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20 buyers now circling Virgin Australia

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20 buyers now circling Virgin Australia

Old 12th Jun 2020, 11:45
  #241 (permalink)  
 
Join Date: May 2020
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Looks like things are getting pretty bad,
Inflight VA Meals, now $2 a piece.... bargain.

https://www.ozbargain.com.au/node/544372

Fancy a taste of flight from your living room?
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Old 13th Jun 2020, 02:31
  #242 (permalink)  
 
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ex the AFR- 13 Jun 20: Brighter skies as Virgin sale nears.......

Referenced/Article link here: https://www.afr.com/chanticleer/brig...0200612-p5523t

Extract here:

- Chanticleer

Brighter skies as Virgin sale nears

Good news in the domestic aviation industry is not necessarily being shared equally between the two players - Qantas and Virgin. But there is optimism Australians will soon start flying for leisure again.

Jun 13, 2020 – 12.00am

As the clock ticks towards the June 22 deadline for final bids for the purchase of the insolvent Virgin Australia, there is quite a lot of good news emerging in the aviation sector.

Friday marked the end of federal government underwriting of flights on major domestic routes and the return of Qantas and Virgin operating under normal commercial terms.

The government support will switch to other, more marginal routes, that the two airlines won't fly because travel demand is not at levels that make them viable.

Qantas chief executive Alan Joyce travelled on a flight from Melbourne to Sydney on Friday. He says some fares could be as low as $19 when travel resumes.

Australians thinking about busting out of the lockdown and travelling by plane to a domestic holiday destination are likely to be inundated with offers of cheap seats.

To get an idea of what is coming down the pipeline, Jetstar said this week it would resume domestic flying in New Zealand on July 1, with fares available from $21 each.

The resumption of New Zealand services will see Jetstar flying 75 return flights per week to five destinations, returning to about 60 per cent of its normal domestic schedule. Customers with bookings on the remaining 40 per cent of flights have been contacted and offered a range of options.

New Zealand is ahead of the curve on most things related to coronavirus. Its aviation activity is expected to return to half the normal level by the end of this month.

In Australia, Qantas this week returned to 15 per cent of its pre-COVID capacity on the Sydney-Melbourne route, or about three times its previous level of services.

Strong signal

Qantas chief executive Alan Joyce sent a strong signal to potential travellers on Friday when he was photographed sitting in the middle seat on a flight from Melbourne to Sydney.

Joyce, who was wearing a face mask, has talked about $19 fares once the market opens up in Australia. This should encourage people to get back in the air.

Matt Ryan, an analyst at investment bank UBS, expects a strong domestic rebound in leisure travel in coming months as Australians start spending the extra $30 billion saved during the coronavirus pandemic.

He said in a note to clients on Friday the big swing factor would be the opening of state borders. Queensland alone accounts for 28 per cent of interstate overnight stays.

With a domestic aviation profit pool of about $1.1 billion, there is clearly scope for Virgin to make money if it can cut its costs and return to the market share it had before COVID-19 arrived.

Ryan said that over the past five years Qantas had captured 88 per cent of the profit pool while only carrying 61 per cent of the passengers.

"Given the uncertainty around the second carrier, we believe Qantas is currently seeing a significant increase in booking market share," he said.

Analysts at UBS and Morgan Stanley are the two most optimistic when it comes to the prospects for Qantas. Their share price targets are $5.50 and $5.20 respectively, compared with Friday's close of $4.49.

The key questions being asked by everyone in aviation and tourism circles are: How is the Virgin sales process travelling? When will it be back up and flying? And can it come out the other side of its collapse without government assistance?

Virgin's administrator, Vaughan Strawbridge, of Deloitte, remains immensely confident he can get a deal done with either Bain Capital or Cyrus Capital Partners in the next 10 days.

Observers of the sale process, however, were given cause for concern when Strawbridge wrote a letter to Prime Minister Scott Morrison and senior cabinet members saying the bidders still needed more clarity on government support measures or they may pull out.

