20 buyers now circling Virgin Australia
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ex the Transcript 17/08/20
Gents- with regard to the Federal Court-
Was this not always coming back on.....???? (no they did not get a 'Facilitator etc. on the 17th) or did I read it wrong????- yes appreciate the way the media ran it all, at the time.
Extract #1 (ex pgs 57/58 of the transcript- formatting and notes on who is who), with regard to sourcing information:
And then a little further:
Anyway let us see.....
tks/& rgds all
S28- BE
Was this not always coming back on.....???? (no they did not get a 'Facilitator etc. on the 17th) or did I read it wrong????- yes appreciate the way the media ran it all, at the time.
Extract #1 (ex pgs 57/58 of the transcript- formatting and notes on who is who), with regard to sourcing information:
Ex Mr Jackman (for the Bondholders)-
.......... Now we didn’t anticipate, sadly, that the administrators were going to respond favourably to that request and I do foreshadow that in the very near future, we will be making an application for orders from your Honour to grant us the applicant that we sought in that letter and consistently with what the colour was foreshadowed, the likely outcome of there being no facilitator, our instructions will be to make that application as soon as possible and we will hope that your Honour may be able to deal with it later this week. I don’t know if your Honour’s in a position to indicate what availabilities there may be but it is an urgent matter and we’re really left with little option other than your Honour.
HIS HONOUR: Well, I think the best way to deal with it, Mr Jackman, is formulate your application and get me the papers and then I can work out to fit it in –which I all – I will seat all applications as early as I can possibly deal with them but when I know what type of matter that we’re dealing with and I can work out how long we need
MR JACKMAN: May it please the Court.
.......... Now we didn’t anticipate, sadly, that the administrators were going to respond favourably to that request and I do foreshadow that in the very near future, we will be making an application for orders from your Honour to grant us the applicant that we sought in that letter and consistently with what the colour was foreshadowed, the likely outcome of there being no facilitator, our instructions will be to make that application as soon as possible and we will hope that your Honour may be able to deal with it later this week. I don’t know if your Honour’s in a position to indicate what availabilities there may be but it is an urgent matter and we’re really left with little option other than your Honour.
HIS HONOUR: Well, I think the best way to deal with it, Mr Jackman, is formulate your application and get me the papers and then I can work out to fit it in –which I all – I will seat all applications as early as I can possibly deal with them but when I know what type of matter that we’re dealing with and I can work out how long we need
MR JACKMAN: May it please the Court.
MR JACKMAN: There’s nothing further we wish to put. We look forward to reading your Honour’s reasonings and we will make such further applications we are advised to make.
HIS HONOUR: All right. Is there anyone else that wishes to say anything, I think we have given everybody the chance to reply or deal with matters that need to come up? All right, now, timetable-wise so the –I think you said to me, Dr Higgins, that 25 August is when the creditor’s report goes out?
DR HIGGINS (for the Administrator): That’s correct, your Honour.
HIS HONOUR: All right. Is there anyone else that wishes to say anything, I think we have given everybody the chance to reply or deal with matters that need to come up? All right, now, timetable-wise so the –I think you said to me, Dr Higgins, that 25 August is when the creditor’s report goes out?
DR HIGGINS (for the Administrator): That’s correct, your Honour.
tks/& rgds all
S28- BE
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ex ABC News: Virgin Australia may have traded while insolvent; Bain offers $3.5b.....
ABC article link here: https://www.abc.net.au/news/2020-08-...-vote/12592742
Given the 'Solvency' issue is starting to get a run in 'some' media outlets- some 'brief' extracts ex the appropriate area/s of today's Report to Creditors, 'should' it be of interest- if Not, that is cool... as well.
rgds all
S28- BE
Extract (Bolding/and underline) ex the Report to Creditors: Section 6.4- Insolvent trading (section588G) /
Extract #1:Amended section 588G (page 58)
Extract #2: 6.4.1 - Administrators’ conclusions regarding solvency: (pages 59 & 60):
Given the 'Solvency' issue is starting to get a run in 'some' media outlets- some 'brief' extracts ex the appropriate area/s of today's Report to Creditors, 'should' it be of interest- if Not, that is cool... as well.
rgds all
S28- BE
Extract (Bolding/and underline) ex the Report to Creditors: Section 6.4- Insolvent trading (section588G) /
Extract #1:Amended section 588G (page 58)
On 25 March 2020,the Coronavirus Economic Response Package Omnibus Bill 2020 received Royal Assent, which inserted section588GAAA into the Act. section588GAAA provides relief for directors from potential insolvent trading during a six month period from 25 March 2020. To be able to rely on these measures, the debt incurred must be incurred:
•In the ordinary course of business; and
•During the six-month period commencing 25 March 2020.
