Rumors continue that the private equity owners of Brisbane-based Virgin Australia are looking to sell at least part of the airline via an initial public offering (IPO) on the Australian Stock Exchange in the next year or so.
Virgin Australia’s owners eye a 2023 IPO date
Late last week, The Australian newspaper reported that the airline’s owners, Bain Capital, were looking to offload at least half of Virgin Australia via an IPO in 2023. Bain bought Virgin Australia for US$2.45 billion in 2020. Any IPO would see Bain recover at least some of their investment.
Last week’s report followed a similar rumor before Christmas. In December, the reported IPO date was as soon as mid-December 2022. The scuttlebutt forced Virgin Australia CEO Jayne Hrdlicka to step in to address the rumors.
“Bain regularly receives proposals like this, and no decisions have been made in relation to any potential relisting or other activity,” Ms Hrdlicka told Virgin Australia’s employees.
“If and when there is something to say about future capital structures of Virgin Australia, you will hear it from us.
“Bain Capital under every scenario will be our strategic partners and our major shareholder for many years to come.”
Chopping flying conditions could hamper immediate IPO ambitions
Bain Capital rescued Virgin Australia from collapse and administration in 2020. At the time, most industry insiders believed the Boston-based private equity outfit would nurse Virgin Australia back to profitability before flipping the airline.
Following the 2020 collapse and administration process, former owners Singapore Airlines, Etihad, the Hainan Group, the Nanshan Group, and Virgin all found themselves out of pocket and without any equity after years of propping up Virgin Australia.
Since Bain took over, Virgin Australia has struggled to gain traction in the Australian airline market while competing against the Qantas Group juggernaut. Local travel restrictions and prolonged internal border closures have also cruelled network ramp-ups and demand.
Further, widespread concern over the omicron variant has derailed an anticipated humper summer of flying for Virgin Australia. The airline had hoped to be running at or near pre-pandemic capacity by now. Instead, Virgin Australia has recently reduced network capacity by 25%, reduced frequencies, and suspended flight on ten routes.
According to The Australian’s latest report, a 2023 IPO date would provide an 18-month recovery runway. A return to normal network capacity by then and stemming the sea of red ink would make Virgin Australia a more attractive (and expensive) proposition for any new owners.
Who are potential future Virgin Australia owners?
Just who might crack open the checkbook to buy a stake in Virgin Australia is anyone’s guess. Regional competitors Air New Zealand and Singapore Airlines have previous interests in Virgin Australia. Both airlines get mentioned frequently as possible future investors.
But most industry observers rule out Air New Zealand. They also point out Singapore’s external ambitions lie elsewhere these days – India’s Vistara, for example.
One intriguing new possibility is United Airlines. That airline recently signed a comprehensive partnership agreement with Virgin Australia, giving both airlines a significantly improved foothold in each other’s local markets.
United Airlines has a longstanding presence on the transpacific routes to Australia. The airline usually serves Sydney and Melbourne from multiple US destinations. United’s new relationship with Virgin Australia opens up a range of interesting possibilities that a financial stake could solidify.
Recently, Bain Capital has talked to several investment banks regarding a possible IPO. However, flying conditions will need to improve before any IPO gives Bain Capital a decent return on its Virgin Australia investment.
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