The letter suggested that unless those indications of support were given, it would hamper the ability for final bids to be submitted.

Also, Deloitte asked the government to consider guaranteeing future ticket sales to encourage people to book with the airline.

The letter put a fresh complexion on Strawbridge's decision to reject a deal from BGH Capital quite early in the insolvency to buy the business. Chanticleer understands BGH wanted exclusivity to give it more negotiating power with the unions, aircraft lessors and bondholders.

If Strawbridge had gone for the rapid-fire BGH deal, a sale would probably have been consummated about a week ago.

With BGH out of the official sales process, Virgin's future looks to be increasingly in the hands of the bondholders who tipped in about $2 billion in unsecured funds late last year to pay for the balance of the Velocity Frequent Flyer business not owned by the airline.

It is believed the BGH deal would have seen the bondholders get about 1˘ in the dollar. But the bonds have been trading between 12˘ and 25˘ in the dollar.

Disproportionate amount of power

Investors have been buying the bonds in the expectation of making a profit. They have been doing so in the knowledge that the bonds could carry a disproportionate amount of power when creditors vote to approve the sale in August.

It is believed the adviser to the bondholders, Faraday, has legal advice that the 6000 investors who own the bonds, mainly self-managed super funds, can vote as individuals rather than in a block.

The 9000 employees of Virgin each get a vote. But approval of the sale requires a majority by both volume and value.

It is possible to build a scenario where the bondholders come away from the creditors' meeting with debt converted into equity and some level of rollover debt.

The bondholders agitated quite hard to get access to the Virgin data room. They succeeded in doing so, but this immediately precluded them from talking to the two parties buying the business.

Related

Bondholders find way into Virgin data room

It is not clear why the bondholders needed to understand the profit drivers of the business when the future business model is within the walls of Bain and Cyrus.

A lot is riding on the successful completion of the Virgin sales process. A failure to complete the sale could lead to liquidation and leave the government holding a $450 million liability for employee benefits.

Also, the two bidders would lose all the money spent getting to this point. It is believed it has cost them more than $15 million.

Tony Boyd is the Chanticleer columnist. He has more than 35 years' experience as a finance journalist. Connect with Tony on Twitter. Email Tony at [email protected]
So, circa 6,000 bondholders in the Wild, carrying 2x $B- in a 'number and value' sense......

Rgds all
S28- BE
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Old 13th Jun 2020, 05:19
  #243 (permalink)  
 
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A different spin in today’s Australian

