Virgin Australia Financially Secure? [Now in Voluntary Administration]

[Saab34]

I’m not by any means any Finance expert. So what happens if they actually run out of cash to pay the bills today, tomorrow, next week. Is it officially dead and wound up?

News around the twitter traps in the last hour is getting word that they can’t pay the bills this week.

 

[BNEFlyer]

I’m not by any means any Finance expert. So what happens if they actually run out of cash to pay the bills today, tomorrow, next week. Is it officially dead and wound up?

News around the twitter traps in the last hour is getting word that they can’t pay the bills this week.

Would depend on the new investor and Deloitte. If one is decided they may be able to put some cash in, or Deloitte can ensure liquidation doesn’t happen before a new owner is found.

 

[p--and--t]

I’m not by any means any Finance expert. So what happens if they actually run out of cash to pay the bills today, tomorrow, next week. Is it officially dead and wound up?

News around the twitter traps in the last hour is getting word that they can’t pay the bills this week.

Would depend on the new investor and Deloitte. If one is decided they may be able to put some cash in, or Deloitte can ensure liquidation doesn’t happen before a new owner is found.

I thought I read somewhere, any order issued that incurred an expense from the date of an Administrator being appointed was the direct responsibility of the Administrator (Deloitte) and then they become another creditor but the payments are guaranteed by Deliotte. Could be totally wrong.

Virgin would be responsible for any expense incurred before Administration.

 

[BNEFlyer]

I thought I read somewhere, any order issued that incurred an expense from the date of an Administrator being appointed was the direct responsibility of the Administrator (Deloitte) and then they become another creditor but the payments are guaranteed by Deliotte. Could be totally wrong.

Virgin would be responsible for any expense incurred before Administration.

They could be responsible, which is another reason they’d try and hold off any type of liquidation.

 

[RooFlyer]

So what happens if they actually run out of cash to pay the bills today, tomorrow, next week. Is it officially dead and wound up?

The assets get sold as best they can# to pay the debts to the extent possible, in the order of ranking/seniority, then Virgin Australia just becomes an entry in Wikipedia.

# Subject to certain airports grabbing aircraft

News around the twitter traps in the last hour is getting word that they can’t pay the bills this week.

I wouldn't think twitter was a source worth taking too much notice of, especially as the Administrator has represented otherwise.
EDIT: just seen a report that the Administrator might be after some additional cash - so it looks like there is a problem in keeping the thing going until the end of a sale process, which might be 3-4 months more. but if the thing runs out of money, it can cease operating but the sale process keep going. The creditors would need to keep their nerve and not call in liquidators - they will get a better return if its sold as a going concern rather than broken up. Unfortunately, it takes only one big creditor, secure in their knowledge that its at the head of the creditor queue, to stuff it up for everyone.

Virgin would be responsible for any expense incurred before Administration.

But there isn't a 'Virgin' anymore, just the corporate under Administration. The Administrator isn't responsible for paying the debts incurred before the Administration took place, rather simply managing the business for a time to achieve what they can to get the best outcome for creditors (first) and then everyone else. If they fail, the creditors just lose - they can't go after the Administrator. I think it was posted up-thread that the Administrator has been granted ?limited relief by the Court to take on some additional liabilities, without being personally liable for them.

 

[BNEFlyer]

The

The assets get sold as best they can# to pay the debts to the extent possible, in the order of ranking/seniority, then Virgin Australia just becomes an entry in Wikipedia.

# Subject to certain airports grabbing aircraft



I wouldn't think twitter was a source worth taking too much notice of, especially as the Administrator has represented otherwise.
EDIT: just seen a report that the Administrator might be after some additional cash - so it looks like there is a problem in keeping the thing going until the end of a sale process, which might be 3-4 months more. but if the thing runs out of money, it can cease operating but the sale process keep going. The creditors would need to keep their nerve and not call in liquidators - they will get a better return if its sold as a going concern rather than broken up. Unfortunately, it takes only one big creditor, secure in their knowledge that its at the head of the creditor queue, to stuff it up for everyone.



But there isn't a 'Virgin' anymore, just the corporate under Administration. The Administrator isn't responsible for paying the debts incurred before the Administration took place, rather simply managing the business for a time to achieve what they can to get the best outcome for creditors (first) and then everyone else. If they fail, the creditors just lose - they can't go after the Administrator. I think it was posted up-thread that the Administrator has been granted ?limited relief by the Court to take on some additional liabilities, without being personally liable for them.

They're looking to have it finalised by July. And Virgin Australia is still active and operating but Deloitte are running things at the moment.

 

[jakeseven7]

just seen a report that the Administrator might be after some additional cash - so it looks like there is a problem in keeping the thing going until the end of a sale process, which might be 3-4 months more. but if the thing runs out of money, it can cease operating but the sale process keep going. The creditors would need to keep their nerve and not call in liquidators - they will get a better return if its sold as a going concern rather than broken up. Unfortunately, it takes only one big creditor, secure in their knowledge that its at the head of the creditor queue, to stuff it up for everyone.

