News
Bids to close for Virgin Australia in eight weeks
April 24th 2020
Administrators for Virgin Australia [VA] aimed to have a deal signed with a new owner of the financially struggling carrier by the end of June. Read More »
The airline group was officially placed in voluntary administration on Tuesday, with Deloitte's Vaughan Strawbridge and his team charged with restructuring and recapitalising the company.
"We are committed to working with Virgin and the Houlihan Lokey team to ensure the success of this process, which is intended to continue the employment of the majority of the current 10,000 strong Virgin team, whilst obtaining the best outcome for all stakeholders," the administrators said in an initial circular to creditors.
"It is our preliminary view a sale or recapitalisation of Virgin will result in a better outcome for creditors than liquidation. It also would allow a significant amount of the workforce to be retained and for key suppliers to continue supplying Virgin."
The Australian Financial Review [AFR] newspaper reported Deloitte had sent a flyer to interested parties talking up the airline group's prospects as a unique opportunity to relaunch VA with a sustainable capital structure post COVID-19.
The flyer’s seven points argued Australia was an attractive two player domestic market with proven profitability and strong ongoing demand for air travel.
VA held strategically valuable assets, including slots at the airports of Australia's golden triangle between Brisbane, Melbourne and Sydney, it said. It is "one of the most profitable operating jurisdictions globally for air travel", Deloitte said.
The flyer said VA, which has lost money for the past seven financial years, had strong support from governments, regulators and unions.
Deloitte was planning to have more information sent to interested buyers by April 30, with binding offers due in mid-June and a signed deal in place by June 30, the AFR said.
Battered by border closures and stay-at-home restrictions, VA is operating a skeleton government-backed domestic network as is rival Qantas.
Canberra knocked back the requests for help VA group CEO, Paul Scurrah, told reporters this week. The airline had presented nine different proposals to the government. All of them were rejected, he said.
VA's five major shareholders, that collectively owned about 90% of the airline group – Etihad Airways, HNA Group, Nanshan, Singapore Airlines and Sir Richard Branson's U.K.-based Virgin Group – either were unable or unwilling to provide financial support. Their holdings will be wiped out should the airline be sold.
In a statement, Etihad Airways cited its own financial challenges as the reason for not putting more money into its Australian alliance partner but added it was "open for constructive discussions on a potential re-launch of the company".
Sir Richard too pledged to work with the administrators and current management to create a stronger business and vowed this would not be the end for the 20-year-old VA.
International Air Transport Association [IATA] chief economist, Brian Pearce, said it was "really unfortunate" VA had entered voluntary administration.
"This is what we have been expecting to see in many markets of the world," Pearce said during a conference call with reporters this week.
"Obviously this is incredibly disruptive and is one of the key reasons, one of the main reasons, why IATA and airlines are pushing for government support to sustain businesses for the future, for the recovery period."
Reports this week indicated private equity firms, both Australian and overseas, as well as foreign airlines, were among those interested in taking a closer look at VA.
The administrator's search for new owners had brought airports and state governments to the table, with Queensland saying it would "stop at nothing" to retain VA's headquarters in Brisbane and New South Wales and Victoria publicly campaigning for the airline to shift its home base to their states, respectively,
The first meeting of creditors was scheduled for Thursday, April 30 in a virtual meeting format.
