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Virgin Australia administrators agree to sell airline to Bain Capital
- bashtoni 6y agoI hadn't heard of Bain Capital previously, but this article certainly doesn't paint them in a good light: https://www.rollingstone.com/politics/politics-news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-183291/ https://www.rollingstone.com/politics/politics-news/greed-an...
- etimberg 6y agoOnly thing I ever remembered was that they were founded by Mitt Romney which immediately reminds me of the "Corporations are people" quote.
- sushshshsh 6y agoCorporations definitely are people, just ones that have a legal duty and financial incentive to act extremely selfishly and deceptively.
- tomhoward 6y agoThat's a caricature. Company directors have a legal duty to act in the interests of the company (as distinct from shareholders), but that doesn't mean they have to "act extremely selfishly and deceptively", any more than individuals do or should. People and companies need to balance their individual short term self-interest with their reputation and long-term interest. Like individuals, some companies can act like assholes, but when the system works well, people will stop associating with those ones. Of course, cronyism, monopoly effects and other issues mean the system doesn't always work well, but that's a somewhat separate matter.
- sushshshsh 6y agoNice so I'm being downvoted by anti corporate and pro corporate people, good to know. You compared the level of selfishness of corporations to individuals. I wonder if other people here would agree with that. My original intent was to confirm that corporations are indeed made up of people, who have motivations. Most people here would deny that corporations should be considered people.
- tomhoward 6y ago> Most people here would deny that corporations should be considered people. Most people understand the legal basis for that when it's explained. And most people understand that corporations are run by people and are built to benefit (some) people.
- rapsey 6y agoYeah Virgin is going to be hollowed out and sold for scrap.
- andrewwharton 6y agoYep, seems like the big expectation here is to retain jobs and keep a competitive market in Australian domestic travel. Doesn’t seem likely anymore, which is a shame, because I always liked flying Virgin over the cattle-mustering experience that was flying Jetstar.
- tomhoward 6y agoThere's not much more it can be hollowed out. If it's not to continue as an operating airline, the only assets to be sold for "scrap" are the aircraft (they own about half their fleet), and there's not much demand for them right now, or for the foreseeable future. But its brand, network and operating infrastructure have substantial value, so they'll get a much better return if they can get it operational and profitable again.
- 542458 6y agoThey can’t sell the airplanes for scrap, because they don’t own them - Virgin Australia leases its planes.
- tomhoward 6y agoThey own about half of them according to the Forbes article below, including four of the five 777s they operate. But even if you're right it only enhances my point; there's little "scrap" value in VA; it's either an operating airline or nothing. https://www.forbes.com/sites/willhorton1/2020/04/25/is-virgin-australia-greater-than-the-sum-of-its-parts-perth-airport-seizes-planes-as-assets-dwindle/#1600884d73df https://www.forbes.com/sites/willhorton1/2020/04/25/is-virgi...
- aryonoco 6y agoThe four they own, we're fitted with small cargo doors, as opposed to standard ones, to save pennies. Now, in a world of Dreamliners and A350s, The major life of a second hand 77W is as a freighter, but no one wants these birds cause they are not suitable for freight operations. So yes they own them, but no one is going to buy them. John Borghetti and his team made a lot of stupid decisions during their decade at the helm. This really was the cherry on the top.
- drocer88 6y agoThis is a straight up political hit piece published in August 2012 a few months before the Presidential elections when Romney was a major party nominee. "And the drama of this rhetorical high-wire act was ratcheted up even further when Romney chose his running mate, Rep. Paul Ryan of Wisconsin – like himself, a self-righteously anal, thin-lipped, Whitest Kids U Know penny pincher who’d be honored to tell Oliver Twist there’s no more soup left. By selecting Ryan, Romney, the hard-charging, chameleonic champion of a disgraced-yet-defiant Wall Street, officially succeeded in moving the battle lines in the 2012 presidential race." The rhetoric and the journalism are hard to separate in this article.
- ehnto 6y agoI hadn't considered what happens when a company goes into administration, but I am surprised that it's another private company that is assigned to administrating it. I had always assumed it was a department in the government that handled the process.
- tomhoward 6y agoNo, it's not really the kind of thing governments could do, as they can't really be independent; they're generally a major creditor (for unpaid taxes) along with all the others.
