How much US company is paying for Virgin
US firm Bain Capital will pay $3.5 billion to take control of Virgin Australia, with the airline's unsecured creditors to see their debt assets almost wiped out in the deal.
Those are some of the revelations in administrator Deloitte's report to creditors that was released today following a four-month investigation into the troubled airline.
Deloitte has recommended creditors endorse Bain's deed of company arrangement in a vote on September 4, with administrator Vaughan Strawbridge saying the sale process resulted in "the best return to creditors in what are extraordinary circumstances, and that were impossible to foresee".
According to Deloitte's report, investment giant Bain's "total commitment" to Virgin Australia is $3.5 billion, which will cover the $450 million owed to staff and $2.3 billion owed to secured creditors.
However, the airline's unsecured creditors - who are owed between $462 million and $612 million - will receive a return of between 9 and 13 cents on the dollar.
If the September vote fails, Bain will acquire the airline through an asset sale that will see unsecured creditors receive between 4 and 7 cents on the dollar, according to Deloitte.
Virgin has more than 10,000 creditors, comprised mostly of employees as well as mum and dad investors through to aircraft lessors.
It also currently holds between $550 million and $650 million in customer travel credits, but Deloitte noted those figures were "constantly changing" as the airline continued to trade through administration.
Virgin Australia is offering future flight credits for booking flights up to July 31, 2022 with travel valid until June 30, 2023.
Australia's second airline went into voluntary administration in April, with a debt pile of around $6.8 billion, following years of financial trouble and amid the COVID-19 pandemic forcing it to suspend its international operations and ground almost its entire domestic fleet.
Deloitte's final report to creditors charted the airline's rocky financial history, concluding its difficulties "were due to an already highly leveraged balance sheet, resulting from past years of losses, that was unable to support the business impact caused by COVID-19".
It cited a number of contributing factors for its struggles, including a higher cost base compared to Qantas, high labour costs and its use of various different aircraft types, as well as a "misconceived business strategy to change its business model from a low-cost carrier to a full-service airline".
Deloitte's report also flagged that Virgin Australia may have traded while it was insolvent in the early days of the pandemic, before it went into voluntary administration on April 21.
"Our preliminary analysis indicates the (Virgin Group) was insolvent from 22 March, 2020 and possibly as early as 18 March, 2020," it said.
"We estimate there have been trading liabilities incurred of between $17 million to $35 million, depending upon whether the date of insolvency is 22 March, 2020 or 18 March, 2020, up to 25 March, 2020."
The report noted a change to insolvency laws during the pandemic offered temporary relief to directors from potential insolvent trading.
This month, Virgin Australia chief executive Paul Scurrah announced it would shed about 3000 jobs and cull Tigerair Australia as it rebrands as a "value airline" with a focus on domestic and short-haul international flights.
The job cuts affect about one-third of the Brisbane-based airline's workforce across cabin crew, ground crew, engineers, baggage handlers and some international head office staff.
The airline will also suspend all long-haul international flights and transition to a single Boeing 737 fleet for domestic and short-haul international travel, which means it will ditch its ATR, Boeing 777, Airbus A330 and A320 aircraft.
Originally published as How much US company is paying for Virgin