until Tuesday. Picture: AAP

Canadian infrastructure giant Brookfield Asset Management is proposing to inject more than $500m of upfront cash into Virgin Australia to recapitalise the airline and fully provide for staff redundancies as a key element of a 40-page rescue proposal lodged with its administrator on Friday.

The Australian understands the Brookfield plan involves rebuilding the Virgin fleet back up to 80 Boeing 737 aircraft over 18-24 months (subject to market conditions), flying initially domestic and then eventually short-haul international routes.

It has also proposed to fully cover all the entitlements owed to workers made redundant for the relaunch of the airline.

A Brookfield-owned Virgin would continue to be Brisbane-headquartered, and the Canadian group has been in negotiations over the past fortnight with both the Queensland Investment Corporation and Richard Branson’s Virgin Group to come aboard as potential investors.

After recent discussions with the federal government’s emissary on the Virgin administration, former Macquarie Group chief executive Nicholas Moore, Brookfield’s plan assumes there will be no explicit federal government support for the collapsed carrier’s rebirth.

The final bidders for Virgin will not be known until Tuesday after the administrator, Deloitte’s Vaughan Strawbridge, told the four shortlisted bidders he would hold meetings with them on Monday before reducing the list further. Mr Strawbridge’s adviser, Morgan Stanley, contacted the four groups on Sunday afternoon to say they were still working through the process and would further discuss their detailed, non-binding offers on Monday.

Mr Strawbridge on Friday received more proposals from the four parties after their initial round of non-binding indicative offers two weeks ago, and remained in detailed negotiations with them over the weekend.

The four are a consortium of BGH and the $170bn AustralianSuper, the high-profile Bain Capital and two US bidders, New York based Cyrus Capital and Arizona-based Indigo.

Brookfield lodged a surprise bid for the airline on Friday, which is conditional on the administrators providing more time to restructure the collapsed airline. It also believes the airline needs $500m of free cash up front to get back in their air.

Brookfield wants to undertake a month of restructuring work, which would include the renegotiation of enterprise bargaining agreements with unions, the simplification of the Virgin fleet with aircraft owners, and discussions with airports and other creditors.

While it wants changes to the current timeline, it believes the process can still be concluded in time for creditors to vote on the sale at their next meeting, which is scheduled for August 22.

It is also prepared to work with other bidders if it will expedite the process and has held initial exploratory discussions with Bain Capital.

It remains to be seen if Brookfield is allowed to re-enter the formal process, which could be opposed with legal action by the rival bidders, or whether a separate Brookfield plan is presented to creditors in August.

Several rival bidders are said to be concerned if Deloitte reduces the number of bidders from five to three on Tuesday, believing it would make it harder to meet Mr Strawbridge’s aim to agree on a final bidder by June 30.

They also questioned over the weekend how informed Brookfield’s proposal could be after it was not involved in the 15 separate management and stakeholder sessions held over the past fortnight, other than a meeting with the unions.

Brookfield is understood to be a strong supporter of Virgin management led by Paul Scurrah, and has the support of the Transport Workers Union, which is keen to see as many bidders as possible in the race for the airline that went into administration on April 21 with debts of almost $7bn.

At least one of the bidders has also been talking to Mr Strawbridge about being given an assurance that they will not be gazumped by an interloper in the process once two final parties are shortlisted.

Meanwhile, it is understood that Virgin’s administrator will confirm later this week that the airline’s short-term cash position has improved from the $100m it announced two weeks ago.

Mr Strawbridge is believed to have been able to unlock some cash reserves from the airline that should increase its cash cushion.

The federal government is steadfastly refusing calls from the TWU, which is concerned about the fate of the airline’s 10,000 ­employees, to step in with more ­financial assistance or financial guarantees for the airline.

TWU national secretary ­Michael Kaine said on Sunday he was concerned that the sales process could still fall at the last hurdle if the federal government did not step in to provide some financial assistance or guarantees to the bidders.

“There is too much consistency between the bidders on the question of a funding gap and the question of certainty around the cash burn when they start operating the airline because of borders closures and uncertainty around JobKeeper including whether the support net for workers facing the loss of their job due to the pandemic will be extended,” Mr Kaine said.

“All of that uncertainty means that bidders will not have a clear view about how much money they are going to spend to get the company back in the air.”

He said it was not inconceivable that without certainty provided by the federal government, the final bidders could go through the process, get to the last hurdle and pull out.

“That is absolutely conceivable and an absolute concern of ours which is why the federal government has got to step in,’’ he said.

Additional reporting: Robyn Ironside