Bain Capital LP agreed to buy collapsed airline Virgin Australia Holdings Ltd in one of the biggest single bets on the industry since it was shattered by the COVID-19 pandemic.
Administrator Deloitte yesterday named Bain as the airline’s new owner, hours after rival buyout firm Cyrus Capital Partners LP withdrew its bid.
The value of the deal was not disclosed, though Deloitte said there would be “a significant injection of capital” into the airline.
Photo: EPA-EFE
Virgin Australia’s shareholders, including some of the biggest names in aviation, such as Singapore Airlines Ltd and Etihad Airways PJSC, were wiped out.
Bain’s investment is a brave bet on a sector enduring its biggest crisis ever, as well as on the Virgin Australia business itself, the nation’s second-biggest airline.
Larger rival Qantas Airways Ltd this week depicted a bleak outlook, cutting 6,000 jobs, grounding about 100 planes and raising as much as A$1.9 billion (US$1.3 billion) to survive a prolonged downturn.
While domestic travel is slowly recovering, the Australian government has said the nation’s borders could be kept largely closed until next year.
Airlines worldwide are likely to lose US$84 billion and see their revenues halve this year, according to the International Air Transport Association, which expects this year to go down as the worst year financially in the history of aviation.
Virgin Australia collapsed in April under A$6.8 billion in borrowings as the pandemic halted global travel. Even before COVID-19-related restrictions nearly froze revenue, it had lost money for seven consecutive years.
The airline started as a low-cost domestic carrier in 2000, before destroying its balance sheet trying to compete with Qantas as a full-service operator, with routes to the US and Asia.
When it went under, Virgin Australia employed about 10,000 staff and operated 144 aircraft, generating almost 80 percent of its revenue from domestic flights. It had pushed back delivery of Boeing Co 737 Max jets to July next year, when it expected to receive the first of the 48 it had on order.
Deloitte said it was still not possible to determine how much of Virgin Australia’s debt could be recovered, though more details would come in a report to creditors that is due before the end of August.
However, shareholders can expect nothing, Deloitte said.
Virgin Australia was almost entirely owned by four foreign aviation groups: Singapore Air, Etihad, HNA Group Co and Nanshan Group Co, with each owning 20 percent. Richard Branson’s Virgin Group owned about 10 percent.
Deloitte’s decision ends an auction process that initially drew interest from more than 20 parties.
Cyrus exited yesterday with a fiery attack on the sale process, accusing Deloitte of a “lack of engagement” since the US investment group submitted its takeover proposal on Monday.
Bain’s deal might face a further challenge from Virgin Australia’s bondholders, who this week submitted their own plan to swap their debt for new shares under an independent board.
Moreover, the sale agreement with Bain still needs to be approved by creditors.
Virgin’s more than 10,000 creditors include about 9,020 employees, court filings show.
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