The Explanatory memorandum to the above bill explains that a director is taken to have incurred a debt in the ordinary course of business if it is necessary to facilitate the.continuation of the business.
•In the ordinary course of business; and
•During the six-month period commencing 25 March 2020.
The Explanatory memorandum to the above bill explains that a director is taken to have incurred a debt in the ordinary course of business if it is necessary to facilitate the.continuation of the business.
Government support may be considered as a ‘lender of last resort’ and as this funding was not committed, the Virgin Group could not rely upon it as an available source of capital to maintain solvency. Furthermore, when combined together with the following indicators of insolvency, we have formed the view that the Virgin Group was insolvent from 22 March 2020 and possibly as early as 18 March 2020 when the imposed travel restrictions caused the Virgin Group to no longer be a sustainable going concern:
•Continuing losses–as detailed at section 6.4.3 the Virgin Group made losses before tax of $763.5m for 2HFYTD20, $902m for the period 1 July 2019 to 30 April 2020 and $424.5m for FY19.
•Working capital–as detailed at section 6.4.5 the Virgin Group’s current ratio and adjusted current ratio declined from January 2020 up until administration.
•Trade creditors–as detailed at section 6.4.6 the Virgin Group trade creditor aging and overall trade creditors increased from January 2020 up until the start of the voluntary administration. •Access to funding–by seeking government support, the Virgin Group was acknowledging its existing cash, receivables and loan facilities were insufficient.
•Ability to raise capital–as detailed above, Virgin Group had acknowledged that traditional forms of debt and/or equity were likely to be unavailable when it sought government support. Morgan Stanley had advised the Board that conventional debt and equity funding was unavailable. The Major Shareholders had also indicated their inability to assist.
The possibility of government support, whilst it cannot be treated as an available funding source for the purposes of assessing solvency, is relevant to the availability of defences to Directors and this is discussed at section 6.4.8. As section 588GAAA came into effect on 25 March 2020, it provided effective relief to the directors from insolvent trading from this date. We have not seen anything to suggest the debts incurred after section 588GAAA came into operation do not fall within the requirements of that section.There are therefore possibly only three days from 22 March to 24 March 2020 when the Virgin Group was potentially trading whilst insolvent. This is discussed further at section 6.5.3.1.
There exist potential defences available to the Directors as discussed at section 6.5.3. On the assumption that defences were not available, our preliminary analysis is that the potential loss to creditors is approximately $17m to $35m, depending upon whether the date of insolvency is 22 March 2020 or 18 March 2020 respectively, representing our estimate of new trading liabilities incurred up to 25 March 2020, being the commencement date of section588GAAA and the protection it provided to directors from prosecution from trading a company while insolvent. .......................
•Continuing losses–as detailed at section 6.4.3 the Virgin Group made losses before tax of $763.5m for 2HFYTD20, $902m for the period 1 July 2019 to 30 April 2020 and $424.5m for FY19.
•Working capital–as detailed at section 6.4.5 the Virgin Group’s current ratio and adjusted current ratio declined from January 2020 up until administration.
•Trade creditors–as detailed at section 6.4.6 the Virgin Group trade creditor aging and overall trade creditors increased from January 2020 up until the start of the voluntary administration. •Access to funding–by seeking government support, the Virgin Group was acknowledging its existing cash, receivables and loan facilities were insufficient.
•Ability to raise capital–as detailed above, Virgin Group had acknowledged that traditional forms of debt and/or equity were likely to be unavailable when it sought government support. Morgan Stanley had advised the Board that conventional debt and equity funding was unavailable. The Major Shareholders had also indicated their inability to assist.
The possibility of government support, whilst it cannot be treated as an available funding source for the purposes of assessing solvency, is relevant to the availability of defences to Directors and this is discussed at section 6.4.8. As section 588GAAA came into effect on 25 March 2020, it provided effective relief to the directors from insolvent trading from this date. We have not seen anything to suggest the debts incurred after section 588GAAA came into operation do not fall within the requirements of that section.There are therefore possibly only three days from 22 March to 24 March 2020 when the Virgin Group was potentially trading whilst insolvent. This is discussed further at section 6.5.3.1.
