Bain Capital may have made a big splash on Tuesday with its announcement it had finally clinched a deal with Qatar Airways to buy 25 per cent of Virgin Australia, but what the private equity firm remained coy on was the price.
However, DataRoom can now reveal the price that Qatar Airways outlaid for the interest was understood to be about $750m or more, supporting a $3bn valuation of the carrier as a whole.
It will form an important part of any pricing of an initial public offering of the airline next year, with some market observers suggesting this will set an expectation around valuation.
One could argue because it was a sale of a strategic stake, a premium could be justified, but Bain will now expect this valuation of the carrier when a listing is planned next year — the same value it was hoping for last time it thought about listing.
Without the Qatar deal, which came after talks first emerged last year, Bain may not have achieved a $3bn valuation for a Virgin Australia IPO and may have been prepared to live with it, but this now creates a valuation floor.
The tie-up with Qatar Airways is likely to be good news for consumers from a competition perspective, but the challenge for Virgin Australia will convincing the unions the transaction would get around the airline being classified as Australian as it awaits approval from the Australian Competition and Consumer Commission and the Foreign Investment Review Board.
Virgin Australia also consists of Virgin Australia International, which is held in a separate structure.
The airline will need to convince government regulators with respect to its international flights to Doha it’s Virgin Australia, not Qatar Airways, taking the financial risk.
If the financials rest on Qatar Airways and not Virgin, it could open the door for wet leases from any international carrier, which could substantially impact the pay and conditions of aviation workers at Australian carriers such as Qantas.
Under a wet lease arrangement, one airline sells seats on flights operated by another carrier, which uses its own aircraft and crew.
As reported on Tuesday by The Australian, as part of the deal the Doha-based airline will be able to operate more flights in and out of Australia as part of a wet lease.
Qantas currently has a wet lease with Finnair on Sydney-Bangkok and Singapore routes, with the intention of switching to a dry lease from late 2025.
In a dry lease, an airline uses another carrier’s aircraft but crews the flight with its own employees.
Virgin Australia’s plan is to use Qatar Airway’s Boeing 777s or A350s on routes from Sydney, Melbourne, Brisbane and Perth to Doha from July 2025.
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