Virgin Australia Financially Secure? [Now in Voluntary Administration]

[ag4647]

While the Administrators have not specifically speculated about the restructuring, I can't help but wonder if the VA International arm is most likely to be sacrificed first. This could make VAd more attractive to foreign airlines.

what does VAi include exactly? Always confused because it’s often followed up with an asterisk excluding LAX.

 

[jase05]

Air NZ will be thanking their lucky stars today - they have literally avoided AN part 2.

Air NZ should be thanking their lucky stars that the NZ government just propped them up to the tune of $900m or they would be in more of a perilous position than VA

 

[antycbr]

Air NZ should be thanking their lucky stars that the NZ government just propped them up to the tune of $900m or they would be in more of a perilous position than VA

After they were also bailed out after AN - the NZ government owns 52% of the airline before Covid-19.

Air NZ is definitely in the "too big to fail" catgeory for New Zealand.

 

[jakeseven7]

what does VAi include exactly? Always confused because it’s often followed up with an asterisk excluding LAX.

It depends what you mean.... from an accounting point of view, or a services/consumer point of view.

VA has a very complex structure to get around the fact they are a foreign airline operating international services out of Australia.

 

[Bagpuss]

I’m pretty sure you can’t just moved assets around shell companies to avoid paying debts.

The creditors would just veto that restructure then appoint new administrators.

The purpose of administration is to maximise creditor value not minimise it.

Sorry, more to my point. There has been some comment about risks around the AOC with the company put into administration. So to be safe they make have kept one solvent. When Virgin II comes along it may use that company ABN and AOC. Theerfore, assets would ultimately get moved it to post restructure.
At the end of the administration process sometimes they leave behind the ABN as an empty shell (likely with an AOC in this case) which can be on-sold.

 

[moa999]

VA has a very complex structure to get around the fact they are a foreign airline operating international services out of Australia.

Will be interesting to see whether the administrator is able to keep that as I suspect there are all sorts of interesting company loans and the like given the differing shareholders and the assumed losses in VAi over recent years.

Of course if an Australian entity ends up in majority control of VA2 they would be able to continue to operate internationally without that complexity

 

[chicko_10]

Looks like Paul Scurrah will be on ABC 7:30 tonight with Leigh Sales - will be interesting to see what he discusses around the VA and future of Virgin.

https://twitter.com/i/web/status/1252412806357385217

 

[burmans]

I suspect the feds would respond according to the circumstances at the time

1) If VA, its successor, or some other operator existed, then no, they wouldn't help
2) If QF were the sector, they may be stuck with it - but there'd have to be strings attached

I tend to agree. Having two airlines in a market is ultimately a ‘nice to have’ (yes I agree it’s a good thing), but having one is likely to be seen as a ‘must have’. Can’t say I like it but while the government may be prepared to see one fail I can’t see them being prepared to see both fail.

 

[burmans]

Dont hold me to account, but i think best to get chargeback sooner rather than later, as this airline is deep in debt and not sure if survivable - i hope it is but i am not sure to be honest

You can’t do a chargeback until you have evidence the service has not been provided. At this stage I’d suggest the OP probably doesn’t have this if booking hasn’t been cancelled and probably needs to wait until it is.

 

[Must...Fly!]

Looks like Paul Scurrah will be on ABC 7:30 tonight with Leigh Sales - will be interesting to see what he discusses around the VA and future of Virgin.

https://twitter.com/i/web/status/1252412806357385217

Thanks for the tip - will be keenly watching. Again the comments from the administrators paint an encouraging picture.

Though the rhetoric was similar with Ansett back in the day, this feels different to me and VA is an inherently strong company. As I've said before, they have an asset base, a lounge network and an operation that with some restructuring is something to really like. The brand is rock solid too. Though on reflection this does sound a bit like Ansett...Virgin have shown consistent ability to make strong money in the domestic market though.

You can bag Borghetti all you like, and he has made his mistakes, but he had a mandate from the shareholders and fulfilled it. The objective was strategic, not financial, and while it cost a LOT of money they fulfilled that strategic objective. Unfortunately things elsewhere went a different way (Hogan & his plan being booted from Etihad) which meant the ownership of VA got tangled up in a messy web of competing interests.

But they built a fundamentally strong airline with a very strong brand and an extremely strong frequent flyer program - which in combination with each other might just see them through.

 

[antycbr]

Thanks for the tip - will be keenly watching. Again the comments from the administrators paint an encouraging picture.

Though the rhetoric was similar with Ansett back in the day, this feels different to me and VA is an inherently strong company. As I've said before, they have an asset base, a lounge network and an operation that with some restructuring is something to really like. The brand is rock solid too. Though on reflection this does sound a bit like Ansett...Virgin have shown consistent ability to make strong money in the domestic market though.

You can bag Borghetti all you like, and he has made his mistakes, but he had a mandate from the shareholders and fulfilled it. The objective was strategic, not financial, and while it cost a LOT of money they fulfilled that strategic objective. Unfortunately things elsewhere went a different way (Hogan & his plan being booted from Etihad) which meant the ownership of VA got tangled up in a messy web of competing interests.

But they built a fundamentally strong airline with a very strong brand and an extremely strong frequent flyer program - which in combination with each other might just see them through.

The other consideration is that VA have not been shut down for not complying with CASA maintenance regulations. That was a nail in AN's coffin in terms of customer reputation with the travelling public when the 767s were grounded in Easter 2001. VA has a good reputation with the travelling public on the whole.

