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You couldn't help making money with that cost base.

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Union kingmakers fear Bain Capital's bid for Virgin Australia

By Sarah Danckert and Patrick Hatch

May 31, 2020 — 11.45pm

Unions controlling key votes in the Virgin Australia administration process have expressed serious concerns about Bain Capital's tilt at the airline due to the buyout firm's history of slashing jobs and imposing harsh conditions on workers offshore.

Virgin's 9000 employees are owed a combined $450 million from the collapsed airline and will be a vital voting block to get any rescue bid approved. As a result, the unions representing the carrier's workers have emerged as kingmakers in the bidding process which will this week hit a pivotal juncture.

Bain part-owned Toys R Us has a patchy industrial relations record in the US, particularly when dealing with workers made redundant during insolvency. Credit:Jane Dyson

Bain, which in Australia is led by former Olympic diver Michael Murphy, is among the contenders for the airline alongside local private equity outfit BGH Capital, Richard Branson linked Cyrus Capital, US airline investor Indigo Partners and Canadian funds management giant Brookfield.

Virgin's administrators Deloitte spent the weekend working through second round bids and could announce a shortlist of two final bidders as soon as Monday.

Ahead of the decision, unions have aired concerns with Deloitte about Bain Capital's track record in the US where it has cut jobs and slashed worker entitlements. Transport Workers Union national secretary Michael Kaine said that while Bain had launched a public relations blitz last week to put forward its plans "this isn’t about the number of column inches you get".

"It’s about how you can demonstrate that you can get Virgin back in the air in a way that serves workers and the travelling public,” Mr Kaine said.

Four bidders for Virgin Australia have been shortlisted and will be revealed to the public.

Mr Kain noted that Bain had a patchy record on respecting workers’ rights.

"Our message to Bain and any other bidders is that Virgin’s workers are a unique workforce, they’re highly skilled, they’re highly dedicated, they’re fiercely concerned about the future of the airline and they are a force to be reckoned with for any bidders which doesn’t have Virgin’s long-term future as a priority, and which believes they can ram through plans which might ultimately hurt Australia’s chances of having a strong second airline."

Union sources said they are also troubled by Bain’s track record on industrial relations, and after meeting with the group last week believed that the private equity firm would play hard-ball with Virgin's highly unionised workforce.

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In 2017, around 30,000 US workers at Bain part-owned group Toys R US were left without severance pay when the retail chain collapsed. The workers launched a months-long campaign against Bain and former co-owners KKR and the Vornado Realty Trust, enlisting high-profile supporters including former Democratic Presidential candidates Elizabeth Warren and Bernie Sanders.

Bain and KKR created a $US20 million hardship fund for workers in late 2018. This amount was on top of an earlier settlement which was short of the $US75 million workers said they were owed.

There has also been criticism of the treatment of workers at music retailer Guitar Center when it was under Bain majority control. In 2017, the US National Labor Relations Board found the then Guitar Centre engaged in illegal union-busting activities in 2014 when Ares Management and Bain owned the group including "threatening employees with reduced benefits because of their union membership or affiliation", "interrogating workers about their support for their union" and "creating the impression that employee support for the Union was under surveillance".

Worker representatives also fear that American ultra-low cost airline investors Indigo Partners and its partner Oaktree Capital would turn Virgin into a scaled-back budget airline which would employ far fewer people.

Australian private equity firm BGH Capital, which is working on a bid with AustralianSuper, has proposed restarting Virgin with as few as 15 planes in the sky, which was also poorly received by union representatives, sources said.

“There are concerns about many of the private equity bidders,” one union figure said.

Brookfield - which dropped out of the formal sale process two weeks ago but made another bid on Friday hoping to remain a contender - remains the unions’ preferred bidder. They also view the Richard Branson-linked Cyrus Capital favourably after it outlined a plan to maintain Virgin as a full-service international airline.

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" -Rear Window

Steve Ciobo advising Bain's Virgin bid
Joe Aston Columnist

May 31, 2020 – 11.58pm

Whoever emerges as Virgin Australia's new owner, and in whatever form the airline takes, the voluntary administration process will have been a consultants' picnic. Oodles of professional services mercenaries attached to the various bids – Bain, for instance, has 22 external advisers engaged "around the clock" on theirs – will no doubt be extra grateful for the fee bonanza at such a dismal point in the economic cycle.

One former Somebody lending his expertise and entrée to Bain's bid is former federal minister Steven Ciobo, no doubt offering unparalleled insight into the direction of the wind, at any given moment, in Scott Morrison's Canberra.

A curious choice. Does the Prime Minister's door even remain ajar to his former defence industry minister?

You'll recall defence minister Christopher Pyne was allowed to serve out his final days in Parliament on the frontbench after announcing he would not contest the 2019 election. So, too, was human services minister Michael Keenan, despite his character assessment of his new leader as an "absolute arsehole". Very pointedly, however, Ciobo was not extended the same courtesy, sent to the backbench just 2½ months from the May poll.

Having backed Peter Dutton in the Liberal leadership spill (and even run as deputy, garnering more votes, at least, than poor, deluded Greg Hunt), Ciobo had already been demoted from the trade and tourism portfolio when Morrison appointed his first cabinet in August 2018, a portfolio he'd really come to know and love. Ciobo spent almost as many nights in the key Virgin Australia destination of Los Angeles than George Christensen did in Angeles City – and Ciobo was even ordered by the (previous) Prime Minister's Office to cut it out. Who knew West Hollywood was such a nerve centre for bilateral trade negotiations with Indonesia or Peru?

Hey, at least Ciobo hasn't been reduced to lobbying for L'Oréal.

Over at rival Virgin bidder Brookfield, Canberra's vagaries are being interpreted for the Canadians by GRA Cosway. No government relations advice is required at BGH Capital, where principal Ben Gray considers himself an ex-officio member of federal cabinet. Why pay for a pale imitation when you've got the real thing engraved on the door?

Joe Aston has helmed The Australian Financial Review's Rear Window column since 2012. He is based in Los Angeles. Connect with Joe on Facebook and Twitter. Email Joe at [email protected] "

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ScepticalOptomist

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