Virgin bidder Cyrus plans to keep airline as full-service Qantas competitor

The Richard Branson-linked investment fund Cyrus Capital has said it wants to maintain Virgin Australia as a full-service international airline competing head-to-head with Qantas if it wins the race to buy the collapsed carrier.

The New York-based group - which has a history of investing in airlines with Mr Branson's Virgin Group - has told unions and state governments that its long-term plan is for Virgin to remain roughly the same size it was before going into voluntary administration in April, according to sources close to the bid.

The revelation of Cyrus' ambitions come amid growing fears that Virgin's new owners could drastically slash the size of its operations or turn it into a budget airline, at the loss of jobs and competition for the travelling public.

Cyrus is competing against US private equity fund Bain Capital, Melbourne-based outfit BGH Capital and the American ultra-low cost airline specialist Indigo Partners.

Sources close to Cyrus' bid who spoke on the condition of anonymity to discuss confidential matters said the fund would cut some regional routes from Virgin's domestic network but otherwise continue flying between capital cities and major regional centres.

International flying would gradually return as demand recovers from COVID-19, with a new fleet of fuel-efficient Boeing 787 Dreamliners to replace Virgin's Boeing 777s and Airbus A330s within the next five years.

Virgin's would keep most of its 75 Boeing 737s for domestic flights but other aircraft types - including eight A320s, 14 Fokker 100s and 14 ATR72 turbo-propeller planes - would likely be cut, sources said.

One union source with knowledge of discussions said that while Cyrus' vision was encouraging, they hoped it was its genuine and based on a detailed assessment of Virgin's business and not simply because it was "behind in the process".

Cyrus was a surprise addition to the four shortlisted bidders chosen for the second round of the sale process run by administrators Deloitte on Monday.

Unions representing Virgin's 9000 workers - who make up the biggest group of creditors - have said they will back any bidder that keeps as many jobs as possible, protects worker entitlements and has a long-term plan for a viable airline.

Virgin ran at a loss for seven consecutive years, totalling $1.9 billion, before it collapsed in April with debts of close to $6.8 billion.

Cyrus believes it can improve Virgin's financial performance with a simplified fleet, choosing where to fly and how often it flies more carefully and by emphasising customer experience, rather than by returning Virgin to its budget roots as some in the airline industry have advocated.

Wall Street titan and Cyrus' founder Stephen Friedheim is leading the fund's bid with his long-term advisor Jonathan Peachey, who was previously CEO of Richard Branson's Virgin Group in the USA and a director of both Virgin America and Virgin Atlantic .

Cyrus backed Mr Branson in 2005 to establish Virgin America, which Alaska Air bought in 2015 for $2.6 billion.

Cyrus and Virgin Atlantic (which is 51 per cent owned by Mr Branson) bought the British regional airline Flybe in February 2019 with a plan to re-brand it Virgin Connect, however the airline went into administration in March this year.

Mr Branson owned 10 per cent of Virgin Australia when it collapsed along with other major shareholders Singapore Airlines, Etihad Airways, and Chinese groups HNA and Nanshan.

It is expected Mr Branson’s Virgin Group will try to negotiate a deal with the winning bidder to maintain the Virgin brand. Virgin Australia was paying Mr Branson around $15 million a year to use the Virgin brand before it collapsed.

Sources close to Bain has previously told The Age and The Sydney Morning Herald it believes the best way to re-launch Virgin is as a budget domestic outfit. The firm this week tried to allay workers' concerns it would be a "cut-and-run" investor, saying it would use its deep pockets to safeguard it for the long-term.

Indigo Partners only invests in ultra-low cost airlines including America's Frontier Airlines and European carrier Wizz Air, and its boss said this week he had not decided what it would do with Virgin. Less is known about BGH's plan for a relaunched Virgin.

Cyrus’ vision for the airline as a full-service international carrier broadly aligns with what Virgin's management led by chief executive Paul Scurrah has put forward in a plan given to bidders.

Second round bids are due this Friday and Deloitte is expected to narrow the field to two bidders over the weekend. Final bids are due on June 12 and the administrators will put a deal to a creditors vote in mid-August.

The Transport Workers Union national secretary Michael Kaine said on Tuesday there was still a serious risk that Australia could lose its second airline because Virgin's bidders did not know when it can ramp-up its limited flying due to state and federal pandemic travel restrictions.

Mr Kaine said the federal government needed to urgently pledge financial support for Virgin, pointing to the German government's €9 billion ($15 billion) rescue package for national airline Lufthansa this week in return for a 20 per cent ownership stake.