News
Virgin Australia creditors unlikely to be fully reimbursed; shareholders to receive nothing
July 3rd 2020
Administrators for Virgin Australia (VA) have told creditors they should not expect to be repaid all they are owed by the airline group following the sale of the carrier to Bain Capital last week. Read More »
VA was placed in voluntary administration on April 21 with more than 10,000 creditors – staff, bondholders, aircraft leasing companies and other suppliers – owed about A$6.8 billion (US$4.7 billion).
Deloitte said in a regulatory filing to the Australian Securities Exchange (ASX) this week funds were insufficient for creditors to receive all they were owed.
"As at the date of this correspondence, we do not expect there will be sufficient recoveries to repay creditors in full," Deloitte's Richard Hughes said in a letter posted to ASX this week.
Creditors are due to meet in August to vote on the sale and implementation deed Bain signed with the administrator to buy VA. A majority of creditors, by value and by number, is required for the sale to be approved.
Local media reported Bain had pledged to meet about $450 million in employee entitlements and $600 million in travel credits customers had received after flights were cancelled from COVID-19. Bain also would put $600 million cash into the business immediately.
The fate of VA shareholders was made clear in Deloitte's letter. "We declare we have reasonable grounds to believe there is no likelihood shareholders of VAH will receive any distribution for their shares," Hughes said.
About 90% of VA is held by five shareholders – Etihad Airways (20.94%), HNA Tourism Group (19.82%), Nanshan (19.98%), Singapore Airlines (20.09%) and Sir Richard Branson's U.K.-based Virgin Group (10.42%).
Etihad told the Australian Financial Review newspaper Australia was an important market and the airline remained committed to its alliance with VA.
"We are pleased Bain Capital has been confirmed as the successful bidder, securing the future for Virgin Australia and its employees," an Etihad spokesperson said.
"As a long-term partner of Virgin Australia, we will continue to pursue opportunities to create value for our joint customers."
Virgin Group CEO, John Bayliss, told the Australian newspaper this week the company intended to "work directly with Bain and closely with the administrator and management to finalise the recovery plan and bring Virgin Australia out of administration in the strongest form possible”.
“We believe the investment envisaged by the administrators and Bain is a positive outcome for the company, its creditors and its employees,” Bayliss said.
In addition to its 10% shareholding, Virgin Group received a licensing fee from VA for the use of the Virgin name.
VA was expected to keep its headquarters in Brisbane after the Queensland government, through its Queensland Investment Corporation (QIC) arm, said it would invest up to A$200 million with the winning bidder.
“If the investment did not stack up, we would not have proceeded, but through QIC, we have landed a solid, commercially astute deal, that will benefit Queensland," the state's treasurer, Cameron Dick, said in a statement.
“As we unite and recover from COVID-19, this is a deal that will secure hundreds of jobs and livelihoods throughout Queensland."
Singapore Airlines (SIA) said in a trading update in May that at December 31, 2019, the carrying value of VA in its financial accounts was zero and it had “no exposure to further losses incurred” by the Australian airline group.
