Virgin Australia Financially Secure? [Now in Voluntary Administration]

[jase05]

Sure they can , and would.

Why would they save a 35% foreign owned company
If they let VA go to the wall I hope they do QF no favours either after all why should tax payers bail out a foreign company?

 

[Must...Fly!]

Why would they save a 35% foreign owned company
If they let VA go to the wall I hope they do QF no favours either after all why should tax payers bail out a foreign company?

Good question and a great point.

I'll save the time of others; It would be in the "national interest."

If there were no room for a second airline in Australia and VA was a frivelous endeavour from billionaires to make a personal point...let them go to the wall. They are so far from that it feels stupid even writing it.

The shareholders are about to lose it all anyway it seems, so what does it matter who owns what right now?

 

[hydrabyss]

Why would they save a 35% foreign owned company
If they let VA go to the wall I hope they do QF no favours either after all why should tax payers bail out a foreign company?

Two words

Chairmans Lounge

 

[Must...Fly!]

Two words

Chairmans Lounge

The Club

 

[bulldog88]

To be fair small businesses don't have huge debts or huge Capex requirements either so maybe the response should be scaled.

At the end of the day it's impossible to argue that competition in the aviation sector will be bad for economic development and for both big and small business alike. The taxpayer funded travel bill would be reduced relative a QF monopoly as well...

This isn't another Global Financial Crisis. VA can raise money in equity and debt markets - they just need to make it attractive for investors.

Small business doesn't have the same ability to raise money.

Taxpayers are already covering wages through the JobKeeper program, I assume this continues if VA goes into administration and is restructured.

 

[TheInsider]

Taxpayers are already covering wages through the JobKeeper program, I assume this continues if VA goes into administration and is restructured.

How? Redundancy payments would need to be paid to employees.

Also think you're expecting too much if you think VA is an attractive investment. Far from it, it's current investors don't even want anything to do with it!

 

[Must...Fly!]

How? Redundancy payments would need to be paid to employees.

Also think you're expecting too much if you think VA is an attractive investment. Far from it, it's current investors don't even want anything to do with it!

The current investors have significant problems of their own, it is unfair to paint VA as problematic in that context.

@bulldog88 - That's what they are trying to do...

I feel for small businesses, there are several in my family doing it very tough right now. But to take a broad view, the very definition of a small business is that it is small and it does not impact the wider economy by collapsing. It is irrefutable to say that Virgin Australia's demise would result in a significant impact to many industries, impacting small businesses both directly (through tourism for example) and indirectly (through the much higher expense of work-related travel).

 

[Sprucegoose]

I completely agree and have approx 2million points booked for travel this year. It‘s Just that I’m creating points faster than I can burn them! I’m trying to weigh the risk of losing points in a collapse vs giving points an expiry date by transferring to Krisflyer.

well I guess that all depends on how long you will live for !!

 

[hydrabyss]

The current investors have significant problems of their own, it is unfair to paint VA as problematic in that context.

@bulldog88 - That's what they are trying to do...

I feel for small businesses, there are several in my family doing it very tough right now. But to take a broad view, the very definition of a small business is that it is small and it does not impact the wider economy by collapsing. It is irrefutable to say that Virgin Australia's demise would result in a significant impact to many industries, impacting small businesses both directly (through tourism for example) and indirectly (through the much higher expense of work-related travel).

My guess if Virgin collapsed would be a few million people effected in one way or another.

 

[mickfrombris]

There are three scenarios to consider:

- Do you have 'enough' points that doing anything makes some kind of financial sense. Lets put an arbitrary value on this of 100K points and lets say it took $10K of flying to earn the 100K points (when in reality you could have got 100K points with one CC signup and $5K of spend)

This makes it clear that someone with 1M points has a lot more to 'lose' in value and most of those have probably already transferred or redeemed points weeks ago as they had $100K worth of flying tied up.

If VA doesn't come back they've crystallised a loss in value but preserved the 'capital' of their points. Whether they get to use any (e.g. in KF) is another story both in terms of what flying resumes in 2021 and beyond and also in what value those points have.

- There are those for whom the value of the points was already written down to $0 on their 'personal' balance sheet - i.e where points were used for discretionary purposes and where they weren't available they were going to spend $$ anyway

There's no reason for this group to do anything. If VA doesn't come back in some form where points can be used they already operated on this basis and if VA does come back that works out OK for them.