This was flagged last week and appears to have some truth to it now unfortunately.

It puts administrator controlled VA1 in a precarious position.

The bidders suddenly are also faced with a more risky prospective purchase as well if they have to shut VA1 even for a few weeks. Consumer confidence in VA1 is already rock bottom, a forced closure would decimate it even further, whilst QF group stirs to life slowly (probably with insight into upcoming border restrictions being eased) - with flexible flight changes and safety assurances.

Basically Deloitte need to flog VA1 off, ASAP, to whoever will buy it, with deep pockets. Right now. Forget the process, streamline it and get it done.

They will probably run screaming to the government soon (Again).

 

[jakeseven7]

Well well, what a surprise!


------------------


Second Virgin bailout request looms

The administrators for Virgin Australia are expected to turn to the federal government for a loan to fund the rest of the failed airline's sale process.

Virgin, which is estimated to be burning through about $15 million a week, has about $100 million left in the bank.

Binding offers are due in less than four weeks, on June 12, and increasingly, parties expect the airline will need more cash to keep operating until the creditors' meeting in August.

"[Deloitte administrator Vaughan] Strawbridge's comments [about additional funding options] are widely seen as a pre-cursor to a government bailout," a source said.

There has also been speculation that another option for some emergency funding may be the bidders, though it is unclear why they would commit capital to a deal before it is approved.

The lack of a well-defined funding plan was one reason that Brookfield - considered a serious contender - dropped out of the sales process, a source said.

Deloitte's lead administrator, partner Vaughan Strawbridge, told The Australian Financial Review this week there is only enough cash for the business to "get through our sale process", which is due to be completed by the end of June.

Mr Strawbridge's comments follow criticism about a chaotic and aggressive process, which more than one bidder has flagged concerns that it could tip the airline into liquidation.

Second Virgin bailout request looms

The lack of a well-defined funding plan was one reason why Brookfield dropped out of the sales process, a source said.

www.afr.com

 

[muppet]

.......

Mr Strawbridge's comments follow criticism about a chaotic and aggressive process, which more than one bidder has flagged concerns that it could tip the airline into liquidation.
..

Seems counter-intuitive that statement doesn't it? The administration has been aggressive to get it done before the company is forced into liquidation?

 

[RooFlyer]

They're looking to have it finalised by July. And Virgin Australia is still active and operating but Deloitte are running things at the moment.

Yes, they can look to that, but time will tell. And yes, I'm aware about Deloittes role, and that Virgin is still flying ; I was just correcting the impression that 'Virgin' might be doing this or that re its debt. I guess its strictly 'Virgin (Corp or whatever they are) in Administration' - the rules are different.

 

[Saab34]

Seems counter-intuitive that statement doesn't it? The administration has been aggressive to get it done before the company is forced into liquidation?

I think it’s more they are not being fully upfront with the financials. Only limited glimpse into the books at this stage. Some didn’t commit as they did not even know what they were buying.

 

[jakeseven7]

Suggested top priorities for the new owner of VA2:

1) Cutting, simplifying fleet
2) Cutting network
3) Renegotiating contracts



-------------------


Where Virgin's costs can be cut
The biggest cost savings come from rethinking the fleet and network

The first and largest opportunity is around fleet. Virgin’s haphazard expansion over the past decade means it is flying nine different types of aircraft. In an industry where complexity equals cost, that’s poison.

Some of these aircraft have been acquired on horrible deals. For example, insiders say Virgin paid well over market rates to lease the six Airbus A330 planes in its fleet and there are almost no circumstances under which the planes can fly profitably.

The four bidders – BGH, Bain Capital, Indigo Partners and Cyrus Capital Partners – are likely to look at selling and leasing back the 30 or so aircraft Virgin owns.

However it is achieved, observers suggest the most important goal is to shrink down to one aircraft – the Boeing 737 – for domestic routes. This instantly simplifies the airline’s operations, and reduces costs.

Full article:

Where Virgin's costs can be cut

The biggest cost savings come from rethinking the fleet and network, but the administration process should allow the saving of tens of millions of dollars on what insiders describe as onerous contracts.

www.afr.com

 

[RooFlyer]

I think it’s more they are not being fully upfront with the financials. Only limited glimpse into the books at this stage. Some didn’t commit as they did not even know what they were buying.

