Affinity's stake in Virgin's Velocity up for sale

Written on the 11 July 2019 by David Simmons

Affinity's stake in Virgin's Velocity up for sale

A key stakeholder in Virgin Australia's (ASX: VAH) Velocity Frequent Flyer program (Velocity) is looking at options to exit.

Virgin Australia has announced that Affinity Equity Partners (Affinity) is exploring an exit from its approximately 35 per cent holding in Velocity and has requested that various exit options for the sale of its stake be considered.

The sale was first rumoured in late January by the Australian Financial Review (AFR), when the publication's Street Talk column reported that the private equity firm was in talks with investment banks to sell its share of the program.

Affinity's 35 per cent holding in the Virgin Australia program is estimated to be worth around $750 million.

In May, AFR reported that Virgin Australia and Affinity had hired Goldman Sachs to explore whether there was interest in Affinity's 35 per cent stake. At the time, AFR reported the Affinity had also begun approaching potential buyers.

Affinity acquired its 35 per cent stake in Velocity from Virgin Australia back in October 2014.

The private equity firm that operates in the Asia Pacific region holds around $14 billion in total assets and focuses on investment opportunities in Korea, Australia and New Zealand, Greater China and Southeast Asia.

The airline has confirmed its commitment to the company, saying it "remains committed to the long-term growth of the Velocity business and [is] expected to remain the majority investor in Velocity."

"There is currently no certainty about the terms or timing that any such exit transaction could take."

In May Virgin announced that it was anticipating a FY19 loss of $36.5 million.

The dive is expected to result from a $100 million earnings dip which the company says reflects domestic trading conditions and annual fuel and foreign exchange headwinds in excess of $160 million.

That shock announcement came just three months after the group posted its strongest first half results since 2008, further emphasising the extreme loss expected to come at the end of FY19.

Over the last few years Virgin has struggled to turn a profit, recording a $653.3 million loss after tax in 2018, a $185.8 million loss in 2017, and a $224.7 million loss in 2016.

In 2018 Virgin also failed in an attempt to become a private company because none of its combination of majority shareholders wanted to buy the others out.

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Business News Australia

 
Author: David Simmons

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