What the Virgin bidders really fighting over
TERRY McCRANN
The funniest — sick — joke going around at the moment is the idea that we have two groups in an auction to buy Virgin; to take their chances on running a weak second airline against the dominant, financially strong and superbly structured and focused Qantas, into the challenges and monumental uncertainties facing airlines in the post-virus world. In fact, the only thing they are “bidding” to buy is the right to get a range of other parties to donate their money to ensure that one of these Wall Street vultures can extract the greatest profit with the least risk and indeed the smallest financial contribution from the Virgin carcass. The latest group who they want to put their hands in their pockets to ensure higher profits for them is you — the taxpayer. They want the government to give them — either Bain Capital or Cyrus — another $180m or so by exclusively extending JobKeeper for Virgin Two. To have the taxpayer effectively pay the airline’s salary bill for the first six months of its life under its new owner. The best way to understand what is going on in the auction behind closed doors is by way of this example: consider two people bidding to buy a house worth around, say $2m. The one offering, say, $2.01m ends up winning over the other bid of, say, $2m flat. The $2.01m is paid; they own the house free and clear. In the Virgin case the $2m “house” comes with a, say, $4m linked mortgage. It also comes with an order to spend $1m in mandatory repairs. Clearly no one in their right mind would happily pay the $2m for the house, only to also pick up an immediate $5m liability. They’d in effect be paying $7m for a $2m asset. That is to say, the house is really worthless unless and until those liabilities can be separated or cancelled. That is exactly the same with Virgin, except we are talking in billions, not millions. The “cleanest” way to resolve the Virgin situation would be to put it into liquidation; cashing in the assets (essentially, half the planes; in liquidation, the other assets would all but evaporate); and paying varying cents in the dollar (down to zero) to the various liability tiers. This worst-case “doomsday” outcome provides the opportunity for main-chancers like Bain and Cyrus to make two and two add up to not just five but at least six, as the “better” alternative. They do this by creating a dynamic where those creditors will be offered variously more cents in the dollar (with some very small crumbs for shareholders, who would otherwise get zip) than would be likely to happen under the “doomsday” alternative. Now some of the “maths magic” is real: those assets which have value in a continuing Virgin but which would go to zero in a liquidation — its airport slots, it’s broad IP, its software, its ticketing, its global partnerships, indeed the sunk costs in its staff, and so on. Then there’s the 60 or so owned planes — their value in a continuing revenue-generating business as opposed to what you could sell them for, at a time when there is going to a be a lot, and I mean a lot, of planes for sale. But that aviation reality introduces a huge and I mean huge risk on the other side of these valuation scenarios: that you could buy cheap but end up losing money and losing buckets of it from the new get-go . To go back to my housing example; it would be great to get the $2m house for, say, $1.5m upfront and without any of those $7m in liabilities. But not so good if you locked yourself into $200,000 a year of maintenance and repairs; you’d quickly chew away your $500,000 upfront profit. That’s the key point to understand about the so-called bidders for Virgin. What they are really bidding to buy is that upfront profit. It is the (reasonable and risk-adjusted ) value of the “new” Virgin entity less the equity they have to put in and could lose. The winner will be the one of the two prepared to “bid” the lower comparative upfront profit — a profit that is going to come out of the pockets of the various parties owed the bits of the $7bn of Virgin liabilities. All these creditors have to not only lose some percentages of the money owed them (in aggregate, the difference between Virgin’s assets and liabilities), they also have to contribute to the winning bidder’s upfront profit. The offsetting lure is that in doing so they still get a higher figure than would theoretically otherwise be the case. Three components are critical for the winning “bidder” . To minimise the amount of capital they put up and is at risk. The less the capital, the smaller the dollar upfront profit they need to be gifted by the creditors to get the same rate of profit return. They have to optimise the Virgin Two operating structure and dynamics: how many aircraft, staff numbers, IP, ticketing, relationships. The post-virus uncertainties present both huge challenges and even greater opportunities precisely because of the financial engineering in and around the “offer” process. The more money you can get third parties to contribute directly or indirectly the better. It not only does the obvious — put more money into the pot — but allows more financial engineering and leverage. Like with JobKeeper, the extra $180m coming from the taxpayer might be able to be leveraged into, say, a $360m additional benefit to the buyer. Win-win . But it all hangs on getting to first base. We are yet to see whether there is a “there” there for a future Virgin. This is not like 9/11, which was ultimately if indirectly airline-friendly . Just as the post-virus world more generally won’t be like the post-GFC one.
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Old 13th Jun 2020, 05:53
  #244 (permalink)  
 
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Terry McCrann in the past 20 years has never ever written one good thing about Virgin. He has a major conflict of interest (has QF shares fly's in the pointy end of the rat).
A carcass, a funny sick joke how nice of you when I'm trying to feed the family. If I ever meet him in person and after a very irate conversation I would conclude you are a crab.
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Old 13th Jun 2020, 08:37
  #245 (permalink)  
 
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Originally Posted by Turnleft080 View Post
Terry McCrann in the past 20 years has never ever written one good thing about Virgin. He has a major conflict of interest (has QF shares fly's in the pointy end of the rat).
A carcass, a funny sick joke how nice of you when I'm trying to feed the family. If I ever meet him in person and after a very irate conversation I would conclude you are a crab.
I certainly wouldn't get my financial advice from Terry!
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Old 13th Jun 2020, 10:28
  #246 (permalink)  
 
