Virgin Australia Financially Secure? [Now in Voluntary Administration]

[jakeseven7]

For the financial boffins out there - there is alot of chatter about the VA bonds and how they are faring and how they might hurt VA. How does this actually work??

 

[jase05]

Only small on the scale of things but now that Essendon and GWS are playing an annual AFL game in LA it could be some good advertising for VA and a chance to do some package deals especially as they are the AFL’s airline partner and sponsor GWS. Would definitely consider going over one year

 

[Bagpuss]

Not sure if this has been posted here before, but I came across this today

Virgin Australia shares fall below 10 cents, experts fear collapse

Virgin Australia shares are worth less than 10 cents. Credit ratings agency Standard & Poor's has warned the airline's debt problems were likely to worsen in light of the coronavirus.

www.dailymail.co.uk

Unfortunately, most people should probably looking at their own employer far more than Virgin Australia.
The aviation industry is going to take a massive hit and all major airlines are going to get hit.
I wouldnt be surprised if we start to see consolidation similar to what happened in the USA on a global scale.

 

[Bagpuss]

For the financial boffins out there - there is alot of chatter about the VA bonds and how they are faring and how they might hurt VA. How does this actually work??

A bond is a bit like a loan with an interest rate (normally just pay the interest during theterm and the principal at the end of the term). Though normally bonds are secured.
Therefore, if Virgin Australia fails to make the relevant payments the bondholer can put the company into receivership to re-coup their money. (NOTE: Virgin Australia if they knew they were going to default would put themselves into Voluntery Administration and then the secured lenders would put the company into Receivership.)
If Virgin Australia can't make the payments, they would need to raise funds to make a payment.
Depending on the agreement within the bonds, they could be the possibilties to defer payments etc.
IIRC the next bonds reaching maturity I think is $400million and due next year.

 

[ja1]

Bonds are

For the financial boffins out there - there is alot of chatter about the VA bonds and how they are faring and how they might hurt VA. How does this actually work??

Bonds are basically packaged loans (that can be traded on the bond market). In VA's case their bonds (which they have used to basically borrow money) have had their value decrease as people either believe VA may not make the interest payment they said they would (e.g. 8%), believe the interest they should be paying is even higher or believe they won't pay back the capital when it is due either.

Note this doesn't mean that VA does or doesn't do any of these things - it's simply a market mechanism for people to make forward predictions.. which may be right or wrong.

At the moment the market has reduced the value of the bond from their 'issue price' - the opportunity being that if you paid (example number) $90 for a $100 bond, you make a $10 profit when VA pays when the bond is due (plus any interest along the way). If they go under before they pay the bond back then you are ranked in front of unsecured creditors but behind secured creditors in any liquidation process.

Bondholders also have options where the debt could convert into equity and various other scenarios.

VA's bonds are due to be repaid in 2023 with interest payments in 2020, 2021 and so on.. (at least the ones issued in 2018 are..)

 

[jakeseven7]

Thank you @Bagpuss and @ja1 !

So people could take a punt on the negative sentiment towards VA and buy the bond as its below its issue price to make a $ profit when they buy it back and the interest VA also have to pay?

 

[wannabeinvestmentbanker]

Virgin bonds continue to struggle. The yield on short term bonds maturing in 2024 has gone from 8% to 12% in a matter of days and falling deeper into the high yield category (as opposed to investment grade). The velocity, pardon the pun, of this rise in yield looks pretty concerning when you chart it and coupled with a 14% decline in the share price today. As the AFR has mentioned, investors have been left with losses on the equity and debt side which will make it tough to raise any more funds down the track with the credit ratings agencies getting a little concerned with debt levels post the Velocity buyback.

 

[moa999]

Not a surprise on the bonds (debt) - they rank just above equity. As the equity goes towards zero risk increases on the debt

 

[jakeseven7]

Virgin bonds continue to struggle. The yield on short term bonds maturing in 2024 has gone from 8% to 12% in a matter of days and falling deeper into the high yield category (as opposed to investment grade). The velocity, pardon the pun, of this rise in yield looks pretty concerning when you chart it and coupled with a 14% decline in the share price today. As the AFR has mentioned, investors have been left with losses on the equity and debt side which will make it tough to raise any more funds down the track with the credit ratings agencies getting a little concerned with debt levels post the Velocity buyback.