- People with specific plans or point allocations for a purpose or targets etc.. These are all going to be out the window in the for seeable future which will drop them into one of the two categories above..


In summary, If you cared enough about the actual value of the points you would have done something by now and if you haven't it is really too late... and see below..

If it wasn't about the points but the benefits of status (and I'm in that category personally) then all you can do is wait to see what happens as what you want is for the airline to survive in a way that status makes sense and you can restart with points collection..

I have no doubt that points inflation (reduction in value rather) is going to be as much of a reality as actual inflation is a risk in an economic sense. In one way the lack of flying might actually increase the remaining value of points as there will be a bunch of expiry and/or inability to use points or where points have been redeemed, in effect leaving a smaller liability on the VFF balance sheet..

 

[mickfrombris]

Not really a case of not caring enough about my points (Just over 400K) but perhaps I have been taking the optimistic approach and hoping the airline survives. Unfortunately by the time I started considering transferring to KF that particular door closed on the same day. Top Tier status already so that wasn't really a concern. Just don't want to see another Ansett situation where points and status meant nothing in the end after they went bust. Either option (relinquishing points for retail goods vs holding onto points) is a gamble. At the end of the day perhaps a toss of the coin with a 50% spend and keep the remainder in the kitty just in case might be a better value proposition for me.

 

[dajop]

For the meantime they can just renew their basic interline agreement with QF and if SQ's wants to, they could also sort an interline with the "VA mk II" successor domestic LCC airline should VA enter administration and a domestic LCC re-emerges from what's left of VA.

Who knows, assume for a moment that VA goes away, that travel remains highly restricted, at least internationally, and demand remains suppressed (which is not at all unlikely). There could be a plausible scenario where QF and SQ cosy up to each other, SQ buys out Jetstar Asia (for a nominal sum) and folds it into Scoot. QF reduce flying to SE Asia, maintaining HKG, HND and PVG. One possibility, not likely, but in a vastly different aviation world, not impossible.

 

[jakeseven7]

The current investors have significant problems of their own, it is unfair to paint VA as problematic in that context.

@bulldog88
It is irrefutable to say that Virgin Australia's demise would result in a significant impact to many industries, impacting small businesses both directly (through tourism for example) and indirectly (through the much higher expense of work-related travel).

Your statement would be correct in the old world. My opinion is, that in the new world the rules and dynamics will change.

The new world, post corona restrictions slowly being lifted to allow some domestic travel to begin with for a long period, in a recession, with high unemployment and social distancing - demand will be savaged - this will be for a while as well.

The government know this obviously, they are modelling it.

There may well only be enough demand to keep QF group going and limp through until the economy and restrictions lift, vaccine found etc.

The economy may not actually support two players again, viably, for several years.

The government may well be of the opinion that chucking money at VA, an airline already with severe financial problems (with more coming if their parents fold) and poor management and a fleet that is not flexible (e.g. dominated by 737s and precious little smaller) might actually not be worth trying to prop up. Virgin want 1.5 billion. The ENITRE aged care sector wants 1 billion....


Also to consider for the government - the optics are terrible trying to save VA - high profily billionaire flamboyant owner who wont sink a cent more in, rich government controlled owners.... and the AU tax payer has to cough up? Ugh, imagine the media....

Tough decisions will need to be made and I do think the government will unfortunately let VA go if they have to.

 

[serfty]

Tough decisions will need to be made and I do think the government will unfortunately let VA go if they have to.

In the mean time they could be up for $585M for QF and $195M for VA in Jobkeeper payments.

 

[dajop]

Tough decisions will need to be made and I do think the government will unfortunately let VA go if they have to.

Yes, I agree. But also wonder if a holding pattern for a few months, until the picture becomes much clearer, is something they might support to defer the final decision. At one end of the spectrum (the no hope scenario), interstate quarantines remain in place, and only travel that opens up in a meaningful way is between Victoria and NSW. At the other end you could see semi-normalisation of domestic traffic with interstate quarantines and activity restrictions lifted (if you look at one place where their government propaganda suggests a degree of success in controlling the virus, for now, there's about 25 flight scheduled tomorrow between Shanghai and Guangzhou, as one example).

 

[BAM1748]

If VA goes, then they cannot later save QF.

They can as there are govt imposed restrictions on QF ownership. That gunpowder seems to be kept dry at this stage.

