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Twiggy, Branson among likely rivals, but Rex may be a fly in the ointment

Business

Rex Airlines has emerged as a major player in the sale of troubled Virgin Australia.

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Rex has underlined March next year as the start date for its potential entry into the domestic airline market and will make a decision in eight weeks after telling investors yesterday that it would need to raise about $200 million to take on Qantas and a potentially revived Virgin.

Indicative bids for Virgin are due tomorrow and final bids on June 12 with a deal to be reached by June 21. Administrators Deloitte have already revealed there are 19 interested parties and they are expected to include BGH Capital and Australian Super, Indigo Partners, Oaktree, Bain Capital, Wesfarmers, Brookfield and InterGlobe.

Andrew “Twiggy” Forrest also expressed an interest and it has been speculated that Virgin founder and shareholder Sir Richard Branson may be among the consortiums.

Rex’s intervention could be troublesome for bidders who had been told that a Virgin Mk II would be looking at potential earnings of $1.2 billion by 2022 and revenue of $5 billion. That would have been calculated on a two-airline market and would be much different if Rex entered the fray.

Rex told the ASX that it is has been approached by several parties interested in providing the equity needed for it to start domestic operations in Australia.

Virgin Mk II is also expected to continue to fly to Los Angeles, Tokyo, Bali, New Zealand and Fiji. The future of its Tiger Airways subsidiary is not known but Deloitte has said the business will be sold as a whole and not stripped of any assets.

“The Rex board is exploring the feasibility of this endeavor and has begun talks with potential equity partners to extend its operations to establish domestic operations, in addition to its regional services.

“At this juncture the Rex board believes that with sufficient capital injection, there is a confluence of circumstances which render the start of domestic operations by Rex to be a particularly compelling proposition.

“The board is expected to make a decision on whether or not to proceed within the next eight weeks. Should the Board decide to proceed, the domestic operations are expected to commence on 1 March 2021.”

NSW and Victoria are still vying for the base of Virgin Mk II but Queensland remains in the fight and the champion for the Brisbane base was the former State Development Minister Cameron Dick who now holds the purse strings in Treasury.

But a major fly in the ointment is Virgin’s creditors. The company had 26 lenders it owed $2.6 billion who will have a powerful say in what happens. It also had 10,000 staff owed $450 million and Deloittes said they would not make any of them redundant or change their enterprise agreements and their future will be a factor in the successful bid.

There have also been 340,000 applications for refunds and in many cases they have a right to a refund.

“While numerous travel businesses have had to cancel services as a result of the COVID-19 pandemic, the inability of the Virgin companies to pay refunds or offer credits at present puts them at a competitive disadvantage,” Deloitte administrator Vaughan Strawbridge said.

“The administrators believe that issuing conditional credits is necessary to preserve as much goodwill associated with the Virgin brand and business as possible for a buyer.

“We consider that the attractiveness of the Virgin companies to a potential buyer will be significantly adversely affected if a large number of customers lose money in connection with the Virgin companies’ administration. It is possible that such losses may affect the willingness of those and other customers to fly with the Virgin companies (or their successors) in the future.”

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