Inside Bain Capital’s winning Virgin Australia bid

Bain Australia CEO. Mike Mike Murphy. Picture: John Feder.

When former Toll Holdings executive-turned Bain Capital adviser Rick Willmott hit the phones on Thursday morning for a final ring-around of the unions representing Virgin Australia workers, the tone on the other end of the line was far different than that of a fortnight ago.

The message to Willmott from the likes of Australian Services Union boss Linda White and Flight Attendants Association of Australia secretary Teri O’Toole was more conciliatory.

In his briefings back to Bain’s bidding team, Willmott reported that the US private equity group had done much to explain its intentions as the potential new owner of Virgin and had somewhat assuaged the concerns of workers that it would slash and burn the airline and eventually cut and run.

A day earlier, Bain’s Australian boss Mike Murphy had lengthy meetings on Zoom with Transport Worker’s Union secretary Mike Kane and Australian Council of Trade Unions president Michele O’Neil.

They were final rallying calls, fresh from Murphy publicly confirming that the Boston-based group would guarantee all the entitlements and provide support programs for the Virgin workers made redundant in the sale process and would offer shares in the airline to those that remained.

The work Bain has done to increase the comfort of the union movement and Virgin’s workers about its plans for the airline is one of the key reasons it was `chosen on Friday to be the preferred bidder by its administrator, Deloitte’s Vaughan Strawbridge, following the withdrawal of its rival Cyrus Capital Partners.

“Cyrus would take a less hands-on approach but in many ways I think Bain is better for the airline right now,’’ said one source at the heart of the sale process.

“The discipline and that focus they bring might be the best for the moment. They have deep pockets and are very committed. As the Qantas news on Thursday showed, the impact of COVID-19 on the airline industry could go on for a bit of time and Bain have the appetite and the long term view that Virgin can return to health longer term. They have done the deals with the airports, governments and other interested parties and they have money to put in the bank account on Monday.”

While the Virgin 2.0 management plan to resurrect the airline championed by CEO Paul Scurrah involves what some have described as “nips and tucks” to the carrier, Bain wants a big restructure of the airline to help it thrive.

Jayne Hrdlicka has been tipped as a potential future Virgin CEO. Picture: Stuart McEvoy.

That will see the fast tracking and acceleration of elements of Scurrah’s plan with a big investment of more than $1 billion upfront to help it return to the skies and fireproof it to survive an extended aftermath to the pandemic.

Before the onset of COVID-19, the Virgin 2.0 management plan involved cutting 3000 staff and Mr Scurrah has told staff throughout the Virgin sale process that job losses will be inevitable.

“For the first time in the past 12 months, the Virgin management led by Paul have huge support from our staff and when we go forward with Bain, they will back us,’’ said one Virgin insider.

Bain will relaunch Virgin as a hybrid airline with a low cost base but offering a business class, airport lounges, a more integrated Velocity frequent flyer program and regional, domestic and eventually, international services.

Virgin will return to the skies with about 40 Boeing 737 planes in the air, with scope to expand closer to 70 as travel demand returns to normal after the COVID pandemic.

Bain has conducted 6000 interviews with Virgin customers over the past two months, from which it has concluded their two most important priorities for the relaunched carrier are price and the availability and scheduling of flights.

The research has found the travelling public likes the brand because it represents great value.

It will invest behind beefing up the technology in the Virgin business, including its mobile app and online booking capabilities.

This could also bolster the Velocity business in the way Qantas has used data analytics businesses such as Red Planet to bolster its powerhouse Frequent Flyer division.

Bain is negotiating to bring the Velocity brand closer to the airline to create bigger commercial experiences and drive greater commercial opportunity in ongoing talks with Sir Richard Branson’s Virgin Group, which currently receives about $15m a year in royalty payments from the Australian carrier.

Bain has had a team of 60 advisers working on the Virgin deal and has been assisted by former Jetstar chief executive Jayne Hrdlicka, who is expected to become a director of the airline.

While Bain will initially retain Mr Scurrah as chief executive, she may also be a future candidate to succeed him in the role.

Bain and Virgin Group have a joint venture in the cruise industry with Virgin Voyages and Mr Murphy has said it would welcome Virgin Group as an ongoing shareholder in the airline. It will retain the Virgin brand.

Bain late Sunday cut a deal with the Queensland government representatives to keep the airline based in Brisbane in return for about $200 million in benefits.

It is hopeful the federal government will continue to assist the embattled aviation sector through route and jobkeeper subsidies but has not asked for a bespoke Virgin-only support package.

Mr Murphy is one of the 15 partners who manage Bain Capital’s suite of Asia Private Equity Funds, which have collectively raised $US11.5bn ($16.7bn).

He said last week the funds for the Virgin bid were “committed, they are internal, they don’t need approvals and we are ready to go,” and would come from a $25bn pool of capital globally.

While the Future Fund is an investor in Bain’s offshore private equity funds through the more than $26 billion it invests in the asset class, it has not played a direct co-investing role in Bain’s Virgin bid.