A N S E T T C R I S I S . .--------------------------------------------------. .Branson's decision to fly solo puts Tesna in limbo. .Feb 25. .Jane Boyle - Financial Review
Last Friday Sir Richard Branson knocked back a merger proposal that involved a hefty cash payment to his Virgin Group and that would have left him with 50 per cent of an expanded airline that would have flown out of Ansett terminals under the Virgin banner.
It is understood the deals discussed put a valuation of more than $500 million on Virgin Blue, double the $250 million offer from Air New Zealand that Sir Richard knocked back last year.
It is believed the parties discussed a range of options, including flying under the Virgin brand on shorter domestic routes, and using the Ansett brand on longer routes between Perth and the east coast, and potentially to fly to international destinations such as New Zealand and Bali.
Despite their pledge to take on Qantas in the full-service market, it appears Tesna's principals, Mr Lindsay Fox and Mr Solomon Lew, were prepared to consider adopting Virgin Blue's no-frills model and brand - at least on some routes - and to ditch half the Ansett staff they have pledged to employ.
What they weren't prepared to give up was control. But neither was Sir Richard. After all, Virgin Blue is his most profitable airline, a net creditor to the Virgin Group that has proved itself in a four-way battle against a bigger Ansett, Impulse and Qantas.
What must really worry Mr Fox and Mr Lew is that Sir Richard's refusal of a profitable merger deal backs up assertions by Virgin Blue's management that the airline has the financial wherewithal to withstand another savage discounting war.
Tesna sources have repeatedly referred to Sir Richard's need for cash. But the commitment by Sir Richard's 51 per cent-owned Virgin Atlantic last week to a $1.9 billion order as launch customer for the Airbus A340-600 jets, and the rejection of a merger with Tesna, suggest that some of the cash pressures he faced after September 11 last year have abated.
His financial pressures have been eased by a pledge of £300 million compensation from the British Government for its failure to provide adequate infrastructure for one of Sir Richard's railway investments.
In light of Virgin Blue's rejection of a merger, Tesna's US investors, Mr David Bonderman and Mr Bill Franke, may also have second thoughts about backing Tesna.
Mr Bonderman and Mr Franke considered an investment in Virgin Blue before committing to Tesna late last year and Mr Bonderman is close to Sir Richard.
In the past, Sir Richard has even attended corporate retreats held by Mr Bonderman's Texas Pacific Group, a mark of the strength of the relationship, since the Virgin chief normally avoids such events.
If Mr Bonderman and Mr Franke pull out, Tesna will lose a lot of credibility and airline experience.
Ansett has lost key personnel such as its former head of operations, Captain Trevor Jensen, who was snared by Qantas's chief executive, Mr Geoff Dixon, in a coup that further undermined morale at Ansett.
With the departure of people such as Captain Jensen, Ansett has lost vital knowledge about the airline's operations and planning expertise.
In recent months, while Tesna's principals have dashed between meetings with lawyers, they have left operational planning for many parts of Ansett, such as ground handling, to union delegates.
Mr Fox and Mr Lew have stated repeatedly that they will proceed with the acquisition regardless of the Virgin Blue talks. As Tesna sources insist, the pair, worth more than $1 billion, have the cash to launch Ansett. Whether they want to lose it is another matter.