In the first round, just finished, no-one was 'buying' anything. It was indicative, non-binding offers. If it was a fairly normal data room process (and it sounds like it has been), there is limited info released in the first round; it would be more about the bidder's capabilities and what they envision for the entity being looked at based on info they got. See my earlier post here:

Virgin Australia Financially Secure? [Now in Voluntary Administration]

Sorry to ask a simpleton’s question. Can someone please give info on these shortlisted bidders and their likely proposal (ie full service, low cost, international/domestic)? None has formally set out what there intentions are as yet they will meet wither the management and look closer at the...

www.australianfrequentflyer.com.au

If everything (such as detailed contracts and deep financials) was available to everyone up-front, you'd get every tyre-kicker and airline around coming in for a sticky-beak. For instance, I'm sure Qantas would like to see details of Virgin's supplier contracts, customer profiles, modelling etc. This would be against the interests of 'serious' offerors. That said, I doubt that the magnitude of the financial difficulties would have not been released to the first-rounders.

As soon as the list was culled on Monday, the electronic data room would have been fully unlocked, unless there is an intermediate process of culling from 4 bidders to 2.

As has been pointed out, this two-stage process extends the time of the process, and there is a risk that the corporate position will deteriorate further during this time.

 

[jakeseven7]

As has been pointed out, this two-stage process extends the time of the process, and there is a risk that the corporate position will deteriorate further during this time.

Not a risk, a certainty.... that is why the administrators are being flogged and why people are suspecting they have completely misjudged the severity of the VA1 situation and may run out of money before their process they decided to run with results in a sale.

 

[BNEFlyer]

observers suggest the most important goal is to shrink down to one aircraft – the Boeing 737 – for domestic routes.

Which makes sense for routes where 737's currently fly, but what about destinations where the ATR goes, I don't see VA flying a 737 SYD-TMW 2-3x per day. And then this would mean taking 737's off the 'mainline' network and putting them into regional WA to replace the A320's and Fokkers.

 

[straitman]

Which makes sense for routes where 737's currently fly, but what about destinations where the ATR goes, I don't see VA flying a 737 SYD-TMW 2-3x per day. And then this would mean taking 737's off the 'mainline' network and putting them into regional WA to replace the A320's and Fokkers.

How about a slight rephrase then.
One aircraft type for each part of the network. I see that as two types which would probably 737 and ATR.

 

[BNEFlyer]

Virgin’s haphazard expansion over the past decade means it is flying nine different types of aircraft.

They also have seven different types of aircraft, not nine. Six if you put the 737's together. Then they're in three groups: International/Domestic/VARA. Streamlining where possible would be an obvious benefit, but they're not haphazard at the moment. For comparision QF have 12 different types of aircraft.

 

[jakeseven7]

How about a slight rephrase then.
One aircraft type for each part of the network. I see that as two types which would probably 737 and ATR.

VA1 couldn't make the ATR's really work that well - but maybe the new owners could. I never really understood why VA1 couldn't - because if they could get them working properly it would also mean routes like Tassie where they have too much aircraft for some routes, LST for example, they could still serve with a turboprop service. QFLink slaughters them on the skinnier routes.

They also have seven different types of aircraft, not nine. Six if you put the 737's together. Then they're in three groups: International/Domestic/VARA. Streamlining where possible would be an obvious benefit, but they're not haphazard at the moment. For comparision QF have 12 different types of aircraft.

Doesn't really matter if QF have 34 , 12 or 3 types, they were able to make money from them. VA1 couldn't. That is the full stop at the end of their story unfortunately.

 

[straitman]

VA1 couldn't make the ATR's really work that well - but maybe the new owners could. I never really understood why VA1 couldn't - because if they could get them working properly it would also mean routes like Tassie where they have too much aircraft for some routes, LST for example, they could still serve with a turboprop service. QFLink slaughters them on the skinnier routes.

That's something that needs a detailed study. Is the ATR the problem or is it how they are operated.

Doesn't really matter if QF have 34 , 12 or 3 types, they were able to make money from them. VA1 couldn't. That is the full stop at the end of their story unfortunately.

Once again why?

Is it poor leasing arrangements or what.

The industry 'normally' always balance number of types versus routes. ie the minimum number of types is important but not to the exclusion of overall costs of the operation.

 

[RooFlyer]

Not a risk, a certainty.... that is why the administrators are being flogged and why people are suspecting they have completely misjudged the severity of the VA1 situation and may run out of money before their process they decided to run with results in a sale.

I'm not sure if the Administrators are being 'flogged' in many places other than forums like this one, are they? (but I have been light-on for serious - non internet - news lately).

And I have doubts that the Administrator himself/themselves has 'misjudged' the severity of the financial situation of the company - unless the models/cash flow projections of Virgin itself led the Administrator into the problem. Having the Administrator reconstruct the company cash flow from the ground-up would not have been possible, given the time line and then-daily changing virus-effect outlook. The continuing travel lock-downs by the states, being extended by months, which is even going against advice from the Medical Officers, is probably contributing to cash projection shortfalls.

I'm not saying the Administrator is blameless, but there is a way to go about these things, and if the Administrators 'cut corners' and the company went pear-shaped (anyway), then they would be in the poo, including the Administrator personally. Having been involved in data room and corporate sale-processes (but not an Administration), the Administrator seems to have done a heroic job in getting the data ready.