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The 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

The 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 ago
Are they taking on the debt? I assumed creditors would be out of luck in a situation like this.
- wbl 6y ago
  The creditors will be the ones they are buying the company from.
madaxe_again 6y ago
Gate 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 ago
  The 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 ago
    Yep. 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_...)
bsenftner 6y ago
Well, if they are like the Batman supervillain, they just bought a fleet of flying bombs.
JumpCrisscross 6y ago
> Bain has both the name and reputation of a Batman supervillain And like said supervillains, this caricature is largely a fiction. In an analysis of "European companies around their buyout event in the period 2000 - 2008," private equity was found to "select companies which are less financially distressed than comparable companies prior to the transaction and that the distress risks increase after the buyout" [1]. Critically, however, "the distress risk in private equity-backed companies does not exceed the distress risk in comparable companies three years after the buyout," and, "despite this risk increase, private equity-backed companies do not suffer from higher bankruptcy rates than the control group." More broadly, an analysis of "17,171 worldwide leveraged buyout transactions that include every transaction with a financial sponsor in the CapitalIQ database announced between 1/1/1970 and 6/30/2007" found bankruptcy rates around 6% [2]. This isn't exceptionally high. Large deals get press. They also have a habit of involving overextension. As a result, the average private equity story is about things going spectacularly wrong at scale. [1] https://madoc.bib.uni-mannheim.de/31366/1/dp11076.pdf https://madoc.bib.uni-mannheim.de/31366/1/dp11076.pdf [2] https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121 https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121 Table 2
- numair 6y ago
  Using 2007/2008 studies to defend the 2010s behavior of an industry doesn’t really make sense. Imagine using a 2007 annual report to make a case, today, for why Apple will never be worth $1 trillion... I’m glad that you’ve at least put a disclosure that you work in private equity in your HN bio, though. Kudos for that.
  - JumpCrisscross 6y ago
    > Using 2007/2008 studies to defend the 2010s behavior of an industry doesn’t really make sense In this case, it does. Bain was prominent in that time. In a vacuum of data, something is better than nothing. Post-crisis private equity is more sober than 2000-2007. It was only about a year ago that we reached leverage ratios approaching those of the last decade's peak [1]. On a cash flow basis, most of this decade was subdued compared with that period [2]. > you work in private equity I work on the venture capital end of the private equity spectrum. Not comparable to whole-company leveraged buyouts of Bain's style. There are valid criticisms of private equity. It weaponizes the tax deductibility of interest, which I don't think funds should be able to use. Its fee structures are opaque. And its largest deals tend to be destructive. But heightened frequency of bankruptcy is not sustained by any data I've come across. [1] https://www.reuters.com/article/leverage-climbs/leverage-levels-peaking-again-on-us-mega-buyouts-idUSL1N2190M2 https://www.reuters.com/article/leverage-climbs/leverage-lev... [2] https://www.intuition.com/have-private-equity-valuations-reached-bubble-levels/ https://www.intuition.com/have-private-equity-valuations-rea...
incompatible 6y ago
Then maybe all they intend to do is to keep the company alive, somehow, at a minimum operating level, until such time as the Covid-19 situation is less of a concern, and then resell it to somebody else for a profit.
enahs-sf 6y ago
Perhaps some hitherto unforeseen competitive advantage in routes and flight paths? But even then, seems tough. If you thought middle seat on the last row of United was bad, can’t wait to see what this looks like when they’re done with it.
goatinaboat 6y ago
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. I agree, but I‘ve never understood who the creditors are in this scenario. Why would you lend to a company when you know the VCs are going to trash it?
NotSammyHagar 6y ago
Their assets are their name and the landing slots, plus a running airline. Landing slots have some intrinsic value. I expect to see a lot of airlines go bankrupt. We have too many for next year or two.
realtalk_sp 6y ago
What makes you think creditors would keep helping Bain "load up [companies] with debt" if doing so yielded an intolerably high risk of default? It seems obvious that they'd run out of patsies, sooner or later.

tonyedgecombe 6y ago

Are they taking on the debt? I assumed creditors would be out of luck in a situation like this.

wbl 6y ago
The creditors will be the ones they are buying the company from.

madaxe_again 6y ago

Gate 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 ago
The 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 ago
  Yep. 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_...)

bsenftner 6y ago

Well, if they are like the Batman supervillain, they just bought a fleet of flying bombs.

