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Almost five years after rescuing Virgin Australia from voluntary administration, private equity group Bain Capital has launched a $2.3 billion public float of the airline, touting it as a leaner and more profitable operation that is ready to take on domestic rival Qantas Airways (ASX: QAN).
Bain Capital, which acquired Virgin Australia for $3.5 billion in November 2020, is issuing 236.2 million shares at $2.90 each to raise $685 million ahead of listing on the ASX on 24 June.
The US private equity group and fellow investors Qatar Airways, Virgin Group and Queensland Investment Corporation (QIC) will retain 69.8 per cent of the issued capital after the public share offer which has been in the works for more than a year.
Qatar Airways owns 25 per cent of Virgin Australia after the airline secured a strategic partnership with the Australian carrier late last year, cementing an existing codeshare partnership between the carriers.
The official announcement of the IPO today follows a shake-up of operations by Qantas which announced yesterday that it was closing down its loss-making Singapore-based Jetstar Asia division and redeploying 13 Jetstar Asia Airbus A320 aircraft to Australia and New Zealand which the group says will bring more low fares to Jetstar’s schedule.
The move by Qantas is seen as a direct response to an expected increase in competition from Virgin Australia, particularly on long-haul flights in partnership with Qatar Airways.
Virgin Australia chairman Peter Warne says the airline is a revitalised business that has undergone significant transformation since it was placed into voluntary administration in April 2020.
This includes the jettisoning of its Tigerair Australia business and a renewed focus on domestic and short-haul international services.
“Having already made significant strides in Virgin Australia’s transformation and gaining an average 32 per cent domestic RPT (regular public transport) capacity market share in CY24, Virgin Australia believes it is now appropriate for the business to transition to being a publicly listed company,” Warne says.
“This provides an opportunity for new investors to share in the success of Virgin Australia as the airline enters its next phase.
“I commend all those involved in orchestrating Virgin Australia’s remarkable turnaround and setting the business up for long-term success.”
Virgin Australia is forecast to lift revenue in FY25 by 3 per cent to $5.8 billion to deliver EBITDA of $780 million and net profit of $429 million.
The forecast EBITDA is down from just over $1 billion in FY24, but significantly higher than EBITDA of $549 million and net profit of $129 million posted in FY23.
While Virgin expects revenue and underlying profit to grow in FY26, it warns that staff costs as well as airport and maintenance costs are expected to grow "modestly" above inflation.
Virgin’s business has benefitted from $250 million in savings in FY24, a figure which exceeded initial forecasts of $215 million and helped expand pro forma underlying EBIT margin from 8.5 per cent in FY23 to 9.4 per cent in FY24. The margin is expected to hit 11.5 per cent in FY25.
As part of the Qatar Airways partnership and under a wet-lease arrangement with the airline, Virgin Australia next week launches daily flights into Doha from Sydney, Melbourne, Brisbane and Perth.
Virgin says the routes mark a re-entry into the long-haul international sector in a manner that minimises complexity and risk for the airline.
The wet-lease arrangement will test the market for Virgin Australia on the viability of a “more substantial re-entry” into the long-haul international market.
Virgin Australia operates a fleet of more than 100 aircraft on 76 routes to 38 domestic and international destinations with the company’s performance benefitting from a strong recovery in the travel sector in Australia, particularly the outbound market where passenger numbers across most destinations are tracking well above pre-pandemic levels.
Over the past five years the company has also slimmed down its fleet from seven aircraft types to three narrow-bodied types. The plan is to simplify this further with just two types – the Boeing 737 and Embraer E2. Virgin says the strategy is aimed at driving cost efficiencies and scheduling flexibility.
Virgin is also expanding its fleet with 15 Boeing 737-8 and two Boeing 737-800 aircraft on order and set for delivery between FY26 and FY27. The airline is also leasing four Embraer E2 aircraft in FY26 and another four on order will be in service in FY27. However, most of the new fleet will replace existing aircraft.
Virgin Australia will relist on the ASX with significantly less debt of $1.3 billion – down from $4.2 billion five years ago.
The company will also have access to a $500 million corporate debt facility, of which $156 million will be drawn down to pay a QIC loan.
“Virgin Australia is a simple, focused business with a transformed operational and commercial model,” says Virgin CEO Dave Emerson.
“We have a clear strategy and an incredible team of people who deliver wonderful flying experiences to our customers every day. We are delivering on our ambition to be Australia’s most loved airline."
Shares in Virgin Australia will list on the ASX on 24 June.
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