Aren't they just paper losses and only become real if people need to sell out?

 

[wannabeinvestmentbanker]

People are selling though if the price is moving from a face value of 100 at issue down to 86 (hence driving yield up) in four days. Volumes tough to get on bonds, but from the reporting agencies like TRACE there is definitely elevated volume going through on these bonds.

 

[Bagpuss]

Thank you @Bagpuss and @ja1 !

So people could take a punt on the negative sentiment towards VA and buy the bond as its below its issue price to make a $ profit when they buy it back and the interest VA also have to pay?

Correct.

In my view, whatever you invest in shares, bonds etc. Whatever you are willing to put in, you must be willing to loose.
Unless you are buying anything which are secured.

 

[HS-TQE]

Discussions ongoing between VAH and creditors of the group (see footnote below the Qantas focused article). This article was just released today.

Makes me wonder if there's something rumbling (e.g administrators).

Qantas cancels more international flights - Australian Associated Press

Qantas has cut flights destinations including Tokyo, Sapporo, Osaka, Hong Kong and Auckland on top of its grounding the equivalent of 18 planes.

www.aap.com.au

 

[Must...Fly!]

I don't think it's administration territory, there is far too much cash around for that to be a realistic possibility yet. Seems like there just going through reassurance to put some stability in to the market.

Similarly to Flybe though, the problem will come if more funds are needed. Everyone is conserving their own positions at the moment and rightly so.

 

[clipped_wings]

Ooooh, I know I'm going to get lynched for this. But I have just read back though all 8 pages and don't recognize many names from the Virgin discussion group. Now, I first concede that everyone on AFF has a right to comment here.....but I'm interested to know how many of you actually fly Virgin Australia as a default?

Reason I ask, is that I have been flying VA exclusively since it's inception. I'm really proud to say that. They haven't always been the cheapest option. But we decided in 2008 that they were our brand of choice when we traveled and we have never deviated from them, except when flying domestically in USA, when we'd switch to Delta.

This topic is hugely distressing for me, especially when I calculate the days I have enjoyed their airborne hospitality. I would be absolutely gutted to hear that they go the way of the dodo due to the current health and associated challenges that humanity is facing right now. I would be gutted to hear that PS and his team still haven't managed to grasp and implement a solid vision and MO for Virgin Australia.

I would be even more gutted to know the people with the most accountability to keeping it afloat, were making all the wrong decisions.

I refer to passengers. If people fill planes, the airline stays in the air. Australia is big enough to support 2 major airlines, even in troubled times. But we are certainly not equipped to handle more. So every time we search for the cheapest fare to wherever and we book someone other than Qantas or Virgin, remember this day. And don't get me started on BFOTD. It must be one of those horrible terms in corporate air travel that deserves to languish in the Frequent Flyer's vocabulary for good reason.

I also acknowledge that there are other forces at work. But it may not be a case of Virgin Australia having to save itself from bankruptcy due to the COVID-19 pandemic and associated fallout. Rather a sad tale of another airline that bit the dust because they just didn't have qualified people selling OR steering the ship.

 

[amaroo]

Debt = $5.4B

COH = ~ $1B

Market cap = ~ $750M

The value of ASX-listed debt notes has shrunk by a quarter in just over three months

Originally issued at $100 in late November and used to fund Virgin Australia's repurchase of the 35 per cent of frequent flyer program Velocity that it didn't own, the notes finished Friday's trading session at $75.

 

[pauly7]

Virgin has been forced to reassure investors of its ability to survive:


We can survive storm, Virgin Australia tells investors


Virgin Australia has moved to reassure investors it is in a position to survive the financial firestorm of the coronavirus, after a week that saw its earnings outlook downgraded to negative and its share price hit a low of just 8.7c.

