Bain to buy Virgin Australia

The airline entered voluntary administration in April – carrying nearly A$7 billion ($4.5 billion) in debt – after travel restrictions imposed in connection with the coronavirus outbreak wiped out demand. Bain was one of two groups to submit a binding proposal. The other was Cyrus Capital Partners, a hedge fund said to have ties to Virgin Group founder Richard Branson.

Two more private equity firms were linked with the asset earlier in the process: local GP BGH Capital and US-based Indigo Partners. The administrators said in a statement that they received several other proposals from interested parties this week, including one from an ad hoc group of VAH bondholders. Bondholders claiming to be owed around A$2 billion earlier proposed a debt-to-equity swap plus a A$1 billion capital injection.

On entering the second round of bidding for VAH last month, Bain pledged to give the airline “a sustainable, long-term future.” The firm said it had the strongest capital base of any of the bidders, supported by a combination of its own and significant Australian money. Mike Murphy, a Sydney-based managing director, said Bain had the experience to navigate the current difficulties and help create an airline that meets the needs of travelers and those who work in the tourism industry.

The firm already has an airline in its Asia portfolio, having teamed up with two Chinese partners to acquire Trans Maldivian Airways (TMA) from The Blackstone Group in 2017. TMA is the world’s largest seaplane operator, but the Maldives has been closed to inbound tourists since late March. It will reopen in mid-July. The World Bank projects the country – which relies on tourism for 28% of its GDP – will be the worst-hit economy in South Asia because of COVID-19.

VAH was established in 2000 and listed in 2003. As of June 2019, it had a domestic fleet of 96 aircraft serving 39 destinations and an international fleet of 22 aircraft serving 15 destinations. Low-cost carrier Tigerair Australia offered flights to 12 domestic destinations on 15 planes. Revenue for the year was A$5.8 billion, up 7.5%, while the company’s net loss narrowed by 51.7% to A$315.4 million.

VAH’s most valuable asset is its Velocity frequent flyer business, which had 9.8 million members as of June 2019. Revenue from the business was A$411 million, 10.5% from 2018, while EBITDA increased from A$117.1 million to A$132.4 million. Affinity Equity Partners bought a 35% stake in Velocity in 2014 for A$336 million. This was sold back to VAH last year for A$700 million.

Bain has been investing in Australia for 20 years across its private equity and credit businesses. Previous deals in the country include the purchase of Kantar’s Australia and New Zealand market research and consulting business – part of an investment in Kantar globally – childcare services providers Camp Australia and Only About Children, Boost Juice owner Retail Zoo, and business services specialist MYOB.

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• Topics
• Australasia
• Buyouts
• Restructuring
• Australia
• Bain Capital Asia
• Transportation