JumpCrisscross 6y ago

> Bain has both the name and reputation of a Batman supervillain And like said supervillains, this caricature is largely a fiction. In an analysis of "European companies around their buyout event in the period 2000 - 2008," private equity was found to "select companies which are less financially distressed than comparable companies prior to the transaction and that the distress risks increase after the buyout" [1]. Critically, however, "the distress risk in private equity-backed companies does not exceed the distress risk in comparable companies three years after the buyout," and, "despite this risk increase, private equity-backed companies do not suffer from higher bankruptcy rates than the control group." More broadly, an analysis of "17,171 worldwide leveraged buyout transactions that include every transaction with a financial sponsor in the CapitalIQ database announced between 1/1/1970 and 6/30/2007" found bankruptcy rates around 6% [2]. This isn't exceptionally high. Large deals get press. They also have a habit of involving overextension. As a result, the average private equity story is about things going spectacularly wrong at scale. [1] https://madoc.bib.uni-mannheim.de/31366/1/dp11076.pdf https://madoc.bib.uni-mannheim.de/31366/1/dp11076.pdf [2] https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121 https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121 Table 2

numair 6y ago
Using 2007/2008 studies to defend the 2010s behavior of an industry doesn’t really make sense. Imagine using a 2007 annual report to make a case, today, for why Apple will never be worth $1 trillion... I’m glad that you’ve at least put a disclosure that you work in private equity in your HN bio, though. Kudos for that.
- JumpCrisscross 6y ago
  > Using 2007/2008 studies to defend the 2010s behavior of an industry doesn’t really make sense In this case, it does. Bain was prominent in that time. In a vacuum of data, something is better than nothing. Post-crisis private equity is more sober than 2000-2007. It was only about a year ago that we reached leverage ratios approaching those of the last decade's peak [1]. On a cash flow basis, most of this decade was subdued compared with that period [2]. > you work in private equity I work on the venture capital end of the private equity spectrum. Not comparable to whole-company leveraged buyouts of Bain's style. There are valid criticisms of private equity. It weaponizes the tax deductibility of interest, which I don't think funds should be able to use. Its fee structures are opaque. And its largest deals tend to be destructive. But heightened frequency of bankruptcy is not sustained by any data I've come across. [1] https://www.reuters.com/article/leverage-climbs/leverage-levels-peaking-again-on-us-mega-buyouts-idUSL1N2190M2 https://www.reuters.com/article/leverage-climbs/leverage-lev... [2] https://www.intuition.com/have-private-equity-valuations-reached-bubble-levels/ https://www.intuition.com/have-private-equity-valuations-rea...

incompatible 6y ago

Then maybe all they intend to do is to keep the company alive, somehow, at a minimum operating level, until such time as the Covid-19 situation is less of a concern, and then resell it to somebody else for a profit.

enahs-sf 6y ago

Perhaps some hitherto unforeseen competitive advantage in routes and flight paths? But even then, seems tough. If you thought middle seat on the last row of United was bad, can’t wait to see what this looks like when they’re done with it.

goatinaboat 6y ago

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. I agree, but I‘ve never understood who the creditors are in this scenario. Why would you lend to a company when you know the VCs are going to trash it?

NotSammyHagar 6y ago

Their assets are their name and the landing slots, plus a running airline. Landing slots have some intrinsic value. I expect to see a lot of airlines go bankrupt. We have too many for next year or two.

realtalk_sp 6y ago

What makes you think creditors would keep helping Bain "load up [companies] with debt" if doing so yielded an intolerably high risk of default? It seems obvious that they'd run out of patsies, sooner or later.