ACTU lays out demands for Virgin bidders

The Australian Council of Trade Unions has detailed the principles it will use to assess the bids for Virgin Australia, drawing a line in the sand over what it is prepared to sacrifice during the sale.

With binding bids for Virgin due to administrator Deloitte on June 12, ACTU president Michele O'Neil said Tuesday the union bloc would not budge on worker entitlements.

"[A prospective buyer of Virgin should] protect and pay 100 per cent of all employee entitlements," she said in a statement. Virgin owes $450 million in entitlements to its 9000 employees.

But, although including a directive for bidders to "maximise" jobs, Ms O'Neil did not ask suitors to guarantee a recapitalised Virgin would retain all staff.

She also asked bidders to "develop a sustainable business plan consistent with [the] long-term viability of a new Virgin Australia and [a] sustainable Australian airline industry".

The principles and the bidders' adherence to them will be critical for any sale of Virgin getting over the line. Trade unions represent nearly 90 per cent of the creditor cohort that will vote on the company's fate in late August.

Four shortlisted bidders remain in the race for Virgin and Deloitte has asked them to reaffirm their offers by the end of the week. The final four – BGH Capital, Bain Capital, Indigo Partners and Cyrus Capital Partners – will then halve to two from next Monday.

The remaining suitors will hand in binding offers on June 12.

A fifth, non-shortlisted bidder — Canada's Brookfield Asset Management —could still emerge after it pulled out last week with concerns about the sale's rapid timeline.

Brookfield has remained in talks with Deloitte despite leaving the official bidding process, and The Australian Financial Review understands other parties have urged it to rejoin the race for the airline.

What role it could play is unclear. Brookfield may emerge again as a leading bidder or take a back seat similar to the Queensland state government and look to bolster an offer from one of the remaining four suitors.

Yet Brookfield still harbours doubt about the timeline, believing it – combined with the broader-than-anticipated field of shortlisted bidders – unnecessarily rushes negotiations with creditors and risks the completion of those talks.

Whirlwind sale not a risk

However, the whirlwind sale process benefits its remaining four suitors and 10,000 creditors, while also failing to enhance the likelihood of the airline's liquidation, a top insolvency expert says.

University of Melbourne Law School professor Ian Ramsay said Deloitte's processes were in the best interest of Virgin's creditors and may suit some of the airline's bidders.

"In some circumstances, a tight timeline might enhance liquidation risk because, for particular purchasers, it may be that their bid isn't viable," Professor Ramsay said. "But what we do know is that the whole legal framework for an administration is one aimed at a prompt outcome."

"While a quick process may exclude some bidders, at the same time, there are other bidders that a tight timeline may suit ... The more extended a sale process is, the more uncertainty finds its way in, and the value of the asset could degrade significantly."

He said the liquidation risk remained low for Virgin, believing the almost $7 billion in owed entitlements was enough incentive for creditors to ensure Deloitte finds a buyer.

"[Liquidation] risk is not a significant risk at the moment, because there are substantial parties with an incentive to keep Virgin operating," Professor Ramsay said. "A prompt and fair and informed process is one that generally benefits most of the creditors."

Still, Brookfield's other concern about Virgin's immediate liquidity remains unaddressed.

The airline, which tipped over in April amid the industry-wide carnage the COVID-19 pandemic wrought on tourism, only has about $100 million left in the bank – not enough for it to remain operational past June.

This fact presents complications as Virgin's second creditors' meeting, where the carrier's ultimate fate will be determined, is not until late August.

Deloitte partner and lead administrator Vaughan Strawbridge told the Financial Review he was exploring options to unlock restricted cash in the business last week. He is also regularly informing the federal government, which is represented by former Macquarie Group chief executive Nicholas Moore in these matters, of Virgin's financial needs.

Yet the Morrison government has refused every plea to help Virgin both before and after the airline's fall. The most recent rejection came last week after the Queensland state government requested interim funding for Virgin to keep it solvent until the August creditors' meeting.