There exist potential defences available to the Directors as discussed at section 6.5.3. On the assumption that defences were not available, our preliminary analysis is that the potential loss to creditors is approximately $17m to $35m, depending upon whether the date of insolvency is 22 March 2020 or 18 March 2020 respectively, representing our estimate of new trading liabilities incurred up to 25 March 2020, being the commencement date of section588GAAA and the protection it provided to directors from prosecution from trading a company while insolvent. .......................
Last edited by Section28- BE; 25th Aug 2020 at 06:20. Reason: Acknowledging Mr 'TBM's post: didn't see it whilst assembling this one....
No, never claimed to be. Have they added corporations law to the CPL?
No.
My agenda? Simply sharing what I know on the matter, looking to correct some of the arrant nonsense that gets trotted out here and being part of the conversation. Problemo?
And we're off and racing! Gee, if I was a clone, would I know it?
It's a sure sign of a weak hand when someone looks to turn the argument to 'agendas' and identities rather than the facts of the matter.
No.
My agenda? Simply sharing what I know on the matter, looking to correct some of the arrant nonsense that gets trotted out here and being part of the conversation. Problemo?
And we're off and racing! Gee, if I was a clone, would I know it?
It's a sure sign of a weak hand when someone looks to turn the argument to 'agendas' and identities rather than the facts of the matter.
That'd be your prerogative. You say dogmatic, I say pragmatic, dogmatic, pragmatic, let's call the whole thing off.
They haven't sought leave to lodge an appeal. There's no sign that they will circulate an alternative DOCA to creditors ahead of the second creditors' meeting. In fact, they made the public statement,
"Unfortunately for now, we are left with no choice after the Federal Court decision but to withdraw our proposal as it is not possible to complete due diligence and present a substantially unconditional deed of company arrangement to the second meeting of creditors."
They did say that,
After the release of the administrator’s report, we reserve our rights to take whatever action is necessary to protect our interests as creditors.
Typos on dates are not unheard of. These submissions and affidavits are typically being put together at the speed of heat and cross-referenced by a small army, often times well into the early hours of the morning. The documents in question were being assembled over the weekend. I suspect that the submission had been drafted on the 15th likely with place holders where the details of affidavits to be referenced could be dropped in. It looks like one of those affidavits wasn't sworn until the 16th and nobody picked up that they needed to fix the date on the last page to match.
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The Answer to your 'said' question (which, 'I' believe to be unaddressed, yet....???)- Is 'The Directors', as at That point in Time...... being, 18 March, ref: below- that responsibility rested with the Directors of VAH.
Link ex Deloitte (and trust it'll work.., for you) here: https://www2.deloitte.com/au/en/page...sidiaries.html
Extract here (Bolding):
Vaughan Strawbridge, John Greig, Sal Algeri and Richard Hughes were appointed Joint and Several Administrators (Administrators) of Virgin on 20 April 2020, pursuant to the provisions of Section 436A of the Corporations Act 2001 (Act).
rgds/& be Well
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They had debt restructuring underway last year so the discussions with all these people was certainly underway before this year appeared.
I reckon Bain was on the Christmas Card list last year.
I reckon Bain was on the Christmas Card list last year.
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“20 Buyers”? Most of them will be tire kickers and idiotic “entrepreneurs” who have no money. If I was Deloittes, I would spend a few days right now on weeding out this group or prepare to waste months in discussions of gorgeous possibilities that eventually go nowhere.
The BS normally starts with : ”I represent a Saudi Prince / Chinese Billionaire / Asian Company / American venture capital group that wishes to buy your airline but the name must be kept secret and everything must be in strictest confidence”.
I hope there is at least one genuine buyer for the whole airline.
The BS normally starts with : ”I represent a Saudi Prince / Chinese Billionaire / Asian Company / American venture capital group that wishes to buy your airline but the name must be kept secret and everything must be in strictest confidence”.
I hope there is at least one genuine buyer for the whole airline.
I guess Bain has won. I don’t think the bond holders have the capability to do the hard work of restructuring. They are “just” financiers.
I’m not sure what Bain is paying over and above written down asset value, I think its about $450 million.
My guess would be the exit strategy is a float with a price of more than seven billion in about four years. In other words Bain gets to double their money for what’s going to be four years of very hard and risky work by the Bain team.
As I said earlier, the principals of this deal - the Bain guys, are each going to walk away with inter generational fortunes from this project. I therefore warn all Virgin staff now that if you have any dealings with the Bain folk, which you probably won’t, be very very careful to do exactly what they want you to do because they have a great deal of money riding on the outcome. They will destroy you in a heartbeat if you impede them.