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Originally Posted by The Bullwinkle View Post
I certainly wouldn't get my financial advice from Terry!
Well, he nailed the real motives of Fox and Lew while 17,000 desperate Ansett employees clung to the BS they were spinning.
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Old 13th Jun 2020, 13:26
  #247 (permalink)  
 
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Terry might actually be closer to the “outcome guessing” game than other pundits.
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Old 13th Jun 2020, 14:18
  #248 (permalink)  
 
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the dominant, financially strong and superbly structured and focused Qantas
....mmmm, someone is enjoying their Chairman’s Lounge membership🤔

His ‘House’ analogy doesn’t really make a lot of sense. In addition his understanding of Airline operating economics appears to be, shall we say, ‘limited’. For a start the current shareholders are getting zip, that’s a given. The judgement for the unsecured creditors is wether they think they can extract more value out of a total liquidation or, ultimately get more with some small % of their bonds and/or some sort of debt for equity arrangement if the operation continues. Another question given the current environment, is wether the so called ‘secured creditors’ have their exposure covered given that trying to liquidate 40 or so 737NGs may be problematic.
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Old 14th Jun 2020, 01:29
  #249 (permalink)  
34R
 
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Originally Posted by KRUSTY 34 View Post
Well, he nailed the real motives of Fox and Lew while 17,000 desperate Ansett employees clung to the BS they were spinning.
Correct

It's just an opinion piece.... Most people that are able to view the whole Virgin thing dispassionately would probably not find too much to argue about in that article.
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Old 14th Jun 2020, 02:47
  #250 (permalink)  
 
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The analogy Terry used actually sums up fairly well how private equity works, they are 100% focused on financial outcomes.
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Old 14th Jun 2020, 03:54
  #251 (permalink)  
 
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Which is why Indigo would have been a good investor, most certainly long term.

Canberra needs to remain firm on not lining these equity mobs with cash. He will lose my vote next election if he backs down on his strong stance against not funding Virgin and it’s problems. Read deep into the world of equity and where governments have been caught out dragged along in the mud. The fear articles have started to surface already. All orchestrated from Wall St.
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Old 14th Jun 2020, 10:11
  #252 (permalink)  
 
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Whatever you think of Terry's opinion, I believe he has nailed the "modus operandi" of private equity organisations - rip cash out of a very high cash flow business then re-float and sell.
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Old 14th Jun 2020, 10:46
  #253 (permalink)  
 
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You all seem to understand. The VC community always considers their EXIT strategy before they even think of investing. So that is the bit of their “business plan” that is already tightly scripted and organised in detail before anything else. What then happens is they look to constructing a “front end” that allows them to do their exit strategy. It’s all ass backwards compared to normal business planning.

We don’t know the exit strategy and neither does Deloittes. The VCs may already have buyers/investors lined up and will “flip” the airline in three to six months, making 500 million in the process and also making Deloittes look like idiots as well as sending bond holders suicidal. The request for government cash/ guarantees or special treatment is also common. The risk for government in doing that is the VCs walk away with half a billion when they execute their exit plan, leaving the taxpayer on the hook for billions.

Dont think for a moment that the VC’s won’t sell their grandmothers to do deals like this and will use every trick, dirty or not, to get what they want. I still have the scars, 20 years later, from having to deal with these creatures.
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Old 14th Jun 2020, 10:58
  #254 (permalink)  
 
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Anyone who picks up the rotting carcass that is VA isn't doing it to make people happy they are doing it to strip what flesh is left off the carcasses bones using whatever tactics they can dream up, the trick is to get everyone to think the opposite!
Big business only succeeds in being cunning!
I feel for the employees, they are pawns in this mess!

Last edited by machtuk; 14th Jun 2020 at 11:14.
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Old 14th Jun 2020, 11:02
  #255 (permalink)  
 
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Agreed.