 

[TheInsider]

This is what a friend sent me who gets daily emails from qantas about industry news.

"Media are reporting Virgin Australia has warned the Federal Government it will enter voluntary administration if it’s not able to secure government funding within the next month. It’s reported Virgin CEO Paul Scurrah told federal ministers the airline had been given four weeks by its major shareholders and lenders to obtain support for its survival. The airline went into a trading halt yesterday as the government maintained its opposition to a bailout for individual companies."

Just trying to see what media source has said the '4 week thing'?

 

[RAM]

Your statement would be correct in the old world. My opinion is, that in the new world the rules and dynamics will change.

The new world, post corona restrictions slowly being lifted to allow some domestic travel to begin with for a long period, in a recession, with high unemployment and social distancing - demand will be savaged - this will be for a while as well.

The government know this obviously, they are modelling it.

There may well only be enough demand to keep QF group going and limp through until the economy and restrictions lift, vaccine found etc.

The economy may not actually support two players again, viably, for several years.

The government may well be of the opinion that chucking money at VA, an airline already with severe financial problems (with more coming if their parents fold) and poor management and a fleet that is not flexible (e.g. dominated by 737s and precious little smaller) might actually not be worth trying to prop up. Virgin want 1.5 billion. The ENITRE aged care sector wants 1 billion....


Also to consider for the government - the optics are terrible trying to save VA - high profily billionaire flamboyant owner who wont sink a cent more in, rich government controlled owners.... and the AU tax payer has to cough up? Ugh, imagine the media....

Tough decisions will need to be made and I do think the government will unfortunately let VA go if they have to.

A few thoughts:
1) NZ Govt model used for Air NZ (with Q as fierce competitor) turned out to be profitable for NZ Govt post-GFC. VA proposed slight variation - providing 70+% ownership if unable to repay.
2) Q repurchased just over 30% of its shares since 2014 = boosted its earning per share by 42% as a result ( say earnings $100, & 100 shares = $1 eps, earnings = $100 and now 70 shares = $1.42 eps. Q also boosted debt over the period and sold off Brisbane, Melbourne & Sydney terminals - revalued air fleet significantly (much more quietly than they wrote down the international fleet previously though).
3) Slow domestic revival and next to no international for 12-24 months sees VA viable and Q exhaust all funding & cash while having no hollow logs left (sold off property assets already & value of A380s on its books vs real world a difference of around $900m)
4) Q's fleet age & announcement of keeping A380s operational until 20 years old = much higher operating & maintenance cost for its international fleet.
5) Q's international fleet is around 11 times the size of VAs. VA has lower break-even on B777s than Q on A380s by around 15-20% due to B777s 'other cargo capacity' approx 4x that of Q A380s.
6) VA does not have Fed Govt's ear, Q does.

Will come down to the PR campaign, as usual it is not what you know/do but who you know unfortunately.

Very revealing, if you have time, to look through Q's fleet details in a spreadsheet.

 

[Must...Fly!]

This is what a friend sent me who gets daily emails from qantas about industry news.

"Media are reporting Virgin Australia has warned the Federal Government it will enter voluntary administration if it’s not able to secure government funding within the next month. It’s reported Virgin CEO Paul Scurrah told federal ministers the airline had been given four weeks by its major shareholders and lenders to obtain support for its survival. The airline went into a trading halt yesterday as the government maintained its opposition to a bailout for individual companies."

Just trying to see what media source has said the '4 week thing'?

AFR

Virgin threatens to call in the administrators as it fights to survive

The Morrison government is maintaining a hard line against support for the embattled airline despite its pleas for a bailout.

www.afr.com

 

[Cubiscus]

Also to consider for the government - the optics are terrible trying to save VA - high profily billionaire flamboyant owner who wont sink a cent more in, rich government controlled owners.... and the AU tax payer has to cough up? Ugh, imagine the media....

I don't think most people would bat an eyelid on the grounds of customer interest, the company being Australian based, as Holden was, and the impacts on tourism and the whole supply chain. Its not unreasonable for the country to provide support when essentially the government has stopped them doing business.

Also its not the tax payer coughing up, it'll be borrowed at next to zero rates then secured against equity.

Saw yesterday Labor were backing a security which adds more pressure. This should be a no brainer, as it has been with other airlines around the world.