What’s the Plan for Virgin Australia’s Final Bidders Bain and Cyrus?

What’s the Plan for Virgin Australia’s Final Bidders Bain and Cyrus?

Virgin Australia’s administrator Deloitte has today announced two US-based investment giants as the final bidders in the race to rescue Virgin Australia. In a statement to the ASX, the administrator reported Boston-based private investment firm Bain Capital, and New York-based global investor Cyrus Capital Partners as Virgin Australia’s two final bidders. Final bids for the airline are due on June 12, with June 30 set as the deadline for an agreement to be reached.

After Virgin Australia entered voluntary administration on April 21, the competitive race to purchase the crippled airline began with around 20 interested bidders. This list was previously narrowed down to just four parties, with that list now further shortened after intensive questioning over the past two days.

In the statement, Deloitte’s Vaughan Strawbridge mentioned that both bidders “are well-funded, have deep aviation experience, and they see real value in the business and its future,”.

So, what will Virgin Australia look like under each bidder?

Virgin Australia 2.0

In either case, Virgin Australia is set to return as a domestic-only airline, at least in the short term. Given the impacts of the coronavirus crisis, this will likely be the only viable option for most airlines. Also likely is a smaller domestic network and reduced fleet, expected to include several Boeing 737s. As demand increases, the airline could decide to re-establish some International routes, with Cyrus planning to replace Virgin’s Airbus A330 and Boeing 777 aircraft with the newer Boeing 787 Dreamliner.

In terms of structure, it looks like Bain favours a more mid-market airline, while Cyrus plans to keep Virgin’s current full-service model.

Bain’s Australian director Mike Murphy has suggested he wants to return aspects of the Virgin Blue vibe to Virgin Australia, although Mr Strawbridge of Deloitte has previously indicated that both bidders are focusing on keeping the business together. Therefore it is unlikely that Virgin Australia 2.0 would follow the low-cost model of Virgin Blue under Bain.

It is also understood that Sir Richard Branson’s Virgin Group and The Queensland Government would likely support either bidder. The Virgin Group has previously held discussions with both parties and is reportedly ready to support either with a cash injection and significantly reducing the $15million annual Virgin brand franchising fee. Queensland’s Government understandably wants to keep Virgin Australia’s headquarters in Brisbane, and are considering some sort of financial incentive to do so, such as a direct equity stake, loan or guarantee.