Virgin Australia (VA, Brisbane International) is expected to shortly announce the three or four financial institutions signed on as underwriters in an initial public offering (IPO) that could be as soon as mid-2023. There are also reports that the airline is looking at taking on an undisclosed amount of debt prior to any IPO. The debt would be used to fund a cash dividend payment to Virgin Australia's owner, Bain Capital.
Bloomberg reported on the debt strategy late last week, asking eight banks making the underwriting pitches to include a "dividend recapitalization" plan. Virgin Australia is believed to have no major debt commitments beyond ongoing aircraft lease payments. When the airline went into voluntary administration in April 2020, it owed around AUD7 billion Australian dollars (USD4.84 billion dollars).
After a strong 2H2023, a recently leaked Virgin Australia internal memo revealed the airline had generated a net profit of around AUD125 million (USD82.9 million) in that six-month period based on revenues of AUD2.5 billion (USD1.73 billion). This half year, Virgin Australia has flagged a net profit of around AUD275 million (USD190 million). Any mid-year IPO is expected to value the airline at about AUD3 billion (USD2.07 billion), which equates to 7-8 times its annual net profit.
According to ch-aviation capacities data, Virgin Australia has a 30.8% share of the Australian domestic airline market, while Qantas (QF, Sydney Kingsford Smith) has a 38.6% market share, while its low-cost subsidiary Jetstar Airways (JQ, Melbourne Tullamarine) has a 21.3% market share. The airline also has a small international network, primarily New Zealand, the South Pacific, and Indonesia. However, in June, it will commence flights to Tokyo Haneda after taking delivery of its first batch of B737-8s.
Virgin Australia has talked to eight potential underwriters in recent weeks, including Goldman Sachs, Barrenjoey Capital Partners, UBS, Bank of America, Jeffries Group, Credit Suisse, Morgan Stanley, and Royal Bank of Canada. Australian powerhouse investment bank Macquarie was out of the running because of its longstanding relationship with Qantas. While there is no official word yet from either Bain Capital or Virgin Australia, the shortlist is believed to include Goldman Sachs, UBS, and Barrenjoey. Goldman Sachs has an existing relationship with Bain, having advised them throughout the Virgin Australia acquisition process. UBS knows Virgin Australia from the pre-administration era, while two high-profile principals at Barrenjoey have also advised Virgin Australia when employed elsewhere. Bank of America is also said to have made a strong presentation while some non-shortlisted banks are believed to have baulked at Virgin Australia's dividend recapitalisation plan.
