Cash-starved Virgin Australia vows to come back “leaner, stronger and fitter” after entering voluntary administration.
Burdened with a $4.8 billion pile of debt, and unable to secure a fresh capital injection from its major shareholders, Virgin Australia has been forced into voluntary administration.
In a major blow for Australia’s $45 billion tourism sector, and the airline’s 10,000 employees, a meeting of Virgin Australia’s international shareholders last night opted to place the company into voluntary administration.
Grounded since March 25 due to the coronavirus crisis, the airline has appointed Deloitte’s Vaughan Strawbridge, John Greig, Sal Algeri and Richard Hughes as voluntary administrators.
Virgin Australia’s frequent flyer program Velocity is a separate company and is not in administration.
Related: Read Virgin Australia’s statement to the Australian Stock Exchange.
Virgin Australia boss Paul Scurrah said: “Our decision today is about securing the future of the Virgin Australia Group and emerging on the other side of the COVID-19 crisis.”
At a press conference on Tuesday, he vowed Virgin Australia would survive the worst aviation crisis in history, and would bounce back “leaner, stronger and fitter”.
After seven straight years of corporate losses, Virgin Australia (including its offshoot Tigerair) was in a precarious financial position well before the coronavirus pandemic crippled global travel.
The airline owes its banks $4.8 million, with $540 million to be repaid or refinanced before the end of the 2020 calendar year. COVID-19 has simply exacerbated those financial problems.
Vaughan Strawbridge from Deloitte said he would be working with Mr Scurrah to keep the airline in the air, and did not plan to make any staff redundant in coming months.
“Our intention is to undertake a process to restructure and refinance the business and bring it out of administration as soon as possible,” Mr Strawbridge said.
“We have commenced a process of seeking interest from parties for participation in the recapitalisation of the business and its future, and there have been several expressions of interest so far.”
He said several parties had expressed interest in the business and those discussions were “progressing well”. It would be three to four months before tan outcome is known.
Various scenarios have been tossed about in recent days – including bailouts from state governments, Chinese airlines and private equity firms.
The Australian Government refused to bail out Virgin Australia, but has provided up to $165 million in support to enable Virgin and Qantas service key metropolitan and regional routes over the next two months.
Virgin Australia’s biggest shareholders – Etihad Airways, Singapore Airlines and Chinese groups Nanshan Group and HNA Group (who together own 80 per cent) – passed on requests to stump up fresh capital.
Billionaire Sir Richard Branson’s Virgin Group, which owns 10 per cent, is also grappling with its own cashflow issues and has been unable to help.
But Virgin Group CEO Joshua Bayliss said a Qantas monopoly in the Australian domestic market would have “serious adverse consequences” for the industry.
“Australia remains a key market for the Virgin brand and we wish to support Virgin Australia to become more resilient and stronger than before,” Mr Bayliss said.
Deloitte will set about cleaning up the debt and restructuring the company so that it bounces back “leaner, stronger and fitter”.
It may also look to close parts of the airline that are not performing well, such as budget arm Tigerair. This would allow Virgin Australia to eventually fly again, even if in a reduced form.
Before coronavirus grounded all but one of its planes, Virgin Australia had a fleet of 130 aircraft flying to 41 destinations around the world.
© 2020 Bernard O’Riordan (Travel Instinct). All Rights Reserved.
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