Virgin Australia goes into Administration
Virgin chief executive Paul Scurrah says the airline presented nine different bailout proposals to the Morrison government to avoid a collapse, with the last seeking just $200 million in fresh capital.
But administrator and Deloitte executive Vaughan Strawbridge said on Tuesday that there was already an “extraordinary” amount of interest from potential buyers, with more than 10 parties expressing an interest in reviving the carrier.
The future of Virgin Australia’s operations – including where it flies, the size of its fleet and how many people it employs – will all depend on what its new owners want from the business, the collapsed airline’s administrators say.
Virgin called in administrators on Monday night, unable to service its debts while the coronavirus pandemic forced the grounding of most of its fleet and starved it of cash.
The administration puts around 16,000 jobs in doubt and raises questions about whether Australia will have a domestic airline monopoly controlled by Qantas.
Mr Scurrah said parties interested in buying Virgin agreed that it had the right strategy going into the crisis, as the loss-making airline cut back routes and costs to improve financial performance while committing to flying internationally and its budget arm TigerAir.
We didn’t trade our way into this problem – we had our oxygen cut off,” he said.
However he said the size and makeup of Virgin in the future would depend on what new investors wanted after administration. “Ultimately, what we do in the future will be a decision for those who buy us,” Mr Scurrah said.
Mr Strawbridge said there were no immediate plans for redundancies and that employee entitlements were secure through the restructure process. Workers will continue to be paid or, if stood down, can access the Jobkeeper payment.
He said he intended to complete the process within months, with expressions of interest from investors to close within three weeks and a time table to lock down a deal within four to five weeks after that.
Mr Strawbridge said that travel credits for cancelled flights and frequent flyer points remained valid for the time being, but their ultimate value would be decided by anyone who buys the business.
Virgin will continue to operate a minimum network of government-subsidised domestic and international flights through the administration process.
Virgin was struggling financially even before the COVID-19 crisis and was laden with close to $5 billion in debts, while travel restrictions to stop the pandemic’s spread were the final straw. The Morrison government refused Virgin’s request for financial help to save it from collapse.
Mr Scurrah said the last of nine different bailout proposals to the Morrison government to avoid a collapse was for a $200 million “top up” that would have seal a refinancing deal negotiated with other parties. He said the government rejected that on Monday, triggering its administration.
“The government has made their intention clear and we’ll do everything we can to come out of this with great new owners who can capitalise us to the extent that we need to be successful,” Mr Scurrah said.
Virgin Australia co-founder Richard Branson, who still owns 10 per cent of the company through his Virgin Group, signalled his involvement in the company could continue passed the administration.
“We are determined to find a way through this situation to keep the airline going,” Virgin Group CEO Josh Bayliss said in a statement.
“Our intention is to work with administrators and the management team, along with investors and government, to ensure that Australia maintains two airlines.”
Mr Baylis said a Qantas domestic airline monopoly would have “serious adverse consequences for customers and other industry stakeholders”.
Virgin’s other major shareholders are Singapore Airline, Etihad Airways and Chinese groups HNA and Nanshan, which each own 20 per cent and will likely be wiped out through the administration process.
Virgin’s board said it regretted the administration and acknowledged Virgin’s employees for their “hard work and contribution”.
Directors said the pandemic hit as the airline was working on a significant transformation program to reset its cost base and improve its financial performance, including job cuts, fleet simplification and dropping unprofitable routes.
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