Virgin bidder Indigo Partners seeking Australian partner investor

US investor Indigo Partners has already had approaches as it looks for a local partner in its bid for Virgin Australia.

Virgin Australia’s administrators will have video meetings with four, short-listed, indicative bidders for the airline. Picture: Getty Images

Arizona-based airline investor, Indigo Partners, would like to partner with an Australian investor in its bid for Virgin Australia, says its co-founder, Bill Franke.

“We see Australia as a very interesting market,” Mr Franke told an online seminar hosted by the Centre for Aviation.

Speaking from Phoenix, where Indigo is based, he said the Australian airline market was basically a duopoly between Qantas and Virgin.

“We think that’s a helpful, competitive environment.

“We think the country needs two airlines, and we want to be able to assist Virgin Australia in being one of those two airlines,” he said.

Mr Franke said Indigo, selected on Monday as one of four short-listed bidders for Virgin by the administrator, Deloitte’s Vaughan Strawbridge, had already been approached by “a number of Australian entities” about becoming potential partners in a bid for Virgin.

He indicated that it could team up with one of those as part of a bid for Virgin.

“We would, at the end of the day, like to have an Australian partner,” he said.

“It would be the right thing to do, but it all depends on the details.”

Mr Franke said the bidding process for Virgin would “unfold over the next month”.

Indigo, which has a controlling interest in Frontier Airlines in the US and Chilean low-cost carrier, JetSmart, is partnering with Los Angeles-based fund manager, Oaktree Capital, for its bid for Virgin.

Indigo has a controlling interest in US low-cost carrier Frontier Airlines

Mr Franke said the two partners had not been able to visit Australia to personally advance their bid because of COVID-19 flight restrictions, but had been talking with the administrator in Australia via video links.

“The two of us (Indigo and Oaktree) are working as best we can,” he said.

“We can’t have meetings in person but we are trying to adapt ourselves to become geniuses of the electronic age,” he said.

Mr Franke’s comments make it clear Indigo is aware of the need for a local Australian investor.

He said Indigo had not had any conversations as yet with the federal government about its intentions for Virgin.

“It would be premature,” he said.

Indigo’s “indicative” bid for Virgin is up against competition from three other groups – a consortium between BGH Capital and the $170 billion Australian Super, Bain Capital, which has funding from the Future Fund, and New York-based hedge fund and airline investor, Cyrus Capital, which was a co investor with Richard Branson’s Virgin group in the founding and later sale of Virgin America.

Mr Franke said Virgin Australia had a route network which included international and domestic travel in both economy and business class.

He said Indigo, which specialises in investing in low-cost airlines, would need to make an assessment of what would be the best routes for Virgin to fly and the best classes to operate if it won the bid.

“We have to make an analysis to determine whether that travel is important to Australia and to the success of the airline,” he said.

“We have not made that analysis yet.

“We have to look at the Australian market in terms of what the consumer wants.

“You have to fit yourself to the market and what the market wants.” he said.

“It is not done abstractly, it is done based upon an understanding of the market and what the market wants you to provide.”

A former chief executive of America West Airlines and the founding chairman of low-cost Singapore-based carrier Tiger Airways, Mr Franke told the online seminar that Indigo received many approaches for investments in airlines and was now “sorting through” about seven or eight different propositions.

“Right now, the (airline) sector is under considerable stress on a worldwide basis,” he said.

“It is not unusual for us to get a contact a week from a banker or an airline looking for capital or a point of view.

“We don’t consult, we are interested in airlines from the perspective of if there is an opportunity.”

“We are sorting through seven or eight different ideas where people have come to us with and where we think we might have value.

“We will thoughtfully look at each to make sure that there is a path to an investment return,” he said.

Mr Franke said Indigo was not in business “just to own airlines”.

“We are in the business to make money,” he said. “At the end of the day, we are capitalists.”