- 9nGQluzmnq3M 6y agoThere's an Australian company called KordaMentha that specializes almost exclusively in bankruptcies. (Or, at least to us laymen, never makes the news for anything else.) https://kordamentha.com/restructuring https://kordamentha.com/restructuring
- tomhoward 6y agoFunnily enough, Korda Mentha came into existence as a result of two (or indeed, three) giant corporate collapses, one being Australia's previous second airline. When Ansett Airlines went into administration in 2001, Arthur Andersen was appointed administrator, and Korda and Mentha were the partners put in charge of the business. Then Arthur Andersen was forced to shut down as a result of its part in the Enron collapse, so Korda and Mentha started their own firm to handle the ongoing Ansett work. https://www.smh.com.au/business/when-ansetts-balloon-went-up-kordamenthas-star-rose-20111120-1npbg.html https://www.smh.com.au/business/when-ansetts-balloon-went-up...
- lubos 6y agoIn Australia, independent administrator is appointed who is working on behalf of creditors. Government is usually another creditor so they are not exactly an independent party.
- postingawayonhn 6y agoProviding administration/liquidation services is a big industry. They come in to protect the interests of creditors and can usually be replaced by a vote of the creditors.
- 9nGQluzmnq3M 6y agoThe usual private equity playbook is to strip assets, load up the company with debt, and let it plummet into the ground, which is why Bain has both the name and reputation of a Batman supervillain. However, Virgin Australia already has on the order of 6 billion in debt and virtually no assets (pretty much their entire fleet is leased). It'll be interesting to see how Bain plan to extract their pound of flesh here, when pretty much the only feasible strategy is to build a viable competitor to Qantas.
- tonyedgecombe 6y agoAre they taking on the debt? I assumed creditors would be out of luck in a situation like this.
- wbl 6y agoThe creditors will be the ones they are buying the company from.
- madaxe_again 6y agoGate and landing slots are my best guess as to what their remaining assets are - but with the downturn in air travel and the fees to maintain them, they seem more like liabilities. Maybe there’s a nice pile of customer data that’s worth a bob or two to the right buyer.
- toyg 6y agoThe Australian market for airtravel is big and, unlike in Europe or US, it's likely to grow in the long run; so those gates might be worth something if they can keep hold of them for long enough.
- FireBeyond 6y agoYep. Melbourne - Sydney (440mi) is the second/third (depending on whether you count passenger volume or aircraft movements) most trafficked route in the world behind a domestic Korean and domestic Japanese route (152 flights per day on average, 9.2 million passengers/year). (https://en.wikipedia.org/wiki/List_of_busiest_passenger_air_routes https://en.wikipedia.org/wiki/List_of_busiest_passenger_air_...)
- ferros 6y agoVirgin’s unrealised value is in the government handouts and concession that are still to come. Virgin is the second and only competitor to Australia’s main carrier QANTAS, and sole carrier for some routes. The government will not let them fade away. Big money and concessions will be forthcoming.
- JoblessWonder 6y agoHas Australia not given any bailouts to the airlines yet?
- gindely 6y agoWhy will Virgin be treated differently than Ansett? (I was pretty young when Ansett went bankrupt, but Virgin's reputation seems to have been "trying to be Ansett and make a duopoly again".)
- thejohnconway 6y agoWhen Ansett went broke Virgin had just entered the market (further undercutting prices), so there was competition to Qantas. Now what else is there?
- tomhoward 6y agoThere was a rumour that the AU government was willing to let VA collapse and hope that a foreign low-cost airline like Ryanair or Easyjet would enter the market. But it's unlikely any airline is in a strong enough position to make that kind of move at the moment. So they will likely offer a restructured VA the same kind of support as they'll offer Qantas.
- postingawayonhn 6y agoRex has been talking about buying some bigger jets to try and grab market share while Virgin and Qantas are struggling.
- tomhoward 6y agoVirgin won't get special treatment, but the Australian government, like all governments, will give the whole commercial aviation industry concessions and benefits to help keep it afloat, as it is of importance for economic and security reasons. It's a different scenario to when Ansett went under, as back then the problem was isolated to Ansett, and the industry was still fundamentally strong (due in part to the entrance of Virgin, which at that stage was an up-and-coming low-cost carrier with solid backing from Branson and other early investors). The AU government wasn't willing to bail VA out of insolvency, but now that a private buyer has come in to restructure it, it will be able to get the same benefits as Qantas.