Brookfield, InterGlobe still on Virgin Australia sidelines

Virgin has about 40 Boeing aircraft that are expected to be retained by a buyer. Picture: David Clark Photography

Brookfield Asset Management might still have some interest in making a bid for Virgin Australia despite being knocked out of the first round of the contest, but it is understood that the India-based InterGlobe has also not given up hope of getting back in the race after it too was excluded.

Both InterGlobe, a major shareholder of the budget Indian carrier IndiGo, and Brookfield were knocked out in the first round of competition.

The US-based Indigo Partners with the same name is partnering with Oaktree Capital Management for its bid, and is one of the parties that made it through to the second round.

Brookfield owns most of Oaktree, so they might all come together.

However, despite being excluded from the shortlist, any other group can propose a Deed of Company Arrangement to the creditors at any time.

Should creditors vote in favour of such a proposal, that offer could succeed.

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Some believe this is more a theoretical argument than a reality, as Brookfield and InterGlobe would likely only start working on a bid once again if all other parties do not come up with a proposal that sees employees paid their entitlements.

They might make a more attractive offer such as job guarantees, although this is seen to be unlikely.

The voluntary administrator Deloitte would likely obtain court approval to speed up the process to prevent Virgin Australia falling into liquidation and typically, administrators take a conservative approach.

Employees hold the most power with respect to numbers when it comes to a creditors vote, despite being owed only $450m, while bond holders, owed $2bn, hold the most sway from a value perspective and would likely vote collectively.

While the aircraft lessors are owed $1.88bn, their interests are not all aligned so they would be unlikely to all vote the same way.

Another way for a party to manoeuvre its way back into the process could be an offer of emergency funding that would stave off a liquidation of the carrier on the provision of being granted exclusive due diligence.

Yet most think that any party would only agree to this if they could strike a deal where they ranked ahead of the senior secured lenders in terms of being paid.

In other collapses, bidders buy the senior debt in the hope of gaining more influence on the outcome, but in the case of Virgin, the senior secured bank debt is only a small fraction of the $6.8bn owing.

It could also easily be refinanced.

Short-listed bidders include Bain Capital, BGH Capital, Indigo Partners and Cyrus Capital Partners.

Some are questioning whether the game plan of the hedge funds and private equity firms in the final stage of the race is to get their business plans for the airline underwritten by the government.

Bain Capital has drafted in Goldman Sachs, which is likely to be there to provide some funding.

Apparently, a number of large investment banks declined offers to represent state governments on Virgin Australia that may assist with funding.

Virgin has about 40 Boeing aircraft which are expected to be retained by a buyer when it emerges out of collapse, but the six or so A330s used on Asian routes will likely be discontinued.

Of the Boeing planes, five are 777-300s, which are used to fly to the US.

The Boeing planes are considered more fuel efficient than the Airbus aircraft, according to experts.

Four of those Boeing 777-300s are owned by Virgin, and while there might be a desire to divest these large aircraft, it may not be realistic in the current market.

The buyer would almost certainly transform the carrier into one that will predominantly fly on trans-Tasman and domestic routes and possibly to Bali or Fiji.