Virgin to remain in Brisbane as bids lob

Virgin Australia will retain its headquarters in Brisbane regardless of which bidder succeeds.

Virgin Australia will retain its headquarters in Brisbane regardless of which bidder succeeds, with the Queensland government committing to pay some $200m as part of deals negotiated with Queensland Investment Corporation chief executive Damien Frawley.

The race for Virgin Australia is heating up, with rivals Bain Capital and New York hedge fund Cyrus Capital both submitting binding offers on Monday to the administrator, Deloitte’s Vaughan Strawbridge, following deals with the Queensland government.

Mr Strawbridge, who is set to announce the preferred bidder by June 30, said on Monday that the bidders had received approval from the Foreign Investment Review Board.

While the bidders remain tight-lipped about how much they are offering to pay for the airline, which went into administration on April 21 with debts of around $7bn, Bain revealed on Monday that it would give equity in the airline to Virgin staff who remained with the business after a major restructuring.

Bain also committed to fully funding the entitlements of those that will be made redundant if it is named the preferred bidder by the administrator next week.

Both bidders are expected to cut Virgin’s existing workforce of 9000 and operate with a reduced fleet of aircraft as they work to make the airline profitable.

Cyrus has received the support of two unions representing Virgin staff — the Flight Attendants Association of Australia and the Australian Licensed Aircraft En­gin­eers Association — but the key Transport Workers Union is still talking to both bidders.

Both bidders say they are committed to having Virgin chief executive Paul Scurrah remain in the role if they win.

The Australian understands the Bain bid will offer an extensive employee share plan to Virgin staff who remain when the business transitions to private ownership, and provide resources and support programs for those that are let go.

The Bain bid lodged with Deloitte on Monday also promised to honour all existing travel credits, purchased directly and through travel agents.

Mr Strawbridge won federal support for the conditional travel credits plan last month instead of offering those who had purchased tickets refunds.

Bain’s bid also states there will be no change to Virgin’s frequent flyer program, Velocity, including the current point balances of members and the pricing architecture.

Bain is looking to better align Virgin with the Velocity brand, including having a common phone app and website.

Rival Cyrus has given a commitment to the Australian Federation of Travel Agents to protect an estimated $100m worth of pre-paid Virgin Australia tickets bought through member agents.

In a letter to AFTA chair Tom Manwaring, Cyrus senior Adviser Jonathan Peachey said “consumer and agent confidence in Virgin Australia was of paramount importance” to the company.

“Cyrus acknowledges the important role that agents play in the travel and tourism industry, and we appreciate the faith that agents have placed in Virgin Australia during recent months,” Mr ­Peachey said.

“I am pleased to confirm without hesitation that if Cyrus becomes the new owner of Virgin Australia, tickets booked and paid will be honoured so that customers can take their flights with the airline,” he said.

Mr Peachey also promised Cyrus would honour Velocity points held by the loyalty program’s 10 million members.

The administrator, Mr Strawbridge, confirmed on Monday that he had received binding offers from both Bain and Cyrus.

He said these would now be carefully assessed by the administrators and their advisers, with a view to selecting a preferred bidder by June 30.

He said both bidders had already flagged some of their plans for the airline, including operating “a smaller, single-branded domestic and short-haul international airline that also has growth potential”.

Mr Strawbridge said the ultimate size of the airline would depend “on the timing and level of demand by customers as travel restrictions are eased”.

Mr Strawbridge will put a proposal to a meeting of Virgin creditors on August 21.

He said both bidders had engaged closely with the range of groups that had an interest in the outcome, from federal and state governments and unions to creditor groups that included airports and aircraft financiers.

“Both Bain and Cyrus have done an enormous amount of work to get here today, are well-funded and are enthusiastic supporters and see real value in this business going forward,” he said.

“On the basis of their public statements, both bidders are committed to seeing a strong, competitive and sustainable Virgin Australia operating into the future, employing many thousands of Australians, and supporting the tourism industry and state and national economies.”

QIC chief executive Damien Frawley told a parliamentary committee on Monday that he had had “strong engagement with (Virgin’s) administrators and all bidding parties, including the final two bidders”.

“We have been pleased with the engagement so far and will continue to actively pursue the state’s objectives.”

The Transport Workers Union on Monday said it would be assessing the details of the two binding bids lodged today before it made its decision on which one to support. “We will assess the final offers made by the two bids and will be examining details indicating how they will engage with workers, allow a long-term future for the airline and return it to its fullest possible capacity,” TWU national secretary Michael Kaine said.

But he hit out at moves by bond holders owed $2bn to launch a potential recapitalisation proposal for the airline, describing it as “unsettling”.

Mr Kaine said the suggestions that the bond holders — who got access to the data room for the airline two weeks ago — were looking at their own proposal indicated that there was a “vacuum left by the federal government’s refusal to get involved”.

He said the federal government’s failure to provide any certain about any interim or long-term funding for the airline had allowed “anonymous bond holders to step in and try to stage a coup”, increasing uncertainty over the future of the airline.

“The government’s lack of action has resulted in workers held hostage as uncertainty mounts,” he said.

He criticised the federal government for repeatedly refusing to help the airline when it was hit by COVID-19 travel restrictions, forcing it into voluntary administration.

Since then the government had provided no indication of its plans for the airline and how jobs and regional service in Australia would be protected.

“It won’t even assure workers that they can get JobKeeper past September when international air travel will still be at zero and domestic travel will still be curtailed. Governments around the world have made major interventions in their aviation industries.

“These governments continue to subsidise wages, take equity stakes in airlines and pump billions into a sector that they know is a key gateway to their economic recovery,” he said.

Additional reporting: Damon Kitney