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Talking Politics

mrposhman

Tiger Legend
Oct 6, 2013
6,328
742
Corrupt is a word he as a senior minister needs to be very careful in using. People may disagree with the QLD Govt bidding for Virgin but it's not corrupt
Agree its not corrupt but its a terrible decision. Just take a look at the british government bailing out the banks in the GFC, they owned them for 5-10 years and sold at a loss particularly when taking into account the borrowing cost. QLD does not have a pile of money, they are in debt so would buy an airline that has barely made a profit over 10 years and wants to buy that using debt!! Maybe leave the investing to the private equity firms who will make Virgin profitable. Whoever buys them needs to be ruthless, initially for what they pay in the $ for the debt, but secondary from changing them to a purely Domestic only airline, they do not need the International business which is loss making, if the government buy them then IMO they will not make these ruthless decisions as it will inevitably lead to job losses.
 

Sintiger

Tiger Legend
Aug 11, 2010
11,990
1,064
Camberwell
Agree its not corrupt but its a terrible decision. Just take a look at the british government bailing out the banks in the GFC, they owned them for 5-10 years and sold at a loss particularly when taking into account the borrowing cost. QLD does not have a pile of money, they are in debt so would buy an airline that has barely made a profit over 10 years and wants to buy that using debt!! Maybe leave the investing to the private equity firms who will make Virgin profitable. Whoever buys them needs to be ruthless, initially for what they pay in the $ for the debt, but secondary from changing them to a purely Domestic only airline, they do not need the International business which is loss making, if the government buy them then IMO they will not make these ruthless decisions as it will inevitably lead to job losses.
Private equity firms are generally vultures who don’t actually create anything imo . They strip businesses to sell them and that’s not the type of buyer virgin needs.
That being said don’t take that to mean I think the Queensland govt should buy it because I don’t. Evidently they don’t either as they are offering $200 m in some form ( may even be a loan) if the buyer keeps the HQ in Brisbane according to their treasurer.
 

Brodders17

Tiger Legend
Mar 21, 2008
11,410
450
Why so much criticism of the State Premiers by Federal Gov Ministers in recent weeks? This isn't by accident. What's the bigger agenda here?.
i think they are just loosening up after a couple of months of only talking about Covid19- mainly through Morrison, Hunt and Frydenberg. All sticking to their lines, and mostly following policies directed by experts.

As they lose discipline the likes of Dutton will do all they know-talk shite and attack their opponents.

Labor are currently staying disciplined- disagreeing with policy but maintaining civility. it remains to be seen how long they can maintain this.
 

antman

Tiger Legend
Nov 25, 2004
17,718
1,960
Private equity firms are generally vultures who don’t actually create anything imo . They strip businesses to sell them and that’s not the type of buyer virgin needs.
That being said don’t take that to mean I think the Queensland govt should buy it because I don’t. Evidently they don’t either as they are offering $200 m in some form ( may even be a loan) if the buyer keeps the HQ in Brisbane according to their treasurer.
Debt is incredibly cheap now, so if there was ever a time for governments to borrow for stimulus or infrastructure it's now.
 
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DavidSSS

Tiger Superstar
Dec 11, 2017
2,078
1,442
Melbourne
Shifting blame for what?
Anything and everything: closing down too fast, opening up too fast, opening up too slow, the infection rate, the death rate, the fact the infection rate is low and some states aren't opening up. You get the picture.

As for the Queensland Govt bailing out or buying Virgin, this is not about owning the airline, it is all about trying to make sure their tourism industry survives as they need travelers to be able to get to Queensland. Tourism is a very big contributor to the Queensland economy.

DS
 

mrposhman

Tiger Legend
Oct 6, 2013
6,328
742
Private equity firms are generally vultures who don’t actually create anything imo . They strip businesses to sell them and that’s not the type of buyer virgin needs.
That being said don’t take that to mean I think the Queensland govt should buy it because I don’t. Evidently they don’t either as they are offering $200 m in some form ( may even be a loan) if the buyer keeps the HQ in Brisbane according to their treasurer.
That's a misconception of private equity firms. My company is owned by one (and was previously owned by another). They are certainly ruthless but their aim is not to strip companies back, its to identify the best course of action for a business. That could mean stripping assets back (and to be honest that's what Virgin needs) or it could mean targeting other businesses that can be bolted on to the business and generate a better return than a sum of all the parts. My dads business went through this same process also.
 

spook

Tiger Legend
Jun 18, 2007
11,485
1,835
Melbourne
Anyone who thinks the attack dogs going after Andrews and co aren't doing Scumo's dirty work doesn't understand how politicians operate. He gets the pressure put on the premiers while remaining the benevolent father figure, which allows him to accuse Labor of playing politics should they dare criticise or oppose him.
 
