Last Updated on November 18, 2025 by Jason Andrew
5 years ago — Virgin was in an emergency landing.
$5bn worth of debt.
Planes were forced to stay grounded because of COVID.
And the government wasn’t bailing them out.
Once a cheeky upstart that dared to challenge the world led by Branson’s rock-star swagger — Virgin Australia was staring into the abyss.
Most companies would have quietly folded their wings.
But a nationally critical business like Virgin couldn’t just disappear.
So Bain Capital stepped in to do what Private Equity does best.
- Cost control
- Restructure the balance sheet
- Remove the lossmaking segments
5 years later, Virgin is back on the ASX trading for ~$2.5bn. Bang.
All in all, Bain actually did a pretty solid effort here, saving us taxpayer dollars by preventing a government bailout and keeping the airline afloat.
But are the worst times behind Virgin? I’m not so sure…
Let’s unpack how Bain Capital landed this cash-hemorrhaging machine and took off back onto the ASX.
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Industry Primer: Why Do Airlines Suck?
There’s a reason why airlines are notorious for being a terrible business.
For starters, the businesses are very capital-intensive.
You need to own or lease aircraft to provide services, which are very expensive. A brand new Boeing 737 costs ~US$120m. Multiply that by 100 planes across your fleet, and things start to look really expensive.
Unlike many capital-intensive businesses, including infrastructure projects, buying the planes does not allow you to charge monopoly prices. You have to compete on price to win customers.
Then there is the cyclicality of the business.
For a large proportion of customers, people only choose to fly when they are making money and the economy is booming. If the economy is doing poorly, people don’t book flights, and airlines risk having planes sitting idle on the ground, burning money.
It’s also incredibly hard to flex up or down the capacity of the fleet in response to changes in demand.
There are two major aircraft manufacturers in the world, Boeing and Airbus. These manufacturers have huge backlogs for new planes. In fact, if a new airline ordered a plane from these manufacturers today, it could take up to 8 years before it is delivered.
Virgin Launch
Virgin launched back in 2000 under the name ‘Virgin Blue’ in the leadup to the Sydney Olympics.
Set up by Branson and Godfrey, the business had only 2 planes.
Then Ansett Aviation collapsed, making Virgin the 2nd biggest airline in Australia. Richard Branson actually made a sarcastic comment that he was buying Ansett Aviation out just before the business went under …
The big change came in 2011 when it rebranded from Virgin Blue to Virgin Australia to try to push upmarket as a full-service airline, targeting business flyers.
In 2012, Virgin bought a 60% stake in Tiger Airways for $35m and later picked up the remaining 40% for only $1 in 2014 after the airline ran into profitability issues.
Virgin then started to push upmarket to take on Qantas, investing in lounges, furniture, and business class flights—all costly business class expenses.
Pandemic Situation
So how was Virgin doing before the pandemic hit?
Absolutely horrendously.
The business had over $5bn of debt (5.4x net debt/EBITDA in CY19).
Virgin had also arguably bought their stake in Velocity back at the wrong time, buying the 35% of the frequent flyer points business sold to Affinity Equity Partner back for ~$700m in September of 2019, only months before the pandemic hit.
The decision to expand into Southeast Asia wasn’t very fruitful, with the business running ongoing losses in FY18 and FY19 before Virgin’s eventual collapse. But not only was the Tiger Airways business struggling, but so too was the international segment. Virgin was bleeding money trying to compete with Qantas in long-haul flights around the globe.
So when the pandemic hit, all chaos was let loose.
The business had to stand down 8,000 workers during the pandemic as planes were grounded.
During this time, Virgin was trying to lobby the government for Federal support for the business, asking the Morrison government for a $1.4 bn loan to support the business, although it wasn’t well received.
Ultimately, Josh Frydenberg let the business go to the market, with advice from Nick Moore, former CEO of Macquarie.
Deloitte was appointed as administrator, ran a sale process, and selected Bain Capital as the new owner of the business, edging out rival bidder Cyrus Capital Partners.
Bain was actually the perfect buyer for the business, because they could invest across both their traditional private equity and special situations credit fund, taking on the debt and equity of the business.
They sacked 3,000 staff and renegotiated hundreds of contracts to reset the cost base of the business.
At the time Virgin was run by Paul Scarragh, but as soon as Bain got the keys, they hired a new CEO, Jane Hydrlicka. Together, they really turned things around.
Ripping off the Band-Aid
If Private Equity are good at one thing – it’s cutting costs. And Bain did that in spades.
In particular, some of the changes made were:
- Reducing capacity on the loss-making international flight segment
- Shutting down the loss-making Tiger Airways Segment
- Laying off ~3000 workers upon takeover
- Renegotiating contracts (in an investor meeting in April, Virgin disclosed that the business renegotiated over 500 contracts since it went into administration)
- Selling old Boeing 737’s/800’s to Rex to reduce the idle assets in the business
And my word, were these changes effective.
All of these factors helped with margin expansion, growing from ~2% before collapsing to over 10% under Bain’s ownership.
Revenge Travel Boom
But Bain didn’t just benefit from bottom-line improvements.
They bought the business at the bottom of the cycle, and the market started to turn.
As we started to shift out of the Pandemic, people were sitting on money and had the travel bug.
So if you were an airline operator with planes ready to fly, there was money to be made.
Nationally, passenger volumes rebounded materially – helping to drive strong topline growth.
At the same time, Qantas shot itself in the foot. Flight cancellations, lost baggage, and long check-in queues. Qantas had severely underinvested in its ability to provide a strong customer experience coming out of the pandemic.
It was Virgin’s time to win.
Virgin IPO
Now, Bain has re-listed Virgin on the ASX at $2.90 per share.
The good news is that the stock popped 11% on the first day of trading.
Bain Capital are set to sell down the majority of its holding, with none of the proceeds raised to be used to fund growth in the business.
The business is going public at a conservative ~7x P/E (below Qantas, which trades at ~10x).
But nonetheless, this could be another Private Equity IPO disaster like Myer. Airlines are a notoriously cyclical industry.
This will be Virgin’s third time around as a public company.
POV—ASX investors looking at Virgin’s third go-round as a public company
In the words of CEO David Emerson – “I would never invest in an airline”, who chose not to buy shares in the Virgin IPO.
Fortunately, the bankers haven’t cooked the books too hard here—the multiple they listed looks relatively conservative (3 notches lower than Qantas on a P/E basis).
The advantage for Virgin is that there are only two airlines in Australia. Rex tried to compete with Virgin and Qantas on metro routes and collapsed in the process. Bonza also tried and failed.
So Virgin has cemented its place as the #2 player in the Australian market. For now…
Conclusion
TLDR: Virgin was saved. The business will live on.
Jobs were saved, the government didn’t need to bail them out, and the financials actually look great.
Credit where credit’s due, this was a textbook PE deal.
But tough times always loom ahead in the airline industry.
You couldn’t pay me to buy this stock.
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