 

[woodborer]

I think it's a bit different to Ansett. From what I remember, anyone that looked at the books went running.

In Virgin's case it seems to be look at the books and say get rid of the debt.

 

[dajop]

Two of the VA foreign owners have incredibly rich foreign governments lurking behind them.
I don't believe for a second they don't have the money
They chose to 'do squat' and not tip their own money in - for whatever reason, and that is fine - their interests will now probably be zeroed out.

I'm not sure about the Chinese or UAE perspective, but the Singaporean perspective probably isn't that different to the Australian one.

Let's assume this all goes even more pear shaped, VA disappear and QF come asking for a bail out. Also, that Jetstar Asia are on the verge of bankruptcy and need their equity holders to chip in with a rescue package. QF doesn't have the cash, so goes back to the Australian government asking for a top up of their assistance to help out Jetstar Asia. What do you think the Australian government's response would be?

Also to put into context "the carrying amount" of SQ's investment in VA was listed as $315m in their most recent annual report. If you take annual passenger revenue as a guide, and assume 95% cut in demand for air travel at the moment, their weekly loss in revenue vs 2019 is $189m/week.

 

[ja1]

But they built a fundamentally strong airline with a very strong brand and an extremely strong frequent flyer program - which in combination with each other might just see them through.

Sorry for playing devil's advocate (and disclaimer, I'm a VA supporter) but fundamentally they didn't build a strong airline as the evidence of a fundamentally strong airline is the ability to survive - perhaps for longer than 12 weeks - in a crisis situation.

We wish they did and we have a lot of aspirations but it's worth taking an objective (evidence based) approach based on what has happened - which in the end is an orderly collapse (voluntary administration) as opposed to a disorderly one (bankruptcy into liquidation)

QAN is also going to be stuffed in the long run (e.g. in another 6 months) as no airline is designed to function with the majority of its reason for being sitting on the tarmac and the evidence for how this is managed elsewhere is the large bailouts being entered into all around the rest of the world (e.g. AA, United, Easy-jet and so on).

I don't fault the current Federal government for not leaping into action (though I wish they did as that might have minimised short term collateral damage) but they do have to own the eventual result if there isn't a 'solution' that doesn't involve liquidation - which isn't explained by 'let the market fix it' when this isn't a management or market failure per se..

 

[ja1]

Also to put into context "the carrying amount" of SQ's investment in VA was listed as $315m in their most recent annual report. If you take annual passenger revenue as a guide, and assume 95% cut in demand for air travel at the moment, their weekly loss in revenue vs 2019 is $189m/week.

Did you mean this is VA's loss in revenue or SIAs?

Earlier in this thread someone quoted that SIA asked for and got $18b from the Singapore Government - so at that burn rate means they have 100 weeks worth of cash to burn through - which should sort out SIA.. (but not if they use it to make investments into other carriers?)

 

[dajop]

Did you mean this is VA's loss in revenue or SIAs?

SIA's - passenger revenue. That doesn't include Cargo, and not sure if it includes Silk Air and Scoot. Overall the company revenue is ~$16b/year ... $300m/week.

 

[AustraliaPoochie]

OT start,
If I remember correctly, the AN levy was per itinerary.
At this time, no levy brought up yet, but its been discussed as a possible way for the govt to recoup its expenses, not only to VA if it goes under, but also Covid19 expenses as a whole.
Come to think about it, FESG and Jobkeeper is already being paid from Australia's workers taxes, so its already a levy in a way.
OT end.

 

[jakeseven7]

Let's assume this all goes even more pear shaped, VA disappear and QF come asking for a bail out. Also, that Jetstar Asia are on the verge of bankruptcy and need their equity holders to chip in with a rescue package. QF doesn't have the cash, so goes back to the Australian government asking for a top up of their assistance to help out Jetstar Asia. What do you think the Australian government's response would be?

In this scenario, QF group (domestic and int services ex and into AU, doubt intra-Asia) will be supported and preserved by the Federal Government. No question.

Interesting hypothetical about what would happen to Jetstar Asia, New Zealand, Japan and Pacific (Vietnam) though. Doubt the Fed Government would care about those arms. Everything else though yes - will be saved. Too important.

Bit off topic VA's financial situation though

 

[antycbr]

In this scenario, QF group (domestic and int services ex and into AU, doubt intra-Asia) will be supported and preserved by the Federal Government. No question.

Interesting hypothetical about what would happen to Jetstar Asia, New Zealand, Japan and Pacific (Vietnam) though. Doubt the Fed Government would care about those arms. Everything else though yes - will be saved. Too important.

Bit off topic VA's financial situation though

I'd hope that they try for a "market based solution" first. If that fails, then we need to dilute everyone's equity with our government investment and no payouts to those overpaid executives. No more handouts to 35% foreign owned companies.

Sorry couldn't resist.

 

[jakeseven7]

You can bag Borghetti all you like, and he has made his mistakes, but he had a mandate from the shareholders and fulfilled it. The objective was strategic, not financial, and while it cost a LOT of money they fulfilled that strategic objective. Unfortunately things elsewhere went a different way (Hogan & his plan being booted from Etihad) which meant the ownership of VA got tangled up in a messy web of competing interests.

But they built a fundamentally strong airline with a very strong brand and an extremely strong frequent flyer program - which in combination with each other might just see them through.

Great airline, lousy business comes to mind.

Do you think the 'mandate' you are talking about (which was JB's strategy by the way instigated by him, not the board) or 'objective' did not have in small writing somewhere *and be profitable as a result..... Clearly being profitable was not an objective then.....