Virgin Australia currently owes $6.8 billion – more than previously thought – to around 12,000 creditors, the administrators have revealed. More than 9,000 of those creditors are Virgin employees, which are owed a combined total of $451 million. It also turns out that the trust backing the value of Velocity Frequent Flyer points is owed $160 million by the airline.
It comes as many of those owed money by Virgin, including secured lenders, bondholders, employees and aircraft leasing companies, attended a video conference yesterday. At the meeting, a committee was appointed to represent the interests of creditors in negotiations with the administrators.
Virgin Australia has been in voluntary administration since 20 April 2020, but continues to operate scheduled flights. The company is not in liquidation.
Customers with travel credits or vouchers are not being treated as creditors by the administrators. The airline says that travel credits are still valid, and they can still be used to book new flights. But in the event of Virgin entering liquidation, tens of thousands of customers could potentially find themselves as additional unsecured creditors.
20 potential buyers interested in Virgin Australia
Twenty “sophisticated” parties have expressed interest in buying Virgin Australia, including WA mining magnate Andrew Forrest. Of those, 8 parties have already signed non-disclosure agreements and been issued with an Information Memorandum.
Voluntary administrator and Deloitte partner Vaughan Strawbridge indicated that he was confident Virgin Australia would emerge from administration in a stronger position.
“We are now moving quickly to finalise a business plan to help guide interested parties and, in terms of next steps, mid-May is currently the timeframe for the receipt of indicative offers. Binding offers will then be required in June. We remain confident that our target of achieving a sale by the end of June is achievable,” Strawbridge said.
“We remain strongly focused on restructuring and refinancing the business, creating a viable operation that will appeal to prospective new owners, and bringing Virgin out of external administration as soon as possible in an outcome that will retain jobs and the airline’s contribution to Australia and its economy.”
What Virgin will look like in the future – where it flies, and the business model it operates under – will very much depend on the new owners. There is some speculation that Virgin could retreat from chasing corporate market share and return to a low-cost carrier or hybrid model. It is also possible that Virgin could axe many or even all of its international flights, focusing instead of the domestic market.
The administrators have advised that they intend to extend the convening period due to the complexity of the voluntary administration, and to maximise the chances of a successful sale.
Airports block Virgin Australia aircraft over unpaid debts
Last week, Perth Airport used vehicles and airport equipment to physically block four Virgin Australia aircraft in a theatrical stunt that even Qantas lambasted.
“Perth Airport has taken liens over a number of Virgin aircraft – a standard practice in these situations,” a Perth Airport spokesperson said.
Adelaide Airport has also taken similar action. There is some discussion about this on the Australian Frequent Flyer forum: Legality [of Airports Blocking VA liveried Aircraft]
Meanwhile, Virgin Australia applied to a New York court on Wednesday to have its voluntary administration recognised in the United States as a chapter 15 bankruptcy. This would temporarily prevent creditors from seizing Virgin Australia assets over unpaid debts in the United States. Several Virgin Australia aircraft are currently in the U.S. for maintenance, and the airline is also operating some repatriation flights to Los Angeles.
Velocity Frequent Flyer trust loaned $150 million to Virgin Australia
Velocity Frequent Flyer is run as a separate business entity to Virgin Australia. Although the loyalty program is 100% owned by Virgin Australia after it bought back a 35% stake from Affinity Equity Partners last year, Velocity is not in administration.
Virgin Australia CEO Paul Scurrah has reassured Velocity members that “there is a trust in place that has cash backing for the points”.
This may be the case, but The Australian Financial Review revealed last weekend that Velocity Rewards provided a $150 million loan to Virgin Australia in 2014 which was never repaid. The secured loan, which was an “investment” and has been accruing interest at commercial rates since 2014, now leaves Velocity as a creditor of the airline.
Velocity is also seeking the return of $10 million that it pre-paid to Virgin Australia for reward seats that would later be redeemed by frequent flyers.
It is believed that the cash value of unredeemed Velocity points is around $500 million. Therefore, the $160 million owed to Velocity by Virgin Australia represents around a third of the value of “The Loyalty Trust”, as it’s called.
Join the discussion on the Australian Frequent Flyer forum: Virgin Australia Financially Secure? [Now in Voluntary Administration]