Virgin bid for Ansett not favored


Richard Branson's Virgin Blue is not favored to win the battle for the assets of the failed Australian airline Ansett

By CNN's Geoff Hiscock
Asia business editor

SYDNEY, Australia (CNN) -- The administrators of failed Australian airline Ansett on Monday reaffirmed their plans to sell it to a Melbourne business syndicate, dealing a heavy blow to the expansion ambitions of Richard Branson's Virgin Blue.

Virgin Blue planned to team up with its potential new owner, Australian transport and logistics group Lang Corporation, to enter a rival bid.

Lang, headed by former merchant banker Chris Corrigan, on Saturday night agreed to inject up to $156 million (Aust. $300 million) into Virgin Blue and take a controlling interest in it, if it was successful in a bid for Ansett.

But the administrators rebuffed the Virgin/Lang approach on Monday, saying a syndicate headed by Melbourne businessmen Lindsay Fox and Solomon Lew offered the best hope of a return to Ansett creditors.

Started as a discount carrier

Virgin Blue, which started Australian services in September last year as a one-class discount carrier, is now the No.2 player in the Australian market, behind Qantas.


A syndicate led by Melbourne tycoons Solomon Lew (L) and Lindsay Fox is the frontrunner for the Ansett assets

Qantas, which had a 55 percent share before Ansett's collapse in September, now dominates the Australian domestic market with 85 percent.

On November 8 Fox and Lew unveiled their $1.8 billion proposal to take over Ansett's "mainline assets", including its main trunk routes such as Brisbane-Sydney-Melbourne, and to re-equip it with new Airbus A320 aircraft.

Ansett, wholly owned by Air New Zealand since June 2000, had about a 39 percent share in Australia before it fell into financial difficulties three months ago with debts of about $1 billion.

Air New Zealand, beset by its own financial woes, cut Ansett adrift, placing it in voluntary administration on September 14. The Ansett administrators subsequently got a slimmed-down version of the airline flying again while they sought to negotiate the sale of its assets.

Fox/Lew bid accepted, with conditions

They accepted the Fox/Lew bid, subject to a number of conditions including the approval of creditors and the Federal Court of Australia. The administrators hope the transfer will take place on January 31 next year.

In a statement to the Australian Stock Exchange Monday, Lang Corp said it believed a Lang/ Virgin bid would allow for the "rebuilding of a strong, low-cost competitor to Qantas", without the need for taxpayer subsidies.

This is a reference to the Fox/Lew bid, which initially envisaged Australian federal government assistance.

While a successful Lang/Virgin bid does not involve government assistance, it would see the end of the Ansett name in Australian skies and would provide jobs for only 1500 former Ansett employees, compared with 4000 under the Fox/Lew bid.

Meeting with administrators

Virgin Blue chief executive Brett Godfrey and Lang Corp's Chris Corrigan met the administrators in Melbourne on Monday morning to discuss buying some of the Ansett assets, thereby allowing Virgin to expand quickly from its current fleet of 12 one-class Boeing 737s.

The Ansett administrators, Mark Mentha and Mark Korda of accounting firm Andersens, said after the meeting that there was no firm bid from Lang/Virgin, "merely an expression of interest in certain assets."

They said their decision to sell to the Fox/Lew syndicate still stood.

"We believe we have made a decision on the sale of Ansett that offers the best hope of a return to creditors, while ensuring that Ansett returns as a viable competitor in the Australian market," they said.

But Mentha and Korda left the door slightly open to Lang/Virgin, saying the sale to Fox/Lew was subject to a number of conditions.

"If those conditions are not met, then we may be in a position to deal with Lang Corporation," they said.

One other factor in the equation is that if Lang moved to a majority stake in Virgin Blue, the carrier would become Australian-owned and thus able to compete on the trans-Tasman routes between Australia and New Zealand.

Lang Corp shares last traded Monday afternoon at A$10.51, down 18 cents or 1.7 percent.