Best of luck.
I’m not sure what Bain is paying over and above written down asset value, I think its about $450 million.
My guess would be the exit strategy is a float with a price of more than seven billion in about four years. In other words Bain gets to double their money for what’s going to be four years of very hard and risky work by the Bain team.
As I said earlier, the principals of this deal - the Bain guys, are each going to walk away with inter generational fortunes from this project. I therefore warn all Virgin staff now that if you have any dealings with the Bain folk, which you probably won’t, be very very careful to do exactly what they want you to do because they have a great deal of money riding on the outcome. They will destroy you in a heartbeat if you impede them.
Best of luck.
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I have not read the report, just The Australian column in todays paper. It suggest Virgin was free falling from January before Covid-19 hit our shores and would of gone into administration anyway.
It was the transformation of Virgin Australia from budget carrier to premium airline over a period of years that set the company on a path to financial ruin.
A 192-page report to creditors by Deloitte’s Vaughan Strawbridge, John Greig, Salvatore Algeri and Richard Hughes has outlined the reasons for the business’s failure that led to their appointment to the airline on April 20.
Ultimately, it was “the inability of the airline’s balance sheet to withstand the immense financial impact caused by COVID-19” that led to its downfall, but the report also examined how Virgin Australia reached that point of collapse.
First, there was a “misconceived business strategy to change (the airline’s) business model from a low-cost carrier to full-service airline”, the report said.
As a result of that strategy, Virgin Australia triggered a damaging capacity war with Qantas, which was determined to protect its territory and had the advantage of a lower cost base to do so.
“Virgin did not have the size and financial strength to sustain this capacity increase without suffering significant losses,” the report noted.
The findings came as it emerged that US private equity firm Bain Capital will pay $3.5bn for Virgin Australia, in a deal that will cover employees’ entitlements but leave bondholders with between 9c and 13c in the dollar.
Other factors that contributed to the airline’s near demise included the “continued operation of loss-making services, routes and business segments; operational inefficiencies and a history of underdelivering on turnaround strategies”.
It all amounted to year after year of losses totalling about $2.2bn, which left the business with a significantly weakened balance sheet.
The report noted that, during the period between 2009 and 2020, revenue had continued to grow, “however it was not profitable growth”.
“This period encompassed the change in the Virgin Group’s business from a budget to full-service airline. As evident by the year-onyear losses, the Virgin Group was unable to derive sustainable profits from this change in strategy,” the report said.
In March 2019, Paul Scurrah took over as CEO from John Borghetti and set about “turning a great airline into a great business,” Mr Scurrah said at the time.
But in the year that followed, Virgin Australia sank deeper into the red, posting an $88.6m loss in the first half of the 2020 financial year. “This was a significant deterioration relative to the prior year period of $87.7m net profit before tax,” the report noted.
A range of measures were implemented to try to turn the airline around, including 750 job cuts and a fleet, network and capacity review, but then COVID-19 struck.
It did not help that shortly before the crisis, Virgin Australia raised an additional $325m in debt from bondholders to help fund the buyback of the Velocity Group.
“This added further debt to the balance sheet just prior to the time when the business would be severely impacted by COVID-19,” said the report.
Revenue and earnings went into free fall from February onwards, resulting in a loss of $763.5m “in just the four months from January to April”.
It was revealed the increasingly desperate board of directors stepped up the frequency of their meetings, sought to exit key contracts and terminated term deposits early to release funds.
With major shareholders unable to provide any assistance, Virgin Australia lobbied the Victorian, NSW, Queensland and federal governments for help, but were again knocked back.
“Given the economic environment created by the response to COVID-19, and without a pathway to secure a source of sufficient new funding, the directors reached the conclusion that the companies were likely to become insolvent if they continued trading, notwithstanding efforts to reduce their expenditure,” the report said. “The directors considered that the appointment of the administrators was the only remaining path available to them to restructure the companies’ liabilities and preserve the business of the companies.”
Despite the dire situation in which they found themselves, directors answered “no” when asked by administrators “did the business fail?” When Deloitte asked the directors to explain why they gave that response, they said the outcome of the administration
— a sale to Bain Capital — had preserved the business.
It was unclear if directors were even aware Virgin Australia was trading insolvent for a short period in March, before a federal law change to protect bankrupt companies in the pandemic.
