Virgin Australia Financially Secure? [Now in Voluntary Administration]

[dajop]

As argued previously, would it be a more "profitable" scenario, if VA in it's current form was to get administrators sent in, where SQ (and perhaps a partner) picked up the VA assets (namely the 737s and SYD/MEL slots) to start a new domestic operation with lesser financial liabilities and new staffing agreements.

Huge risk in doing so, as in the interim, whilst the administrators sort the cough out, you automatically drive high value customers to QF, and it will take years to get them back, both to SQ and to the domestic carrier you set up in its place.

 

[eastwest101]

Huge risk in doing so, as in the interim, whilst the administrators sort the cough out, you automatically drive high value customers to QF, and it will take years to get them back, both to SQ and to the domestic carrier you set up in its place.

Yes I can see your point - and this is all entirely hypothetical - but in the case of administration, any action by anyone would want to be quick and decisive. Singapore Airlines is not some leveraged up, opportunistic, dodgy private equity chancers - it would be viewed as a reputable operating airline and a quick launch of 'Singapore-Australia Airlines' in the first week would have jaded Qantas loyalists posting their Plat cards back to Alan Joyce by express post,

As for the Foreign ownership and competition concerns - it would be a very very short and one-sided conversation along the lines of "You can approve this deal and have a foreign owned competitor operating in the market, or you can have a single airline monopoly for a long time, take your pick."

I think its unlikely, but just my thoughts.

 

[dajop]

As for the Foreign ownership and competition concerns - it would be a very very short and one-sided conversation along the lines of "You can approve this deal and have a foreign owned competitor operating in the market, or you can have a single airline monopoly for a long time, take your pick."

I thought foreign ownership wasn't a problem for a domestic carrier, just for the international offshoot (which is currently managed by VA via a specific corporate structure, where "ownership" of the international operations is by a "Australian owned" entity with lots of smokes and mirrors).

 

[jakeseven7]

I thought foreign ownership wasn't a problem for a domestic carrier, just for the international offshoot (which is currently managed by VA via a specific corporate structure, where "ownership" of the international operations is by a "Australian owned" entity with lots of smokes and mirrors).

Exactly, VA is about 90%+ foreign owned now anyway its hardly an Australian company, have to go back to the TOLL days right when it was even remotely Aussie owned!

 

[Scarlett]

My take of this thread is that: "the coach has the full support of the board."

That usually works out well.

I also note that some people seem to love bandying about that VA has 1B cash at hand... maybe some time ago they did. Now? Not so much.

 

[jakeseven7]

My take of this thread is that: "the coach has the full support of the board."

That usually works out well.

I also note that some people seem to love bandying about that VA has 1B cash at hand... maybe some time ago they did. Now? Not so much.

Wonder if they have it in the BankWest QF saver account imagine how many points they'd earn

But good question, assuming they are losing money week on week (and probably increasing at the moment) I wonder what it is looking like....

 

[HS-TQE]

Speaking of other alternative 'contenders' in regards to a alternate domestic operation in Australia (if VA 'were' to go under Administration).
The other 'contender' would be DL in JV with one of their other partner carriers, in addition to visiting the possibility of taking over the MEL and/or BNE to LAX flying if the domestic operation (set up from VA's assets) was to be "run out of Atlanta".

NH would've been mentioned as another contender, but not under the current COVID-19 situation as of the moment.

 

[jase05]

Wonder if they have it in the BankWest QF saver account imagine how many points they'd earn

But good question, assuming they are losing money week on week (and probably increasing at the moment) I wonder what it is looking like....

PS has quoted that figure again recently, who knows if it is accurate but I’m willing to take his word on it

 

[Plutonus]

VAH had $1.1b of cash and cash equivalents as at 31 December 2019. $900m of this is described as 'unrestricted'.

Source: H1 2020FY financial results ASX announcement on 26 February 2020.

 

[Must...Fly!]

Indeed the volume of cash being burned through is a good question. They appear to be trying to protect cash as much as possible (reading between the lines) even before COVID-19 became a big thing, so at least they have been disciplined.

The Tokyo route really is a question that needs to be dealt with, I'm not sure they can absorb the inevitable cash burn from that and a drop off in domestic bookings. It's easy enough to temporarily trim Trans-Pacific if required, beyond what is already planned from June for the maintenance window.

 

[pauly7]

SQ's past track record on investments suggests that as well, being involved in NZ/AN debacle and having to sell VS at a loss. The Tiger Airways attempt in Australia is also another.