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mrposhman

Tiger Legend
Oct 6, 2013
6,328
742
Debt is incredibly cheap now, so if there was ever a time for governments to borrow for stimulus or infrastructure it's now.
Purchasing a stake or offering a loan is neither. If they want Virgin to remain headquartered in Queensland that's fine, but as opposed to borrowing money to then relend it to Virgin (which would be for cheaper than on market lending as otherwise Virgin would get that themselves) they can offer subsidised takeoff / landing slot prices, they can offer reductions in things like payroll taxes etc, something actually tangible.
 

mrposhman

Tiger Legend
Oct 6, 2013
6,328
742
Anything and everything: closing down too fast, opening up too fast, opening up too slow, the infection rate, the death rate, the fact the infection rate is low and some states aren't opening up. You get the picture.

As for the Queensland Govt bailing out or buying Virgin, this is not about owning the airline, it is all about trying to make sure their tourism industry survives as they need travelers to be able to get to Queensland. Tourism is a very big contributor to the Queensland economy.

DS
Virgin will survive whether they invest or not, and surely they want a stable and successful airline. For that to occur, they do not need government interference. Virgins problem is they grew too large and fly too many routes that are unprofitable. They need to cut these back (particularly International) which will inevitably lead to job losses. This would be against what the QLD government would want so therefore those decisions that actually need to be made from a corporate level, will not be made and Virgin will just continue to plod along until the next crisis when it comes back with its tail between its legs. Its not a story of just the wrong time and you can buy in and ride the wave up, its a filed business model and therefore needs to be fixed, the QLD government do not have the will or expertise to get this done.

The QLD government are not getting involved due to their tourist industry, its all to do with where they are headquartered. They know that Melbourne is the more attractive destination for their headquarters, so they want to buy in and ensure that those jobs are retained in QLD and they do not move to VIC. Its nothing more than that.
 

MD Jazz

Tiger Champion
Feb 3, 2017
4,338
911
Anyone who thinks the attack dogs going after Andrews and co aren't doing Scumo's dirty work doesn't understand how politicians operate. He gets the pressure put on the premiers while remaining the benevolent father figure, which allows him to accuse Labor of playing politics should they dare criticise or oppose him.
Funnily enough labor premier McGowan has escaped scomo's dirty strategy unscathed?
 

Sintiger

Tiger Legend
Aug 11, 2010
11,990
1,064
Camberwell
That's a misconception of private equity firms. My company is owned by one (and was previously owned by another). They are certainly ruthless but their aim is not to strip companies back, its to identify the best course of action for a business. That could mean stripping assets back (and to be honest that's what Virgin needs) or it could mean targeting other businesses that can be bolted on to the business and generate a better return than a sum of all the parts. My dads business went through this same process also.
It’s not a misconception Mr P. It’s my personal experience and It’s great for you if you experienced otherwise. My experience had been cost cutting for short term gain but not sustainable growth, lack of regard for people and in all the cases I have been involved with ( 4-5) a willingness to understand the finances but not really the business. All that I have been involved with sold within 3 years.
Private equity owners of virgin are likely to reduce routes to large ones only and reduce costs to bring it back to short term viability. What they are unlikely to do is build a true competitor to Qantas which will ultimately mean higher airfares for us.
Ideally it needs an airline investor imo which will be hard these days.
 
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spook

Tiger Legend
Jun 18, 2007
11,485
1,835
Melbourne
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HR

Tiger Superstar
Mar 20, 2013
1,615
218
Funnily enough labor premier McGowan has escaped scomo's dirty strategy unscathed?
Premier McGowan is ripping through this virus like a well oiled Richo in his glory days on the G.
Big difference in the west is that the state is united, unlike the gangs of lefties and righties in the east.
McGowan will get another term.
 

