Potential Virgin bidders ‘nervous’ about lack of government support

Via Yahoo Finance

Potential bidders for Virgin Australia have expressed anxiety over the lack of financial support for the stricken airline from the Morrison government, Guardian Australia has learned.

Sources close to the sales process said four shortlisted purchasers, who are due to lodge indicative bids for the airline on Friday, were becoming increasingly worried about a period estimated at between four to six weeks during which the airline will have no cash.

The airline’s administrator, Vaughan Strawbridge, has recently indicated Virgin Australia may need a bailout to bridge the gap between any sale late next month and a creditors’ meeting likely to be held in August.

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Unions have also raised concerns about the role of the government’s liasion with Virgin, former Macquarie Group chief executive Nicholas Moore, who Transport Workers Union national secretary Michael Kaine told Guardian Australia has become an impediment to the sales process because he has no power to make decisions.

Kaine said Moore was like a sheriff without a badge.

“You’ve got to give him the badge, the authority, and the chequebook, the money, and let him get on with the job,” he told Guardian Australia.

The government has been approached for comment.

Virgin Australia’s crumbling financial position – it had just $100m in the bank a fortnight ago and continues to burn cash – and the lack of clarity from government has fuelled fears among potential buyers that the sale process might fail and Virgin Australia collapse into liquidation.

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A complete collapse of Virgin Australia would throw 10,000 people into unemployment during a brutal economic downturn and risk handing rival Qantas a near-monopoly over Australian air travel.

“It’s certainly not guaranteed this airline will fly again,” one source with knowledge of the bidding process told Guardian Australia.

Another well-placed source said bidders were “nervous at the moment”.

“They’ll just walk away,” the source said.

Virgin Australia’s directors called in administrators after the Morrison government rebuffed its repeated pleas for government help to see it through the almost complete grounding of its 144 airplanes due to coronavirus travel restrictions.

The airline owes more than $6.8bn to creditors including aircraft financiers and leasing companies, bondholders, suppliers and employees.

As of Thursday, there were four bidders in the race – American investment group Bain Capital, global investor Cyrus Capital, a consortium made up of investment group Oaktree Capital and specialist airline investor Indigo Partners and Australian private equity group BGH Capital.

The bids stand to be whittled to two after indicative offers are lodged on Friday.

However, the process has been complicated by the continuing interest of Canadian giant Brookfield Asset Management, which had previously been regarded as a leading contender.

Despite pulling out of the process, Brookfield remains interested in participating in the purchase of Virgin Australia in some fashion. It also remains indirectly involved as a shareholder in Oaktree.

In briefings with stakeholders, the four bidders have set out radically different plans for a reborn Virgin Australia.

Sources said BGH plans to restart as a bare-bones airline, with just a handful of planes, which would result in the loss of most of the 10,000 jobs at Virgin Australia.

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The Oaktree and Indigo consortium plans to turn Virgin Australia into a budget airline, the sources said.

Cyrus Capital wants to maintain a stripped-down version of the current airline, by reducing the number of different aircraft it flies and cutting some regional and international routes, while Bain Capital is regarded as the front-runner because it has spent significant resources setting up a well-regarded team of local advisors.

However, all four potential bidders, and Brookfield, are understood to have expressed interest in some kind of government help to bridge the gap between agreeing to buy the airline and getting approval from the creditors.

Options that have been canvassed include a government loan, the commonwealth purchasing a stake in the airline, the extension of jobkeeper payments to Virgin Australia employees after the scheme is supposed to finish in September, or a government guarantee of tickets sold by the airline.

Bidders also want the government to stop airports taking away crucial take-off and landing slots, which are usually allocated on a “use it or lose it” basis, and seek a raft of tax and fee concessions from state governments.

Sources close to the process said time for the government to make its position clear was running short because, in addition to the cash burn problem, Virgin needed to be able to sell tickets for travel in August, after the administration is due to end.

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This was difficult when customers were uncertain they would be able to fly or get their money back, the sources said.

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Kaine said he met with Moore on Tuesday afternoon to raise his concerns.

“Government inaction is now having a material effect on the quality of the airline that gets back in the air – if it can get back in the air,” he said.

“There’s already one bidder that’s sat outside of the process because they’re concerned about the funding gap.”

The government remains tight-lipped about its willingness to support Virgin Australia through the process.

The treasurer, Josh Frydenberg, said: “The government supports a market-led solution for Virgin Australia.”

“We will continue to work closely with the administrator.”