Price battle, high debt and killer virus: why Virgin fell to earth
ROBYN IRONSIDEIt was the transformation of Virgin Australia from budget carrier to premium airline over a period of years that set the company on a path to financial ruin.A 192-page report to creditors by Deloitte’s Vaughan Strawbridge, John Greig, Salvatore Algeri and Richard Hughes has outlined the reasons for the business’s failure that led to their appointment to the airline on April 20.
Ultimately, it was “the inability of the airline’s balance sheet to withstand the immense financial impact caused by COVID-19” that led to its downfall, but the report also examined how Virgin Australia reached that point of collapse.
First, there was a “misconceived business strategy to change (the airline’s) business model from a low-cost carrier to full-service airline”, the report said.
As a result of that strategy, Virgin Australia triggered a damaging capacity war with Qantas, which was determined to protect its territory and had the advantage of a lower cost base to do so.
“Virgin did not have the size and financial strength to sustain this capacity increase without suffering significant losses,” the report noted.
The findings came as it emerged that US private equity firm Bain Capital will pay $3.5bn for Virgin Australia, in a deal that will cover employees’ entitlements but leave bondholders with between 9c and 13c in the dollar.
Other factors that contributed to the airline’s near demise included the “continued operation of loss-making services, routes and business segments; operational inefficiencies and a history of underdelivering on turnaround strategies”.
It all amounted to year after year of losses totalling about $2.2bn, which left the business with a significantly weakened balance sheet.
The report noted that, during the period between 2009 and 2020, revenue had continued to grow, “however it was not profitable growth”.
“This period encompassed the change in the Virgin Group’s business from a budget to full-service airline. As evident by the year-onyear losses, the Virgin Group was unable to derive sustainable profits from this change in strategy,” the report said.
In March 2019, Paul Scurrah took over as CEO from John Borghetti and set about “turning a great airline into a great business,” Mr Scurrah said at the time.
But in the year that followed, Virgin Australia sank deeper into the red, posting an $88.6m loss in the first half of the 2020 financial year. “This was a significant deterioration relative to the prior year period of $87.7m net profit before tax,” the report noted.
A range of measures were implemented to try to turn the airline around, including 750 job cuts and a fleet, network and capacity review, but then COVID-19 struck.
It did not help that shortly before the crisis, Virgin Australia raised an additional $325m in debt from bondholders to help fund the buyback of the Velocity Group.
“This added further debt to the balance sheet just prior to the time when the business would be severely impacted by COVID-19,” said the report.
Revenue and earnings went into free fall from February onwards, resulting in a loss of $763.5m “in just the four months from January to April”.
It was revealed the increasingly desperate board of directors stepped up the frequency of their meetings, sought to exit key contracts and terminated term deposits early to release funds.
With major shareholders unable to provide any assistance, Virgin Australia lobbied the Victorian, NSW, Queensland and federal governments for help, but were again knocked back.
“Given the economic environment created by the response to COVID-19, and without a pathway to secure a source of sufficient new funding, the directors reached the conclusion that the companies were likely to become insolvent if they continued trading, notwithstanding efforts to reduce their expenditure,” the report said. “The directors considered that the appointment of the administrators was the only remaining path available to them to restructure the companies’ liabilities and preserve the business of the companies.”
Despite the dire situation in which they found themselves, directors answered “no” when asked by administrators “did the business fail?” When Deloitte asked the directors to explain why they gave that response, they said the outcome of the administration
— a sale to Bain Capital — had preserved the business.
It was unclear if directors were even aware Virgin Australia was trading insolvent for a short period in March, before a federal law change to protect bankrupt companies in the pandemic.
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I have not read the report, just The Australian column in todays paper. It suggest Virgin was free falling from January before Covid-19 hit our shores and would of gone into administration anyway.
It was the transformation of Virgin Australia from budget carrier to premium airline over a period of years that set the company on a path to financial ruin.
A 192-page report to creditors by Deloitte’s Vaughan Strawbridge, John Greig, Salvatore Algeri and Richard Hughes has outlined the reasons for the business’s failure that led to their appointment to the airline on April 20.
Ultimately, it was “the inability of the airline’s balance sheet to withstand the immense financial impact caused by COVID-19” that led to its downfall, but the report also examined how Virgin Australia reached that point of collapse.
First, there was a “misconceived business strategy to change (the airline’s) business model from a low-cost carrier to full-service airline”, the report said.
As a result of that strategy, Virgin Australia triggered a damaging capacity war with Qantas, which was determined to protect its territory and had the advantage of a lower cost base to do so.
“Virgin did not have the size and financial strength to sustain this capacity increase without suffering significant losses,” the report noted.