HR

Tiger Superstar
Mar 20, 2013
1,615
218
At the risk of being accused of bias for highlighting what treacherous scum our government are, here's First Dog smashing the nail through the back of its skull and out its nose.
Do they ask people to pay for this?
 

spook

Tiger Legend
Jun 18, 2007
11,485
1,835
Melbourne
Meanwhile, the big banks are paying 0.25% on money advanced to them by the RBA, which they then loan to businesses suddenly in trouble through no fault of their own, and make a tidy 6% for acting as a totally unnecessary middleman. That is obscene.

Frydenburg is signalling austerity, which would be disastrous both economically and socially, all because of an irrational and erroneous obsession with budget surpluses, and the equally wrong and dangerous idea that we have to "pay off the debt", when in time of cheap money it's actually an ideal opportunity to invest in infrastructure and industries so that we outgrow the debt.

The Liberals and their cheer squads in the media and public constantly tell us what great economic managers they are, and too many believe it, despite decades of evidence to the contrary. They are one-note dullards, and it's the wrong *smile* note.
 
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mrposhman

Tiger Legend
Oct 6, 2013
6,328
742
It’s not a misconception Mr P. It’s my personal experience and It’s great for you if you experienced otherwise. My experience had been cost cutting for short term gain but not sustainable growth, lack of regard for people and in all the cases I have been involved with ( 4-5) a willingness to understand the finances but not really the business. All that I have been involved with sold within 3 years.
Private equity owners of virgin are likely to reduce routes to large ones only and reduce costs to bring it back to short term viability. What they are unlikely to do is build a true competitor to Qantas which will ultimately mean higher airfares for us.
Ideally it needs an airline investor imo which will be hard these days.
Whilst I tend to agree on some points regarding PE, yes some are just out to cut costs and mask the underlying performance issues in the business but others do strive to improve businesses. In terms of timelines that's exactly what they follow. They want distressed businesses as they buy them relatively cheap, restructure, hive off underperforming assets and bolt new ones one.

In Virgins case and with all due respect, they've already gone down the route of airline investor. There 5 largest shareholders own over 90% of the business, made up of 20% Etihad Airways, 20% Singapore Airlines, 10% Virgin Holdings (Branson) and also 20% from Nanshan Capital and 30% with HNA Tourism both of who have significant investments in airlines throughout Asia mainly through China and Hong Kong. They are already 90% controlled by overseas airlines.

The problem with these airlines, is they provide "services" and "airline leases" to Virgin. These are significant, over $116m / year paid out for these services, yet the International business loses close to $100m / year. Between the International business and the level of financing, they have 2 main areas to fix, the problem is the airline investors they currently have, will not allow them to cut these services as they make more out of the leases and services than they do out of earning any profit in the group (despite the massive tax losses they have carried forward).

What they need is to bin the entire International business, there is no real purpose for it. It loses way too much money and exposes them to the level of debt that they have. The debt will almost certainly be completely restructured whoever buys Virgin, especially with there being a significant amount of debt that is unsecured. They had $1.8bn in unsecured bonds (some of this was only issued end of last year), good luck to any of these investors getting any money back, but overall they need to break the links that they now have with these International airlines which are hamstringing the rest of the business.

The Domestic business is very strong and something which isn't going away, all the media talk that they need to restructure, make it no frills etc is IMO complete crap from people that don't understand the business, they don't need to do this, the Domestic business is very healthy and they are improving on the Tiger business. With that and the $75m cost saving process they are focusing on they have all the tools to turn the business around but the 2 drags on their business need to be fixed. The debt will be fixed by going into administration, it remains to be seen depending on who buys Virgin whether they have the balls to deal with the International business. To be a direct and strong competitor to Qantas they do not need this, they can continue to codeshare potentially with these routes, but more likely IMO if they want to remain in the International business, this should all be done through the Tiger brand and should be low priced, no frills International business without compromising on the higher quality Virgin Domestic business.

Anyway, its all my opinion, but in the attached example, this is exactly the type of work required of a P/E firm. They will review the business and identify that Virgin Domestic is generally a strong business segment, Tiger will support that but the debt, cost saving and International business needs to be addressed.