I would agree this is a contributing factor, past acquisition and expansion failures would have certain stakeholders gun shy.

@pauly7 my guess would be that singapore airlines has zero strategy and experience operating relatively big short haul high turn domestic carriers which is a very different beast to their current business model.... Warm?

I would agree - warm. They’ve tried before and had a spectacular failure. They would hypothetically worried about not having the know how for any sort of turn around.

Interesting comment - I would interpret that as SQ can see some potential in the VA business (in 'normal operating environments, and obviously early 2020 is not a normal operating environment for airlines), but can't see any expertise (currently runnning VA or available at the moment in the market) to turn around the business?) Is that what you are saying? They are looking for a person or a team who can turn it around?

Some would argue that it might be 'easier' to wait for the VA business to implode and buy the assets cheaply off the receivers rather than spend time and money to 'fix' the business, the other advantage with this plan is that you get to dictate terms of relaunching the business to staff, governments, airport owners and aircraft leassors. The obvious drawback to this strategy is that VA can survive with its domestic business and reasonable cashflow and cash reserves for quite some time so you may never get the change to pick up those cheap assets from the receiver.

Very fair points and as above lack of strategic know how would be a very concerning hurdle.

 

[jakeseven7]

I would agree this is a contributing factor, past acquisition and expansion failures would have certain stakeholders gun shy.



I would agree - warm. They’ve tried before and had a spectacular failure. They would hypothetically worried about not having the know how for any sort of turn around.



Very fair points and as above lack of strategic know how would be a very concerning hurdle.

OK this makes a lot of sense know, thank you for sharing (or not sharing!) your 'observations'

So apart from the opportunity/timing needing to present itself, strategically SQ has gaps to operate a business like VA let alone engineer a turn around strategy for a business like VA, has been burnt before with expansions into other businesses and markets and has actually failed operating an Australian domestic carrier in recent history and ran screaming back to Singapore after selling a shoddy unsafe airline to VA for $1.

Makes a lot of sense.

They'd have to be very comfortable with local management first and PS is brand new still and only taking baby steps so far to right the ship.

 

[Must...Fly!]

VAH down to 6.7c at the open.

 

[ja1]

Exactly, VA is about 90%+ foreign owned now anyway its hardly an Australian company, have to go back to the TOLL days right when it was even remotely Aussie owned!

I disagree completely. You seem to be equating ownership to identity.

VA is listed on the ASX.
VA employs most of its staff in AU
VA is HQ'ed in AU (Brisbane)
VA pays taxes in AU (though it's hard to pay much tax on profit if you haven't made any in a while!)


By almost any measure (except ownership) VA is a thoroughly Australian company.

It's the same 'pub test' I use to buy bacon in the supermarket. I don't care if it's an Australian owned company that uses 10% local ingredients. I want the actual product to be sourced here and if the company in question is foreign owned, I don't care.. they're following Australian rules and employing Australians and if they want to take profits out of the country after they've paid their staff, suppliers and tax, go for it. I expect Australian companies to work the same way in the other direction.

Ownership is a global platform nowadays (and Australian companies and individuals own plenty of overseas assets - that doesn't make those assets 'Australian' by any means..)

 

[wannabeinvestmentbanker]

VAH now down to $0.05 down 24% today. Hopefully no one piled in catching the proverbial falling knife.

 

[Harthagan]

How low can it get? Heck if it drops another 5 cents I'll consider buying some lol

 

[Must...Fly!]

5c was my buy point, actually.

Need to give it some serious thought now...

 

[jakeseven7]

5c was my buy point, actually.

Need to give it some serious thought now...

You escaped your trigger price, finished at 6 cents.

My goodness.

 

[ja1]

5c was my buy point, actually.

Need to give it some serious thought now...

I just cannot figure out where the upside on the share price comes from - for a retail investor.

VA is not going to pay a dividend. If it did that then clearly the share price would be very different..

So if you know there is no dividend income.. you're relying on a capital gain that is driven by.. what exactly ? Good news on some front (not seeing any for a while). Reducing their losses ? OK, that isn't bad but enough to drive the share price ?

I can't rationally see where the upside is at present but I'm hoping someone else will point it out to me.

Which is still not stopping me from buying tickets and thinking about how to fly with them some more and to keep status and generally not worry about their financial stability based on their share price.

 

[moa999]

It's a mess.
I suspect in the current environment some of the 90% shareholders just want the
limited international feed, and don't really care about the losses within VAH.

Hence why no reaction to the massive QF international capacity cut.