The findings came as it emerged that US private equity firm Bain Capital will pay $3.5bn for Virgin Australia, in a deal that will cover employees’ entitlements but leave bondholders with between 9c and 13c in the dollar.
Other factors that contributed to the airline’s near demise included the “continued operation of loss-making services, routes and business segments; operational inefficiencies and a history of underdelivering on turnaround strategies”.
It all amounted to year after year of losses totalling about $2.2bn, which left the business with a significantly weakened balance sheet.
The report noted that, during the period between 2009 and 2020, revenue had continued to grow, “however it was not profitable growth”.
“This period encompassed the change in the Virgin Group’s business from a budget to full-service airline. As evident by the year-onyear losses, the Virgin Group was unable to derive sustainable profits from this change in strategy,” the report said.
In March 2019, Paul Scurrah took over as CEO from John Borghetti and set about “turning a great airline into a great business,” Mr Scurrah said at the time.
But in the year that followed, Virgin Australia sank deeper into the red, posting an $88.6m loss in the first half of the 2020 financial year. “This was a significant deterioration relative to the prior year period of $87.7m net profit before tax,” the report noted.
A range of measures were implemented to try to turn the airline around, including 750 job cuts and a fleet, network and capacity review, but then COVID-19 struck.
It did not help that shortly before the crisis, Virgin Australia raised an additional $325m in debt from bondholders to help fund the buyback of the Velocity Group.
“This added further debt to the balance sheet just prior to the time when the business would be severely impacted by COVID-19,” said the report.
Revenue and earnings went into free fall from February onwards, resulting in a loss of $763.5m “in just the four months from January to April”.
It was revealed the increasingly desperate board of directors stepped up the frequency of their meetings, sought to exit key contracts and terminated term deposits early to release funds.
With major shareholders unable to provide any assistance, Virgin Australia lobbied the Victorian, NSW, Queensland and federal governments for help, but were again knocked back.
“Given the economic environment created by the response to COVID-19, and without a pathway to secure a source of sufficient new funding, the directors reached the conclusion that the companies were likely to become insolvent if they continued trading, notwithstanding efforts to reduce their expenditure,” the report said. “The directors considered that the appointment of the administrators was the only remaining path available to them to restructure the companies’ liabilities and preserve the business of the companies.”
Despite the dire situation in which they found themselves, directors answered “no” when asked by administrators “did the business fail?” When Deloitte asked the directors to explain why they gave that response, they said the outcome of the administration
— a sale to Bain Capital — had preserved the business.
It was unclear if directors were even aware Virgin Australia was trading insolvent for a short period in March, before a federal law change to protect bankrupt companies in the pandemic.
Price battle, high debt and killer virus: why Virgin fell to earth
ROBYN IRONSIDEIt was the transformation of Virgin Australia from budget carrier to premium airline over a period of years that set the company on a path to financial ruin.A 192-page report to creditors by Deloitte’s Vaughan Strawbridge, John Greig, Salvatore Algeri and Richard Hughes has outlined the reasons for the business’s failure that led to their appointment to the airline on April 20.
Ultimately, it was “the inability of the airline’s balance sheet to withstand the immense financial impact caused by COVID-19” that led to its downfall, but the report also examined how Virgin Australia reached that point of collapse.
First, there was a “misconceived business strategy to change (the airline’s) business model from a low-cost carrier to full-service airline”, the report said.
As a result of that strategy, Virgin Australia triggered a damaging capacity war with Qantas, which was determined to protect its territory and had the advantage of a lower cost base to do so.
“Virgin did not have the size and financial strength to sustain this capacity increase without suffering significant losses,” the report noted.
The findings came as it emerged that US private equity firm Bain Capital will pay $3.5bn for Virgin Australia, in a deal that will cover employees’ entitlements but leave bondholders with between 9c and 13c in the dollar.
Other factors that contributed to the airline’s near demise included the “continued operation of loss-making services, routes and business segments; operational inefficiencies and a history of underdelivering on turnaround strategies”.
It all amounted to year after year of losses totalling about $2.2bn, which left the business with a significantly weakened balance sheet.
The report noted that, during the period between 2009 and 2020, revenue had continued to grow, “however it was not profitable growth”.
“This period encompassed the change in the Virgin Group’s business from a budget to full-service airline. As evident by the year-onyear losses, the Virgin Group was unable to derive sustainable profits from this change in strategy,” the report said.
