Virgin Australia Aircraft
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Two days ago, Virgin Australia went into voluntary administration. They notified the Australian Stock Exchange on the 20th of April late that evening. Virgin Australia and their receivers are going to seize this opportunity and try to re-capitalise the business. Virgin Australia formally stated that they have gone into administration by their CEO, Paul Scurrah. He stayed that ‘Our decision today is about securing the future of the Virgin Australia Group and emerging on the other side of the Covid-19 crisis.’
The airline have decided to keep operating some international flights and 65 domestic flights each week. All of the airline’s administrators will be working efficiently with the Virgin Australia management. Mr. Strawbridge from administration Deloitte announced that: ‘We are committed to working with Paul and the Virgin Australia team and are progressing well on some immediate steps.’
Unfortunately, the airline was unable to get support from numourous sources such as the Federal and State Governments. However, Australia has a history of businesses trading their way out of voluntary administration. The airline’s administrators also believe that Virgin Australia will come out the other side of this crisis and will be successful.
Virgin Australia’s decision to continue operatoion is not good for their stockholders as they will experience heavy losses. Their main stockholders consist of Etihad, Singapore Airlines, HNA and many others. These stockholders have offered some additional funding. For example, The Virgin Group has offered funding only if the Australian Government become involved. There is also rumours that Etihad will be working with a private equity firm to make a bid for Virgin Australia. However, this hasn’t been confirmed. The only way this could potentially become a reality would be if Deloitte works to get the airline back on its feet.
This voluntary administration has allowed the airline to walk away from unsecured debts and a discount in their secured debts. Their debts are currently worth $3.5 billion. This voluntary administration also allows the airline to streamline their operations. This sorting out other options to help cut down on on-going cost. These include Tigerair, international routes and excess leased aircraft. They currently are leasing 69 aircraft which are causing financial strain on Virgin Australia’s revenue.
With the airline continuing operations but pausing the restructuring process increases their chances of getting through this struggle. The airline currently has 48 Boeing 737 Max aircraft on order but haven’t commented on the current situation with Boeing.
Within a day of this event, there has been some potential buyers on the rise. Their administrator, Deloitte have said that they are confident that the restructuring of the business will be done in a short amount of time.
There has been up to 20 individual companies and consortiums interested in buying Virgin Australia. Mr. Strawbridge has said over ten parties have been confirmed in being interested in buying the airline. However, more information on these parties will be realised when the shortlist is drawn up which should be in about three weeks. He also said that:’ There are a number of very sophisticated parties who have got the capability to be part of the restructuring of the company. We plan to run that process very hard.’ They main aim of this restructuring process is to get rid of their debt of $3.5 billion.
Some of these buyers have gone public with their interest. For example, Arizona based Indigo Partners are a low-cost airline group are considering this offer. When Deloitte were asked by ABC Radio National about this interest, Mr Strawbeidge stated that: ‘We have to be very careful around the identity of the parties... it’s a wide group and does include all interest groups, they’re in there.’
Lindsey Fox, Melbourne based trucking billionaire has expressed his interest. He owns the Avalon Airport in Melbourn. Other Australians interested are Wesfarmers and Macquarie Group. Wesfarmers are a Perth based conglomerate who’s value is approximately $41.5 billion. They are interested in retail, mining, chemicals, industrial and safety products. Macquarie own the toll roads in Australia and have experience in running airports and other transport facilities. They are the largest multinational investment bank in the country and has $312 billion in assets under management globally. They are highly regarded in their country and are also financially able to operate the restructuring process of the airline.
Richard Branson‘s Virgin Group will lose a lot of its investment when they restructure the airline. They owned 10% of Virgin Australia. Even though the Group has been struggling financially this year, Richard Branson wants to keep his interest in Virgin Australia and remain apart of it.
It is unpredictable what the outcome for the airline will be. However, we may see them as a frequent flyer in the skies if they push through this struggle.
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