[SYDNEY] Bain Capital-controlled airline Virgin Australia is pushing ahead with plans for an initial public offering (IPO) in June, despite the market turmoil caused by US President Donald Trump’s trade war, sources familiar with the matter said.
Virgin Australia’s new chief executive officer Dave Emerson has already started to brief potential domestic investors and will head to Asia for more meetings next week, said the sources, who asked not to be identified discussing private information.
US private equity firm Bain bought Virgin Australia, the country’s second-largest airline, in 2020 after it collapsed at the start of the pandemic.
After at least two years of planning, Bain is betting it can find a path to market for Virgin Australia through the price slumps that have ripped through stock markets worldwide. Billions of US dollars worth of acquisitions and IPOs have already been put on hold globally in the wake of the steepest American tariffs in a century.
There are no obvious tariffs that would disrupt an Australian airline, and there are weeks left before the shares would start trading in Sydney, during which Trump could water down his tariffs and calm markets. There are no formal filings with a listing timetable that need to be changed.
A spokesperson for Bain Capital declined to comment. A spokesperson for Virgin Australia referred questions about any IPO to Bain.
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Bad ending
Still, what looked like a window for Bain to sell has narrowed, at least for the moment. Virgin Australia’s Covid-19 era shareholder wipeout was already hanging over any IPO, and the latest market slumps have made the task of returning to the stock exchange even more demanding.
“Trump’s tariffs have made this exponentially harder,” said Hugh Dive, chief investment officer at Sydney-based Atlas Funds Management. “We have seen this movie before and it has not ended well for equity investors. This one will be tough to sell.”
The S&P 500 index has tumbled 12 per cent till Tuesday since Trump unveiled sweeping tariffs – including a baseline 10 per cent duty on imports from Australia – amid concerns the levies could trigger a global recession. Australia’s benchmark S&P/ASX 200 index has slumped 7 per cent in the same period.
Virgin Australia’s first run as a publicly traded entity did not go well. Even before the carrier’s demise in 2020, most of the stock was locked up by a handful of airlines that were largely inert investors and unwilling to tip in additional funding to keep it going through the pandemic. Relatively few shares changed hands each day, and the stock rarely traded above its IPO price.
Bain had previously looked to list Virgin Australia in 2023, appointing Goldman Sachs, UBS Group and Barrenjoey Capital Partners Pty to manage the sale. However, the deal was shelved in October that year.
This time around, the airline had overcome key hurdles to progress towards an IPO in the weeks before the US tariffs were announced. Emerson took the helm in March, ending a yearlong hunt for a replacement for former CEO Jayne Hrdlicka, who had said a new leader was needed to shepherd the company through an IPO.
The previous month, Australia’s government approved Qatar Airways’ purchase of a 25 per cent stake in Virgin Australia, giving it a deep-pocketed cornerstone investor and access to the Gulf carrier’s international network.
And after more than a decade of losses, Virgin Australia has finally reported successive annual profits.
Net income in the year ended June 2024 more than quadrupled from a year earlier to A$545.4 million (S$450 million). The airline spent several million US dollars each year preparing for an IPO, its accounts show.
This week, Virgin Australia added three non-executive directors to its board, including former Macquarie Group chairman Peter Warne.
Bain still has to convince the market that the reborn Virgin Australia – simpler, lower-cost and less indebted – can survive profitably in the shadow of domestic giant Qantas Airways.
Qantas is more diversified because it also owns budget carrier Jetstar, and it runs a better loyalty business, said Billy Boulton, an analyst at Morgans Financial. Bain would have to price Virgin shares at a discount to Qantas to attract new shareholders, he said.
“If it’s not cheap enough, why would someone own Virgin over Qantas?” Boulton asked. “It’s the second fiddle to Qantas. People have to remember that.” BLOOMBERG