In March 2019, Paul Scurrah took over as CEO from John Borghetti and set about “turning a great airline into a great business,” Mr Scurrah said at the time.
But in the year that followed, Virgin Australia sank deeper into the red, posting an $88.6m loss in the first half of the 2020 financial year. “This was a significant deterioration relative to the prior year period of $87.7m net profit before tax,” the report noted.
A range of measures were implemented to try to turn the airline around, including 750 job cuts and a fleet, network and capacity review, but then COVID-19 struck.
It did not help that shortly before the crisis, Virgin Australia raised an additional $325m in debt from bondholders to help fund the buyback of the Velocity Group.
“This added further debt to the balance sheet just prior to the time when the business would be severely impacted by COVID-19,” said the report.
Revenue and earnings went into free fall from February onwards, resulting in a loss of $763.5m “in just the four months from January to April”.
It was revealed the increasingly desperate board of directors stepped up the frequency of their meetings, sought to exit key contracts and terminated term deposits early to release funds.
With major shareholders unable to provide any assistance, Virgin Australia lobbied the Victorian, NSW, Queensland and federal governments for help, but were again knocked back.
“Given the economic environment created by the response to COVID-19, and without a pathway to secure a source of sufficient new funding, the directors reached the conclusion that the companies were likely to become insolvent if they continued trading, notwithstanding efforts to reduce their expenditure,” the report said. “The directors considered that the appointment of the administrators was the only remaining path available to them to restructure the companies’ liabilities and preserve the business of the companies.”
Despite the dire situation in which they found themselves, directors answered “no” when asked by administrators “did the business fail?” When Deloitte asked the directors to explain why they gave that response, they said the outcome of the administration
— a sale to Bain Capital — had preserved the business.
It was unclear if directors were even aware Virgin Australia was trading insolvent for a short period in March, before a federal law change to protect bankrupt companies in the pandemic.
The demise of Virgin over many years was obvious on the front line. Virgin management and those true believers who had their snouts entrenched in the Virgin trough thought the party would last forever....Day in day out you could see the damage that was being done. Problem was when you raised issues you were quickly given excuses why it was so, sometimes to the point of questioning your own sanity. Everyone will remember that "big picture" garbage that was spruiked so often. One thing for sure out of this mess is there is now a laser beam focus on excuses in the 737 operation. People are going to be needing to watch their backs cause Bain are going to ensure they get a return on their investment.
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ex the AFR: Virgin lucky to have Bain on board........
AFR article link: https://www.afr.com/chanticleer/virg...0200825-p55p5q
an Extract:
rgds
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an Extract:
-- Chanticleer
Virgin Australia is about a week away from moving into the hands of its new owner, Bain Capital. Employees and creditors are lucky the firm has made its $3.5 billion commitment.
The numbers contained in the Virgin Australia report to creditors give very little indication of how Bain Capital has positioned itself to make money out of buying Australia's second major airline. Analysis of how much Bain can cream out of the business requires an understanding of the amount of equity tipped in, the level of debt and some forecasts of earnings.
In a typical private equity transaction, the business will be rebooted on a lower cost base and then readied for sale to the market in about three years. This particular deal might involve a five-year turnaround simply because of the uncertainty caused by the coronavirus and its impact on aviation.
But it is safe to say that one of the world's largest and smartest PE groups is not buying Virgin to earn goodwill among the aviation unions or get brownie points from a federal government desperate to have competition in domestic aviation.
The report is short on detail as to how much costs will be cut by Bain as a result of renegotiating about nine enterprise bargaining agreements. Another missing piece is the amount of aircraft leasing debt that will be taken on by Bain as part of operating a fleet of about 70 Boeing 737s.
There are several references to $1 billion in earnings before interest, tax, depreciation and amortisation before aircraft rent in fiscal 2022 and 2023. But these are contingent numbers that require Bain to make further payments to creditors and not forecasts.
Bain is playing its cards close to its chest and so is Vaughan Strawbridge, Virgin's joint voluntary administrator and Deloitte partner, who has released a holistic number with little transparency attached to it.
Strawbridge says the "total commitment from Bain Capital is valued around $3.5 billion, which includes all employee entitlements paid in full, all customer travel credits honoured in full, assumption of a significant portion of secured debts and aircraft lease liabilities, and a return to unsecured creditors".
From Strawbridge's point of view the most important aspects of the report to creditors are that it confirms Bain will cover about $400 million in employee entitlements in full, the continuation of more than $1 billion supply and finance arrangements, about $600 million in customer credit for flights taken forward, and a distribution to unsecured creditors of an estimated $462 million to $612 million.