Full article:

Redirecting

amp-theaustralian-com-au.cdn.ampproject.org

 

[eastwest101]

Ooooh, I know I'm going to get lynched for this. But I have just read back though all 8 pages and don't recognize many names from the Virgin discussion group. Now, I first concede that everyone on AFF has a right to comment here.....but I'm interested to know how many of you actually fly Virgin Australia as a default?

Reason I ask, is that I have been flying VA exclusively since it's inception. I'm really proud to say that. They haven't always been the cheapest option. But we decided in 2008 that they were our brand of choice when we traveled and we have never deviated from them, except when flying domestically in USA, when we'd switch to Delta.

This topic is hugely distressing for me, especially when I calculate the days I have enjoyed their airborne hospitality. I would be absolutely gutted to hear that they go the way of the dodo due to the current health and associated challenges that humanity is facing right now. I would be gutted to hear that PS and his team still haven't managed to grasp and implement a solid vision and MO for Virgin Australia.

I would be even more gutted to know the people with the most accountability to keeping it afloat, were making all the wrong decisions.

I refer to passengers. If people fill planes, the airline stays in the air. Australia is big enough to support 2 major airlines, even in troubled times. But we are certainly not equipped to handle more. So every time we search for the cheapest fare to wherever and we book someone other than Qantas or Virgin, remember this day. And don't get me started on BFOTD. It must be one of those horrible terms in corporate air travel that deserves to languish in the Frequent Flyer's vocabulary for good reason.

I also acknowledge that there are other forces at work. But it may not be a case of Virgin Australia having to save itself from bankruptcy due to the COVID-19 pandemic and associated fallout. Rather a sad tale of another airline that bit the dust because they just didn't have qualified people selling OR steering the ship.

I can only answer that for myself but my work pattern is about 65% VA, 30% QF and 5% Others and more in favour of VA for personal/discretionary flying so there are VA loyalists out there, maybe not too many on this forum but they would be out there.

I agree that Australia should be big enough to support at least 2 competently managed well-run full service carriers plus maybe 1 or 2 LCCs as well as some specialist/regional carriers, anything less that that starts to look like a monopoly, and that would be bad news for customers, the economy, tourism and the regional economy especially.

 

[pauly7]

Ooooh, I know I'm going to get lynched for this. But I have just read back though all 8 pages and don't recognize many names from the Virgin discussion group. Now, I first concede that everyone on AFF has a right to comment here.....but I'm interested to know how many of you actually fly Virgin Australia as a default?

Reason I ask, is that I have been flying VA exclusively since it's inception. I'm really proud to say that. They haven't always been the cheapest option. But we decided in 2008 that they were our brand of choice when we traveled and we have never deviated from them, except when flying domestically in USA, when we'd switch to Delta.

This topic is hugely distressing for me, especially when I calculate the days I have enjoyed their airborne hospitality. I would be absolutely gutted to hear that they go the way of the dodo due to the current health and associated challenges that humanity is facing right now. I would be gutted to hear that PS and his team still haven't managed to grasp and implement a solid vision and MO for Virgin Australia.

I would be even more gutted to know the people with the most accountability to keeping it afloat, were making all the wrong decisions.

I refer to passengers. If people fill planes, the airline stays in the air. Australia is big enough to support 2 major airlines, even in troubled times. But we are certainly not equipped to handle more. So every time we search for the cheapest fare to wherever and we book someone other than Qantas or Virgin, remember this day. And don't get me started on BFOTD. It must be one of those horrible terms in corporate air travel that deserves to languish in the Frequent Flyer's vocabulary for good reason.

I also acknowledge that there are other forces at work. But it may not be a case of Virgin Australia having to save itself from bankruptcy due to the COVID-19 pandemic and associated fallout. Rather a sad tale of another airline that bit the dust because they just didn't have qualified people selling OR steering the ship.

I don’t know why you thought you’d get lynched in this thread The boomers are slugging it out over scomo and trump and climate change and toilet paper in other threads - it’s civil and safe and so far fact driven here!

As most people know I’m a consultant and contract out - so I fall under various travel policies over time. Right now - 3! 1 of which QF has the whole business and 2 the dreaded BFOD policy. So I used to (until virus travel bans) fly VA And QF frequently.

