A reborn Virgin Australia could be flying in as little as three months, with administrators seeking to lock down offers from potential new owners by the middle of June.
“This is not intended to be a long protracted process,” Deloitte partner and administrator Vaughan Strawbridge said during a media conference call earlier this week.
“This is about working with a very sophisticated number of interested parties to map out and plan and get the restructuring through in the shortest amount of time… the intent is to run hard.”
Under Deloitte’s timetable for Virgin Mk II, as revealed by The Australian Financial Review, the shape of the new airline will be revealed to potential buyers in early May.
The administrators will then accept “non-binding indicative offers” through to the middle of May, while “serious, binding offers” must be lodged by mid-June, with the intention of signing contracts by the end of June.
Strawbridge has said there are “more than ten” potential buyers circling, with a roster that’s said to include local and international investment giants.
Sir Richard Branson is said to be prepared to stump up $200-$250 million, saying his Virgin Group, which holds 10% of the airline, is “determined to see Virgin Australia back up and running soon.
“We will work with Virgin Australia’s administrators and management team, with investors and with government to make this happen and create a stronger business ready to provide even more value to customers, competition to the market, stimulus to the economy, and jobs for our wonderful people.”
A spokesperson for Etihad Airways, whose 20% stake in Virgin is set to be slashed through the administration process, said the Gulf airline would “remain open for constructive discussions on a potential re-launch of the company.”
The Queensland, Victorian and New South Wales state governments have also talked up offers of $200-$500m, contingent on where the new Virgin will base itself, although as with Branson, those offers also hinge on on financial support from the federal government.even reasons to buy an airline
Deloitte’s pitch to the would-be owners of Australia’s challenger airline highlights its key domestic routes, including the ‘Golden Triangle’ of Brisbane, Sydney and Melbourne, which it described as “historically one of the most profitable operating jurisdictions globally for air travel.”
Until COVID-19 struck, Sydney-Melbourne ranked as the world’s second-busiest domestic air corridor.
Deloitte’s breakdown of Virgin’s fleet cites 63 company-owned planes and 69 leased aircraft across the group, with an average fleet age of nine years.
The Velocity Frequent Flyer program is also on the menu, in line with Strawbridge’s statement that the loyalty scheme – which in July-December 2019 netted Virgin more revenue selling points than flying people – would be offered to Virgin’s new owner “as part of the package” rather than sold off “as an individual asset.”
Here in full is Deloitte’s seven-point pitch list for Virgin Australia:
- Attractive two player domestic market with proven profitability
- Strong ongoing demand for domestic air travel (long distances between major cities, limited alternative transport options, tourism destination)
- Strategically valuable access to routes and slots in the “Golden Triangle”, historically one of the most profitable operating jurisdictions globally for air travel
- Highly cash generative and distinguished Velocity Frequent Flyer loyalty model, in excess of 10 million members and 90 partners
- Key strategic assets and infrastructure, including aircraft, route network, airport gates/slots, built over 20 years
- Unique opportunity to ‘relaunch’ Virgin Australia with a sustainable capital structure post COVID-19
- Strong support from government, regulators and unions – have all expressed a desire to keep Virgin flying following recapitalisation
Addressing speculation that Virgin Mk II could have a vastly reduced fleet and headcount, fly to fewer destinations, or axe international routes to become an entirely domestic airline, Strawbridge says “all of those things will be put on the table.”
“What we are focussing on during this process is to create as much optionality as possible. Obviously we will look through the operating structure of the business, the asset structure, the lease structure and see what we can do to help position the business to be more profitable going forward. That’s what we will do, but we want to create as much optionality for interested parties as possible.”
Virgin Australia CEO Paul Scurrah, who will remain at the helm during the administration period, still sees “a role for some international flying,” but allowed that “ultimately what we do in the future will be a decision for those who buy us.”
Scurrah also flagged a rethink on Virgin’s already-deferred deliveries of the troubled Boeing 737 MAX, which he pushed back from November 2020 to July 2021 as one of his first moves since taking over from John Borghetti on March 25, 2019
“We have indicated to Boeing that we want to talk to them about that. They’ve got a lot on their plate at the moment as you can imagine, but our future fleet considerations going forward will be something that’s hotly discussed through the administration process.”
Virgin’s standing order for the Boeing 737 MAX, which has been grounded for over a year following two deadly crashes, comprises 25 of the top-end 737 MAX 10 and 23 of the smaller 737 MAX 8 – a deal worth US$6.17 billion at current list prices, although airlines typically enjoy a steep discount of 40-60%.
The 737 MAX 10 was most recently seen as launchpad for Virgin’s next-generation business class, reportedly a fully-flat bed which Borghetti promised would deliver a “quantum leap in domestic business class”, replacing Virgin’s fleet of Airbus A330s when those jets spearheaded an expansion into Asia.
However, the A330s – all of which are leased at what’s said to be overly-expensive rates – could face the administrator’s axe, leaving Virgin at a competitive disadvantage to Qantas’ own A330s when chasing corporate travel on Australia’s east-west routes.