Close observers of the Virgin sale process reckon the creditors are getting a great deal from Bain and the airline's unions are in a commanding position because Bain is on the hook for new enterprise bargaining agreements.
Chanticleer's conclusion after reading the 192-page report is that Virgin's employees and its creditors are lucky to have a company of Bain's financial strength on board. Unlike the bond holders who have played a guerilla warfare game for the past two months, Bain actually stumped up $125 million in cash to keep the airline afloat.
While it is true its mix of debt and equity is a mystery, the creditors' report shows it is buying a company that has not been well run over the past decade. Virgin's previous management cop a pasting for their poor strategic decision to begin a capacity war with Qantas.
If creditors and unions needed to be reminded of how fortunate they are to have Bain in the box seat to buy Virgin, they only needed to read the Qantas announcement yesterday in which it will slash 2500 ground staff in order to save $100 million in annual costs and slash capital expenditure by $100 million over the next few years.
Strawbridge says it is in the interests of creditors to approve a deed of company arrangement at the creditors' meeting on September 4.
"Where we are today is a testimony to the commitment of the staff and all stakeholders of the business who have made this possible and so strongly supported the administration process," he says.
Virgin lucky to have Bain on board
Aug 26, 2020 – 12.00amVirgin Australia is about a week away from moving into the hands of its new owner, Bain Capital. Employees and creditors are lucky the firm has made its $3.5 billion commitment.
The numbers contained in the Virgin Australia report to creditors give very little indication of how Bain Capital has positioned itself to make money out of buying Australia's second major airline. Analysis of how much Bain can cream out of the business requires an understanding of the amount of equity tipped in, the level of debt and some forecasts of earnings.
In a typical private equity transaction, the business will be rebooted on a lower cost base and then readied for sale to the market in about three years. This particular deal might involve a five-year turnaround simply because of the uncertainty caused by the coronavirus and its impact on aviation.
But it is safe to say that one of the world's largest and smartest PE groups is not buying Virgin to earn goodwill among the aviation unions or get brownie points from a federal government desperate to have competition in domestic aviation.
The report is short on detail as to how much costs will be cut by Bain as a result of renegotiating about nine enterprise bargaining agreements. Another missing piece is the amount of aircraft leasing debt that will be taken on by Bain as part of operating a fleet of about 70 Boeing 737s.
There are several references to $1 billion in earnings before interest, tax, depreciation and amortisation before aircraft rent in fiscal 2022 and 2023. But these are contingent numbers that require Bain to make further payments to creditors and not forecasts.
Bain is playing its cards close to its chest and so is Vaughan Strawbridge, Virgin's joint voluntary administrator and Deloitte partner, who has released a holistic number with little transparency attached to it.
Strawbridge says the "total commitment from Bain Capital is valued around $3.5 billion, which includes all employee entitlements paid in full, all customer travel credits honoured in full, assumption of a significant portion of secured debts and aircraft lease liabilities, and a return to unsecured creditors".
From Strawbridge's point of view the most important aspects of the report to creditors are that it confirms Bain will cover about $400 million in employee entitlements in full, the continuation of more than $1 billion supply and finance arrangements, about $600 million in customer credit for flights taken forward, and a distribution to unsecured creditors of an estimated $462 million to $612 million.
Close observers of the Virgin sale process reckon the creditors are getting a great deal from Bain and the airline's unions are in a commanding position because Bain is on the hook for new enterprise bargaining agreements.
Chanticleer's conclusion after reading the 192-page report is that Virgin's employees and its creditors are lucky to have a company of Bain's financial strength on board. Unlike the bond holders who have played a guerilla warfare game for the past two months, Bain actually stumped up $125 million in cash to keep the airline afloat.
While it is true its mix of debt and equity is a mystery, the creditors' report shows it is buying a company that has not been well run over the past decade. Virgin's previous management cop a pasting for their poor strategic decision to begin a capacity war with Qantas.
If creditors and unions needed to be reminded of how fortunate they are to have Bain in the box seat to buy Virgin, they only needed to read the Qantas announcement yesterday in which it will slash 2500 ground staff in order to save $100 million in annual costs and slash capital expenditure by $100 million over the next few years.
Strawbridge says it is in the interests of creditors to approve a deed of company arrangement at the creditors' meeting on September 4.
"Where we are today is a testimony to the commitment of the staff and all stakeholders of the business who have made this possible and so strongly supported the administration process," he says.
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