Virgin Australia bondholders attempt to block US sale of airline
A Virgin Australia A330 departs Melbourne-Tullamarine. Photo by Duy Khang Tran | AeroNewsX
Virgin Australia bondholders have today launched a last-ditch attempt at recapitalisation for the airline, which was recently placed into administration on 21st April 2020. The bondholders' aim is to regain money invested in the airline and also act as a preventative measure against its sale to US based investment firm Bain Capital, who is now competing with rival firm Cyrus Investments for control over the stricken airline.
Australia's second largest airline was established in 2000 as Virgin Blue, by British airline magnate Richard Branson and fellow Australian investor Brett Godfrey as the first serious low-cost entry into the then overpriced Australian airline market. Following the collapse of Australia's then second largest airline Ansett Australia in September 2001, Virgin Blue quickly spread its wings across Ansett's former market filling the void left by the collapsed airline with a simple low-cost business strategy and a simplified fleet of Boeing 737 Classic and 737 Next Generation aircraft.
Over the coming years, Virgin Australia continued to grow and prosper becoming a serious threat to Australian national airline Qantas who responded by establishing its own low-cost competitor Jetstar. However, Virgin Blue's fall from grace appeared to come with its transformation into a full-service competitor to rival Qantas, as well as a change of name and branding to Virgin Australia. As Virgin Australia, the airline added business class seats to all aircraft, Virgin Australia lounges in airports across Australia, as well as buying new Airbus A330 and Boeing 777 aircraft to fly Australians to popular international destinations such as Los Angeles and Hong Kong.
The facelift of the airline into Virgin Australia appeared to be successful on the outside but the airline soon began to bleed money, posting millions of dollars in losses during its first year as Virgin Australia in 2011. These losses have only mounted over the past nine years with the airline not posting a single yearly-profit, despite every effort to remain competitive. The onset of the 2020 coronavirus crisis was the final straw for the airline, which on the 21st April 2020 was placed into voluntary administration with Australian firm Deloitte chosen to try and rescue the business.
Since April, there has been huge interest by a number of Australian and International firms in purchasing Virgin Australia, ranging from Singapore Airlines to the Queensland Government and budget-airline conglomerate Indigo Partners. However, by the beginning of June 2020, Deloitte had narrowed down the bidders to just two: US based investments company Bain Capital and Richard Branson backed Cyrus Investments.
This interest in the airline, however, did not help the airlines bondholders who have a A$2 billion interest. This led the airline's bondholders to today put forward a proposal in which the airline would be recapitalised in order to allow bondholders to gain their return of investment, allow Virgin Australia employees access to their entitlements, as well as restructure the business for a more profitable future.
In return for the recapitalisation, the bondholders would invest a fresh A$1 billion of capital into the airline to assist it with its resumption of operations after the coronavirus crisis, as well as restructuring. The proposal would also allow the bondholders to be repaid up to 70 cents per every dollar in which they invested in Virgin Australia. The bondholders are said to be from a range of retail investment firms including Temasek, Northern Trust Asset Management and The Bank Of New York Mellon. However, not all were named in the proposal.
The announcement comes just a week after the June 11th announcement by Virgin Australia that domestic flying would be increased by early July by adding an extra 320 weekly flights across the airlines Australian domestic network. The airline has however not set a date for when its international services will resume.