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Virgin Australia creditors approve $2.6bn sale to Bain

Deal wipes out existing shareholders, including Singapore Airlines and HNA

U.S. private equity firm Bain Capital is expected to complete its takeover of Virgin Australia by Oct. 31.    © Reuters

SYDNEY -- Creditors of insolvent carrier Virgin Australia have backed a $2.6 billion buyout offer from U.S. private equity firm Bain Capital that will keep the airline running and help them recover part of the debts they are owed.

The Australian airline's administrators on Friday said a creditors' meeting had accepted the deeds of the company arrangement formalizing the sale to Bain for 3.5 billion Australian dollars ($2.55 billion). The favorable response had been expected after the union representing the bulk of Virgin's workers threw its support behind the proposal to revive the stricken carrier.

The transaction will wipe out Virgin's existing shareholders, which include Singapore Airlines, Etihad Airways, Richard Branson's Virgin Group and HNA Group and Nanshan Group from China. Trading in Virgin Australia shares on the Australian Securities Exchange has been suspended since April.

The vote draws a curtain on the four-month crisis at Australia's second-biggest carrier, one of the biggest casualties of the coronavirus pandemic in the Asia-Pacific airline sector.

"This outcome provides certainty for employees and customers, a return to creditors [and] opportunities for suppliers and financiers to continue to trade with the Virgin Australia Group as well as maintaining a competitive Australian aviation industry for the benefit of consumers," joint administrator Vaughan Strawbridge, a Deloitte partner, said in a statement.

The deeds will be signed and completed within 15 business days. The administrators will then make an application to the federal court for the transfer of Virgin Australia shares to Bain, which is expected to be completed by Oct. 31.

Bain's AU$3.5 billion payment will include AU$450 million to cover back wages to staff and AU$2.3 billion for banks and other secured creditors. Unsecured creditors, who are owed between AU$462 million and AU$612 million, will receive 9 to 13 cents on the dollar.

Bain will continue the airline's frequent flyer program and honor some AU$550 million to AU$650 million in credits issued in relation to tickets and flights canceled during the pandemic.

Virgin went into administration in April owing nearly 10,000 creditors a total of AU$6.8 billion as air travel collapsed due to COVID-19. The outbreak, which saw Virgin suspend all international operations and ground nearly its entire domestic fleet at one point, followed years of financial trouble at the carrier.

The sale process overseen by Deloitte attracted interest from nearly 20 parties, culminating in eight nonbinding offers. The field was eventually whittled down to Bain and Cyrus Capital Partners, another private equity firm. Bondholders attempted to organize a last-minute bid unsuccessfully last month.

Under Bain's planned overhaul, Virgin will cut a third of its 9,000 workforce, ax its low-cost Tigerair subsidiary and focus on domestic and short-haul international operations. Bain will keep Virgin's current management team, led by Chief Executive Paul Scurrah, in place.

Scurrah said the sale would allow the airline to focus on the future.

"While we can feel very proud that we have got to this point, the impact of COVID-19 remains very challenging for our business and industry," he said in a statement.

The Virgin CEO admitted earlier this week that his airline was likely to cede market share to larger rival Qantas Airways as it exits unprofitable domestic routes.

Virgin expects to be operating 30 to 60 Boeing 737s jets within a year, depending on market conditions. It has 130 planes in its fleet now, according to its website.

Qantas, which last month posted an annual loss of AU$2 billion and has idled most of its fleet and staff, expects its domestic market share to rise to 70% from a pre-pandemic 60%.

Air travel remains at meager levels in Australia. According to International Air Transport Association data, domestic air traffic in July amounted to just 10% of the level a year earlier though the planes that did fly were nearly half full.

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