I generally concur with you. VA has been poorly run pretty much from the get go but for passengers a generally solid offering to QF.

They copped a very ‘lucky’ break that established them - they were ready to be sold days before AN collapsed. Then Brett rode the wave in the DJ days - lets be honest he didn’t have to really fight hard or be lean mean machine to pick up those customers. I believe that sowed a bit of complacency and fat cats in the DJ/VA culture.

Then came the JB reign which from all angles pretty much has been an unmitigated commercial disaster (too long a list to repeat) with billions of dollars down the drain - which has left VA today in a very vulnerable position.

All my opinion above but fairly well supported by commercial commentators. So cut to today - I wouldn’t panic too much I honestly think VA will survive - battered, bruised (just like QF) but alive. Why? Because they are so heavily weighted to domestic and that will recover first before international. Ironically their failure at establishing a scaled and viable international business might actually help them!

PS seems like he can make some tough decisions to batten down the hatches, so expect more route cuts, more redundancies than planned, less domestic J service etc but maybe this is the ‘recession VA had to have’ to really sharpen up and get their priorities straight.

 

[jase05]

Ooooh, I know I'm going to get lynched for this. But I have just read back though all 8 pages and don't recognize many names from the Virgin discussion group. Now, I first concede that everyone on AFF has a right to comment here.....but I'm interested to know how many of you actually fly Virgin Australia as a default?

Reason I ask, is that I have been flying VA exclusively since it's inception. I'm really proud to say that. They haven't always been the cheapest option. But we decided in 2008 that they were our brand of choice when we traveled and we have never deviated from them, except when flying domestically in USA, when we'd switch to Delta.

This topic is hugely distressing for me, especially when I calculate the days I have enjoyed their airborne hospitality. I would be absolutely gutted to hear that they go the way of the dodo due to the current health and associated challenges that humanity is facing right now. I would be gutted to hear that PS and his team still haven't managed to grasp and implement a solid vision and MO for Virgin Australia.

I would be even more gutted to know the people with the most accountability to keeping it afloat, were making all the wrong decisions.

I refer to passengers. If people fill planes, the airline stays in the air. Australia is big enough to support 2 major airlines, even in troubled times. But we are certainly not equipped to handle more. So every time we search for the cheapest fare to wherever and we book someone other than Qantas or Virgin, remember this day. And don't get me started on BFOTD. It must be one of those horrible terms in corporate air travel that deserves to languish in the Frequent Flyer's vocabulary for good reason.

I also acknowledge that there are other forces at work. But it may not be a case of Virgin Australia having to save itself from bankruptcy due to the COVID-19 pandemic and associated fallout. Rather a sad tale of another airline that bit the dust because they just didn't have qualified people selling OR steering the ship.

I would estimate I fly 90% VA and 10% QF domestically and on average take about 30-40 flights per year with VA for both work and pleasure and so I’m in the same boat as you. I much prefer their service over QF and would hate to see them disappear and I honestly believe they won’t. I don’t think VA’s position is anywhere near as dire as what many are predicting and as we see with many things the media is great at installing fear into people which is not great for the company. PS has only been in charge a short while but I have confidence he will turn around the airlines fortunes and see VA through these tough times to hopefully emerge a better airline on the other side. In the meantime I’ll keep doing my bit and continue flying them and hope that others do to

 

[exceladdict]

While I typically fly BFOD, for the routes I'm on it tends to be more about timing than carrier, but am personally preferencing VA these days purely because I'm so frustrated at QF and their call centre. Plus the small amount of intl I do tends to be SQ.

I'm fortunate that on my typical work route I can choose between VA and QF - both of which have had very high loads on the last few trips.

Debt = $5.4B

COH = ~ $1B

Market cap = ~ $750M

The value of ASX-listed debt notes has shrunk by a quarter in just over three months

Originally issued at $100 in late November and used to fund Virgin Australia's repurchase of the 35 per cent of frequent flyer program Velocity that it didn't own, the notes finished Friday's trading session at $75.

Forgive my laziness to not look it up, but what are the assets (if any)?

This might sound stupid but I'm even wondering if it's time to buy some shares...