It’s sleazy, greedy, amoral behaviour with motivations more aligned to white-collar criminals than a community-focussed, consumer-oriented type of owner and manager with the national interest in mind that they purport to be.

I’m no socialist but I wish there were laws to stop this kind of capitalism.

It brings bile to my taste buds.

PG
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Old 14th Jun 2020, 13:39
  #256 (permalink)  
 
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Originally Posted by Sunfish View Post
You all seem to understand. The VC community always considers their EXIT strategy before they even think of investing. So that is the bit of their “business plan” that is already tightly scripted and organised in detail before anything else. What then happens is they look to constructing a “front end” that allows them to do their exit strategy. It’s all ass backwards compared to normal business planning.

We don’t know the exit strategy and neither does Deloittes. The VCs may already have buyers/investors lined up and will “flip” the airline in three to six months, making 500 million in the process and also making Deloittes look like idiots as well as sending bond holders suicidal. The request for government cash/ guarantees or special treatment is also common. The risk for government in doing that is the VCs walk away with half a billion when they execute their exit plan, leaving the taxpayer on the hook for billions.

Dont think for a moment that the VC’s won’t sell their grandmothers to do deals like this and will use every trick, dirty or not, to get what they want. I still have the scars, 20 years later, from having to deal with these creatures.
Geez, Sunfish, you make them sound like a bunch of Nigerian scammers.
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Old 14th Jun 2020, 13:59
  #257 (permalink)  
 
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Nigerian Scammers - fair comparison.
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Old 15th Jun 2020, 01:52
  #258 (permalink)  
 
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Terry is spot on. Neither bidder is interested in the human side of Virgin. It is entity to make money out of. Strip and dispose. A well trod strategy. Tuff business not love.
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Old 15th Jun 2020, 02:07
  #259 (permalink)  
 
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https://www.smh.com.au/business/comp...13-p5529b.html

The Richard Branson-linked investment firm Cyrus Capital believes Virgin Australia could be profitable within three years after relaunching under its ownership as a smaller, simpler, mid-market airline operating a domestic and international network.

In the firm's first public comments about its interest in Virgin, Cyrus senior adviser Jonathan Peachey said the business had become "too complex" and "too corporate" as it morphed from the budget upstart Virgin Blue into a full-service airline competing head-to-head with Qantas.

Cyrus has a history of investing in airlines alongside Mr Branson's Virgin Group, which owned 10 per cent of Virgin Australia when it collapsed. It launched Virgin America together in 2005 and in February 2019 bought the British regional airline Flybe, which has since gone into administration.

Mr Peachey said Cyrus would re-start Virgin as a "hybrid" airline, with a competitively priced business class product alongside affordable leisure travel fares.

"The business... should sit below that very top tier of where Qantas plays so strongly in, and above and maybe overlapping slightly where Jetstar sits," he said.

"We don’t intended to take the business right the way down to the ultra-low cost space - we don’t think the market needs that with Jetstar’s presence."

Bain has said it would position Virgin somewhere between a low-cost and full-service airline, and also wants to work with Mr Branson to maintain the Virgin brand.

...

Mr Peachey said Cyrus was taking a "long-term view" and noted it remained a shareholder in Virgin America for 12 years, including after its NASDAQ listing, until its bought outright by Alaska Airlines.

With Cyrus still working on its final bid – due for submission to administrators Deloitte on June 22 – Mr Peachey said he could not comment on whether it would offer anything to Virgin's unsecured bondholders, who are owed $2 billion and growing anxious they will walk away with nothing.

Cyrus says it has around $US4 billion ($5.8 billion) of assets under management and a client base mostly made up of from university endowments, hospitals and charitable foundations.


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Old 15th Jun 2020, 02:57
  #260 (permalink)  
 
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Profitable in three years is a bit more realistic that Deloitte saying it could make a billion next year.
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