Originally Posted by
Sunfish
“The assets” let’s look at them.
- A brand recognised throughout Australia. I will call that Marketing capital.
- A business conglomerates of staff and operational processes and systems (including IT and HR) that ensure Virgin is a going concern, even if it is hibernating now.
- Supplier/creditor/customer channels that are mature and workable.
- An AOC and the systems and capability to maintain the same.
- Airport chech in facilities and infrastructure around Australia.
- A considerable market share of domestic travel.
- Motivated and attractive workforce (in the marketing sense)
Folks, non of this stuff came cheap. None of this stuff carries a book value, no matter what accounting principles Deloittes dreams up. There is the core of the argument between Bain, Deloittes and the bond holders in my opinion.
- Bain is naturally trying to get ownership by paying for the rusty filing cabinets and office chairs - with the rest thrown in for free.
- The Bond holders see the reverse - the huge value of the non financial assets compared to the financial debt - which after all is just money that can and will be supplied by anyone, any time and quickly.
- Deloittes, being a bunch of accountants, however you want to put it, cannot and will not appreciate the non financial assets. In addition, I have observed repeatedly that there is precisely ZERO forensic aviation accounting talent outside Qantas and Virgin, so Deloittes are in the dark about the value of much of Virgin.
My assumption is that Deloittes have been rolled by Bain. Deloittes don’t have the skills to work on this scale, Bain does this every day of the week.
‘’So here is my conclusion: The Bain deal is secret because it values the REAL assets of the business at virtually zero and if it saw the light of day, anyone with aviation experience would know it and realise that Deloittes have been comprehensively outplayed by Bain, who stand to make billions out of Deloittes stupidity. This in itself is no sin, but my concern is that the Bain deal will leave Australia worse off on many levels.
I saw a similar situation when Saint Margaret Jackson and Geoff Dixon presided over the attempted privatisation of Qantas. They characterised Qantas as a rusty old beat up Holden ready for the wreckers. The reality was that all Qantas needed was a bit of a tonic - which it got when the oil price collapsed.
So to be optimistic for once, if Virgin got some financial breathing space, courtesy of the bond holders, an enlightened Board who actually have relevant experience instead of being politically correct dummies and a tough but intelligent and fair management - again not steeped in politically correct bull****, then a restructured Virgin has a good future.
Some interesting points Sunfish, but I do have some questions.
I agree that the Virgin brand is categorically worth something, as is the fact it’s a current business, has the systems in place to continue operating as a significantly sized airline, has market share and has a motivated workforce. And you are also right in that Deloitte perhaps do not value that as you should - but how do you value those things in a company that has entered administration and whose core business has simply evaporated during the midst of a global pandemic? Even the question of market share is an interesting one, because whilst Virgin May have 35ish per cent of the market, no one knows what the market size and composition at the end of this will be.
You’ve been fairly critical of Deloitte so far, perhaps fairly so, but perhaps not.
One of your points above states the fact that Virgin is a going concern even if it’s hibernating. And this is the issue - Virgin was going to run out of cash during the administration (around 2-3 weeks ago if reports were accurate). And this was one of the main problems Deloitte had - they needed to source funds to continue operating (albeit in a hibernating state) because if it had to shut the doors on all operations, it would have been very difficult to restart for a number of reasons. So whilst Deloitte put the business up for sale to multiple different organisations, the one it chose was the one that was happy to tip in quite a lot of cash to keep the place running. Admittedly this information has come from Deloitte - but it seems credible to me. And they have been quite clear that the other bidders were not willing to put their hands in their pockets immediately to solve this fairly significant issue.
I don’t think any of the deal is secret - it will be outlined in the report to creditors prior to the second meeting of creditors due next month.
Why do you think the deal will leave Australians worse off? I think ultimately the Virgin that comes out of administration is going to be in more or less the same form regardless of who any of the other potential buyers throughout the process ended up being the final purchaser. If you’re talking about the unsecured bond holders (the mum and dad investors) then perhaps you are right - they obviously will be worse off. But their plan of essentially recapitalising Virgin by refloating it on the ASX seemed crazy to me - who in their right minds would be buying shares in Virgin 2.0 given their previous history, the fact they haven’t paid a dividend in over a decade, the fact the domestic market is absolutely buggered and will be until state governments in this country stop the pissing contest that they are all in. Qantas’ recent equity raising should give an idea of the markets stomach for investing in airlines at the moment.
You have far more business acumen than me, so genuinely interested in you expanding on your thoughts...