As Virgin Australia scrambles to stay intact and afloat, more than a dozen private equity funds are hovering in the hope the airline will call it a day so they can pick up the carcass on the cheap, writes adele_ferguson
Rhett Wyman
A private equity consortium APA, led by Ben Gray, tried to buy Qantas in 2006. After the failed bid, Qantas boss Alan Joyce said: “It would have been a disaster in the end.” Joyce took over as boss of the airline just after the global financial crisis. “What happened that year, we lost $1 billion of revenue almost overnight. It was a big hit to our cash flow. If we had have been in APA we would have had around $11 billion of debt, which is more than twice what we have today.
The spectre of this playing out will undoubtedly focus any negotiations it is having with its current debt holders about restructuring the debt to stave off administrators taking control of the situation. It would put a question mark over the credit notes and vouchers offered to customers when most of Virgin's flights were cancelled due to the coronavirus pandemic.
Internationally, it would likely close its international arm and do a deal with the government to allow Singapore Airlines to step into the breach but Virgin keep three wide-body planes and continue to run the lucrative Australia to the United States route. Indeed, if private equity cut too deeply Virgin could lose some of its more lucrative corporate accounts, which would further change the competition dynamics between the two airlines.Virgin is running out of options. The government seems adamant that it won’t give it a $1.4 billion loan to help it over the hump of the global pandemic which has left most airlines poleaxed. Airlines are highly capitalised and have high fixed costs.
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