Virgin set to fly away with Velocity stake in $2b deal

The big question is how Virgin pays for the stake.

The company’s share register is dominated by strategic investors Singapore Airlines, Etihad, Richard Branson’s Virgin Group and Chinese groups HNA and Nashan who together own about 90 per cent of its issued equity. Virgin already had $3.9 billion adjusted net debt as at June 30.

Options include raising equity from new or existing shareholders; changing Velocity's capital structure to put debt at the entity level; and issuing Virgin Australia scrip to Affinity as payment, allowing the private equity firm to sell down the stake over time.

Affinity hired Goldman Sachs and Macquarie Capital to test buyer appetite in its 35 per cent stake earlier in the year, while UBS has had a lighter-touch role working for Virgin Australia.

Affinity was keen from the outset to exit in full provided it could get a deal at the right price and terms. It is a private equity firm and typically seeks to invest in companies for three-to-five years.

The deal comes just weeks after Virgin Australia chief executive Paul Scurrah, who succeeded John Borghetti in the top job in March and has wasted little time in implementing his strategy, told the market the struggling airline can be profitable – but he can't estimate how quickly.

It is understood Scurrah believes Virgin is better off owning Velocity in full and trying to grow what is a highly profitable and valuable asset that shouldn't have been dumped in the first place.

After delivering a $315.4 million annual loss in late August and plans to cut 750 head office job, the former DP World and Queensland Rail chief said he was turning his focus to flight routes, aircraft orders and supplier contracts to further cut costs.

Scurrah described the result, which was hit by soft demand, higher fuel costs and writedowns, as "disappointing" and described the economic climate as "tough".

"It will take some time to get us into the position I'm intending to get us into ... there are many variables – fuel, forex – over the coming years it is our intention to get us into a strongly profitable position," he told The Australian Financial Review. "I intend to run our own race."

Scurrah warned the soft conditions experienced in the second half were persisting into financial 2020.


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