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Australia's second-largest airline, Virgin Australia, is said to be looking for funds to settle its private equity debt ahead of its potential IPO listing that will test the country's financial market and aviation sector.

Virgin Australia is in talks with banks for a loan of up to $296.4 million (A$450 million) to pay its private equity owner Bain Capital before the airline’s re-listing planned for later this year, two sources with direct knowledge of the matter said.

Australia‘s second largest airline is in discussions with banks including Goldman Sachs and UBS about the loan, said the sources, although no decision has been made yet and the size of the debt has not been finalised.

Bain Capital, Virgin Australia, Goldman Sachs and UBS declined to comment. The sources did not wish to be identified as the talks were private.

U.S.-based Bain said in January it would explore re-listing Virgin Australia, which it bought for $2.31 billion (A$3.5 billion) including liabilities in 2020 after it was placed in voluntary administration, the closest Australian equivalent to Chapter 11 bankruptcy.

It hired Goldman, UBS and Barrenjoey last month as lead managers for the potential initial public offering (IPO).

Virgin Australia is looking to raise at least $660 million (A$1 billion), one of the two sources, and another person with direct knowledge said, which would make it the largest share sale in Australia since investment firm GQG Partners raised $780 million (A$1.18 billion) in October 2021.

The sources said the airline, a rival to Qantas Airways Ltd in the domestic market, was expected to seek an equity valuation of at least $1.98 billion (A$3 billion) upon listing.

The IPO will be a test for Australia’s financial market and its aviation sector, which has improved substantially since state and international borders reopened in early 2022 after long closures during the pandemic.

Virgin Australia, which reported seven consecutive annual losses even before Covid-19 decimated travel globally, roared back to full year profit in this financial year under a new management led by Chief Executive Jayne Hrdlicka.

Like the rest of the world, Australian airlines have benefitted from a post-Covid surge in travel and tourism, and profits have soared amid record high ticket prices.

Australian flagship airline Qantas reported record first-half profit last month as appetite for travel grew faster than it could sell seats.

The tourism sector has also bounced back from the pandemic shock. Flight Centre Group successfully raised $118 million (A$180 million) from the market to help fund the purchase of British travel business Scott Dunn.

Analysts, however, say the post-Covid surge in travel and tourism could be short-lived, and rising inflation could eventually impact the sector negatively.

Reporting by Praveen Menon and Scott Murdoch; Editing by Kim Coghill and Muralikumar Anantharaman.

This article was written by Praveen Menon and Scott Murdoch from Reuters and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].

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Tags: airlines, australia, aviation, flight centre, qantas, virgin australia

Photo credit: Bain Capital explores Virgin Australia IPO as aviation market improves. Virgin Australia

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