The most attractive thing to a P/E group is they will be able to take a significant stake in the business for a relatively small sum for most of them, but having taken a large stake it enables a much easier exit strategy. They can over time reduce their holdings as they progressively improve the fortunes of the business. With the level of tax losses and underlying potential of the business they can certainly see a significant ROI and a very strong exit strategy through sales on market etc.
 
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mrposhman

Tiger Legend
Oct 6, 2013
6,328
742
Actually just to correct one point I posted above. The $116m is just for aircraft leases but for goods and services purchased from related parties they spent $338m. I understand the vast majority of this is royalties paid to Virgin for the use of their name. Is it really worth it? When you look at a business that makes such a loss annually, can they really justify paying this out? Maybe the best solution is to cut ties with International airlines, and rebrand the airline away from Virgin, call it Koala air for all I care but do shareholders and the Australian public get value for paying this amount to Virgin, I highly doubt it. Virgin are one of the few that have ever made any money out of Virgin throughout their time in Australia.

Its been a great cash cow for Branson, maybe we need to put an end to his gravy train.
 

Sintiger

Tiger Legend
Aug 11, 2010
11,990
1,064
Camberwell
Whilst I tend to agree on some points regarding PE, yes some are just out to cut costs and mask the underlying performance issues in the business but others do strive to improve businesses. In terms of timelines that's exactly what they follow. They want distressed businesses as they buy them relatively cheap, restructure, hive off underperforming assets and bolt new ones one.

In Virgins case and with all due respect, they've already gone down the route of airline investor. There 5 largest shareholders own over 90% of the business, made up of 20% Etihad Airways, 20% Singapore Airlines, 10% Virgin Holdings (Branson) and also 20% from Nanshan Capital and 30% with HNA Tourism both of who have significant investments in airlines throughout Asia mainly through China and Hong Kong. They are already 90% controlled by overseas airlines.

The problem with these airlines, is they provide "services" and "airline leases" to Virgin. These are significant, over $116m / year paid out for these services, yet the International business loses close to $100m / year. Between the International business and the level of financing, they have 2 main areas to fix, the problem is the airline investors they currently have, will not allow them to cut these services as they make more out of the leases and services than they do out of earning any profit in the group (despite the massive tax losses they have carried forward).

What they need is to bin the entire International business, there is no real purpose for it. It loses way too much money and exposes them to the level of debt that they have. The debt will almost certainly be completely restructured whoever buys Virgin, especially with there being a significant amount of debt that is unsecured. They had $1.8bn in unsecured bonds (some of this was only issued end of last year), good luck to any of these investors getting any money back, but overall they need to break the links that they now have with these International airlines which are hamstringing the rest of the business.

The Domestic business is very strong and something which isn't going away, all the media talk that they need to restructure, make it no frills etc is IMO complete crap from people that don't understand the business, they don't need to do this, the Domestic business is very healthy and they are improving on the Tiger business. With that and the $75m cost saving process they are focusing on they have all the tools to turn the business around but the 2 drags on their business need to be fixed. The debt will be fixed by going into administration, it remains to be seen depending on who buys Virgin whether they have the balls to deal with the International business. To be a direct and strong competitor to Qantas they do not need this, they can continue to codeshare potentially with these routes, but more likely IMO if they want to remain in the International business, this should all be done through the Tiger brand and should be low priced, no frills International business without compromising on the higher quality Virgin Domestic business.

Anyway, its all my opinion, but in the attached example, this is exactly the type of work required of a P/E firm. They will review the business and identify that Virgin Domestic is generally a strong business segment, Tiger will support that but the debt, cost saving and International business needs to be addressed.

The most attractive thing to a P/E group is they will be able to take a significant stake in the business for a relatively small sum for most of them, but having taken a large stake it enables a much easier exit strategy. They can over time reduce their holdings as they progressively improve the fortunes of the business. With the level of tax losses and underlying potential of the business they can certainly see a significant ROI and a very strong exit strategy through sales on market etc.
Mr P. There isn’t one thing there that any purchaser can’t do or shouldn’t do. You don’t have to be a P/E firm to restructure debt or use tax losses or get rid of the international side
what I mean by an airline buyer is running it like a true subsidiary, not having a 20% share
Anyway thanks for the post. It’s a great analysis. I just don’t trust P/E firms
 
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