Bain Capital’s Virgin Australia and Air New Zealand are understood to have held recent discussions about a merger of the two airlines at a time that Virgin is also assessing whether it could buy regional airline Rex, say sources.
Air Zealand has a $2bn market value and is run by one of the world’s most highly regarded retail executives, Greg Foran, the former US boss of Walmart.
When approached about the speculation after speaking at the Australian Investment Conference at the Gold Coast on Thursday, Virgin Australia boss Jayne Hrdlicka declined to comment.
Air New Zealand did not comment but it later said in a statement it had not been approached and was not in discussions with any parties, regarding a potential merger transaction.
However, sources have told DataRoom that offering Virgin assistance about possible plans have been investment banks investment banks Goldman Sachs and Jarden.
Sources say that discussions have been held between New Zealand’s national carrier and Virgin in recent weeks, although they do not suggest that the pair have necessarily progressed towards a deal at this stage.
But DataRoom understands that the plan would involve a back door dual listing here and across the Tasman of Virgin into Air New Zealand, providing an expansive trans-Tasman network for both groups in what would be somewhat of a move back to the future.
Air New Zealand previously owned 19.9 per cent of Virgin Australia and the pair had an alliance, but Air New Zealand sold to Chinese conglomerate Nanshan Group for $260 million in 2016.
Former Air NZ boss Chris Luxon resigned from the Virgin board amid suggestions he tried unsuccessfully to oust the airline’s boss, John Borghetti.
Currently, Air New Zealand, 52 per cent owned by the NZ government, counts Qantas as its strategic alliance partner for Australia travel, an arrangement less than ideal given the pair compete on the trans-Tasman route.
Virgin would only buy Rex if it returned to only regional routes, say sources, and one challenge is that the Macquarie-advised Rex is reliant on 40 per cent of its feeder traffic from Qantas, an arrangement that could end under Virgin’s ownership.
Bain purchased Virgin out of voluntary administration in 2020 for $3.5bn and there had been some speculation that it would consider an initial public offering as early as next year.
It collapsed at the start of the pandemic while straddled with debt after buying the remainder of its frequent flyer program.
Ms Hrdlicka, a former Jetstar and A2 Milk boss, replaced former Virgin chief Paul Scurrah.
She told private equity executives at the conference on Thursday that the airline was blessed with a lot of demand, offsetting inflation pressure and that after $300m of cost cuts, more would follow.
For the year to June 30, Virgin Australia made a $567.9m loss, had net debt of $1.2bn and a 45 per cent revenue increase to $2.2bn.
Virgin holds 33 per cent of the Australian domestic airline market, and while travel restrictions last year hurt its recovery plans, it is on track for profitability this year with absenteeism back to levels seen in 2019.
On both deals, the Australian Competition and Consumer Commission and the New Zealand Commerce Commission are expected to play a major roles, but some believe Bain takes the view a Rex deal may pass, given the proposed deal by Qantas to buy regional carrier Alliance Aviation.
Soaring airfares domestically and across the Tasman in the current market are unlikely to help the cause of the airlines should price gauging continue amid a period of high demand and few flights, partly due to labour shortages.
Earlier Mr Foran signalled that he believed mergers and acquisitions would be on the agenda for the global airline industry and is known to have ambitions for Air New Zealand, which is 52 per cent owned by the New Zealand government.
Australia’s largest regional carrier outside Qantas, Regional Express, trading as Rex Airlines, has a $146m market value.
It counts as a financier through convertible notes PAG, the Asia private equity firm that this week agreed to buy Four N’ Twenty pies owner Patties from Pacific Equity Partners and frozen food producer Vesco from Catalyst.
The company is chaired by Singaporean businessman Lim Kim Hai, who owns a direct interest of about 17 per cent and a collective interest of about 23 per cent.
Healthscope firmly in the sights of Bain
Bain Capital is closing in on its next big target struggling with too much debt – the country’s second-largest hospital operator Healthscope.
Incitec Pivot’s fertiliser price likely too high for some
Potential bidders have been given information about Incitec Pivot’s fertiliser unit, but the jury’s still out as to how much they will be prepared to pay..