Suitors circle in bid to grab Virgin Australia controls

Further details are emerging about how consortiums are shaping up for the contest to secure control of collapsed airline Virgin Australia, ahead of its creditors meeting on Thursday.

DataRoom understands that Perth-based conglomerate Wesfarmers is working with Macquarie Group and other parties on an attempted recapitalisation of the airline, while BGH Capital, advised by Moelis, is working with other parties in another consortium.

US-based Indigo Partners has been a third party that has been assessing the situation for some time, although is not thought to be as well placed as the competing Macquarie and BGH groups. One possibility is that Indigo joins forces with the Macquarie camp. It is understood Wesfarmers’ interest in Virgin Australia centres on the Velocity frequent-flyer program, which could be merged with its Flybuys loyalty program.

Interestingly, former Wesfarmers boss Richard Goyder is chairman of Qantas.

Meanwhile, airline Etihad and Richard Branson’s Virgin Group, which have both been Virgin Australia shareholders, are understood to be on the edges hoping to partner with one of the winning parties.

Also on the fringes are understood to be major private equity funds such as Oaktree, Bain Capital and potentially Apollo, which may emerge as consortium members, while airline Regional Express is believed to also have been around the hoop.

Any group that winds up an owner of Virgin Australia and wants to continue to use the name of the airline needs to pay Sir Richard a royalty fee.

Working as administrator for Virgin Australia is Deloitte, but KordaMentha is understood to be angling for the position, with an outcome of the potential upset expected to be known on Thursday.

The Weekend Australian reported that Virgin Australia owes $6.84bn to creditors, including almost $2bn to bondholders and $450m to employees. Its creditors owed $2.28bn to 26 corporate lenders and aircraft financing facilities, while a further $1.88bn was owed to 50 aircraft lessors.

With such a large debt pile, and bond holders owed only about $2bn, the thinking is they may have little say in the outcome of a restructure, which is being overseen by Houlihan Lokey. It is expected that the group of creditors with a greater position of power are the secured lenders that have leased aircraft to Virgin. Such lenders are unlikely to be keen to put the company into receivership and take back their assets at a time when no airlines are flying.

However, they are especially well placed if they have planes that the successful bidder wants.

What aircraft are returned to the leasing providers at the end of the recapitalisation will depend on what routes Virgin Australia will continue to fly.