Virgin Australia Seeks $130M To Remain Operational

Just how cash-strapped Virgin Australia was when it collapsed is now becoming clear. There are reports the airline…

Virgin Australia Seeks $130M To Remain Operational

Just how cash-strapped Virgin Australia was when it collapsed is now becoming clear. There are reports the airline was down to avgas fumes in its last days, going into voluntary administration with under USD$20 million in spare cash. As a result, Virgin Australia’s administrators, Deloitte, are going to borrow approximately USD$129 million to keep the airline flying.

Virgin Australia’s administrators need to borrow money to keep the airline flying. Photo: Virgin Australia via Flickr.

Reports Virgin Australia close to exhausting spare capital

According to The Australian, the money will keep the current skeleton services flying while Virgin Australia is prepared for sale. The report tallies with earlier suggestions Virgin Australia had approached the Australian Government up to eight times in its final weeks, seeking ever-decreasing amounts to keep flying in the short-term. The last rejected request was said to be for around USD$130 million.

Subsequently, Virgin Australia entered voluntary administration in mid-April. Voluntary administration has similarities to the U.S. Chapter 11 restructuring process.

Justifies decisions not to tip money into the airline

If The Australian is correct in suggesting Virgin Australia was down to just USD$20 million, it means the airline had burnt through hundreds of millions in cash in just months. The airline wrapped up 2019 with declared cash reserves of some USD$707 million.

Armed with this previously undisclosed information, it’s no wonder Virgin Australia’s owners declined to tip more money into the airline in the lead up to voluntary administration.

Assuming the Australian Government was also aware of the cash burn, their decision not to tip taxpayer funds into Virgin Australia would also be applauded.

The high cash burn deterred investors from stepping in to prevent voluntary administration. Photo: Virgin Australia via Flickr.

Virgin Australia needs to be kept whole and operating to extract maximum value

There remains a significant focus on selling Virgin Australia as an ongoing and viable business. The view of both Virgin Australia and Deloitte is that this will extract maximum value for creditors.

The problem for both the airline and its administrator are the ongoing costs of keeping the airline intact. This comes despite the Australian Government presently underwriting some international flights and key domestic and regional services.

Bids due in ten days and consortiums start to form

Bids for Virgin Australia are due in mid-May. Right now, there is a wide field of possible bidders, some more likely than others. There is an expectation that the various bidders will coalesce into consortiums, effectively narrowing the field.

Two of the strongest bidders will be the consortiums centered around local private equity firm BGH Capital and investment bank powerhouse Macquarie.

BGH Capital has teamed up with the USD$100 billion superannuation fund, AustralianSuper. BGH Capital has close ties with Temasek Holdings, owner of Singapore Airlines. That airline holds a now largely worthless 20% stake in Virgin Australia. Also, with links to BGH Capital is the Victorian Government and trucking and logistics billionaire, Lindsay Fox.

A cash-strapped Richard Branson would like to maintain some kind of involvement in Virgin Australia. Photo: Virgin Australia via Flickr.

In the Macquarie camp is the multi-billion dollar conglomerate Wesfarmers and Brookfield Asset Management.

There are strong indicators U.S. low-cost airline operator Indigo Partners is interested in Virgin Australia. There are also indicators Indigo may join the Macquarie consortium.

Outliers and various equity groups yet to come together

That leaves a host of equity funds and interested bidders circling outside these two larger consortiums. These include Oaktree Capital and Etihad, Bain Capital, Apollo Asset Management. More unlikely prospects are The Virgin Group, the Queensland Government, and Western Australia mining magnate Andrew Forrest.

The administrator’s preferred outcome is to have about three consortiums bid for Virgin Australia.

The need for Deloitte to borrow further funds to keep Virgin Australia flying adds another layer of complexity to their bids. It also underlies how perilous and expensive operating an airline can be if you don’t get the fundamentals right. What difference this latest revelation makes on bidding is unknown, but it is going to raise some eyebrows.

Deloitte was approached for comment. They have not responded before publication.

Source : Simple Flying More   

What's Your Reaction?


Next Article

Qantas To Delay Project Sunrise And Review International Fleet

Australian carrier Qantas has made a raft of announcements this morning. In addition to canceling the majority of…

Qantas To Delay Project Sunrise And Review International Fleet

Australian carrier Qantas has made a raft of announcements this morning. In addition to canceling the majority of its international flights until the end of July, the airline has indefinitely deferred a decision on Project Sunrise and is initiating a review of its international fleet.

Qantas has made several announcements today. Photo: Getty Images.

International cancelations extended until the end of July

In a media statement this morning, Qantas said it was extending its current domestic and Trans-Tasman cancellations through to the end of June. Other international flight cancelations will be extended until 31 July.

“We don’t know how long domestic and international travel restrictions will last or what demand will look like as they’re gradually lifted.

“With the possible exception of New Zealand, international travel demand could take years to return to what it was,” said Qantas CEO Alan Joyce today.

Qantas is currently operating a slimmed-down domestic flight schedule and an international skeleton service to critical overseas hubs. The Australian Government is underwriting these services.

Project Sunrise put into hiatus

At the same time, Qantas has told Executive Traveller that the much-vaunted Project Sunrise flights have been put into hiatus.

The ultra long haul nonstop flights were to have connected Australia’s east coast cities to the furthest corners of the globe using modified A350-1000 aircraft. After an extended time crunching the numbers, an announcement was expected in March this year. But as the global travel environment deteriorated, that announcement got delayed.

Qantas has indefinitely delayed Project Sunrise and ordering the A350-1000s. Photo: Qantas News Room.

Now, despite acknowledging there was a business case for the flights, Mr Joyce has indefinitely delayed Project Sunrise.

“We do think there is a huge potential for Project Sunrise, but the time is not right now, given the impact that COVID-19 has had on world travel,” Mr Joyce told Executive Traveller.

The delay means the A350-1000 aircraft won’t be ordered for the time being. The multi-billion-dollar order would have represented a handy financial fill-up for Airbus.

The Qantas 747-400 fades into obscurity

At the same time, Qantas has also told local media that it is reviewing its entire international fleet. Qantas flies a mix of A380s, 747-400s, 787-9s, and A330s on its international routes. It also deploys some 737-800s on short-haul international routes.

In the spotlight are Qantas’ 12 A380s and five remaining 747-400s. The 747-400s were scheduled to be retired this year. When flights initially began to be canceled two months ago, there was speculation that the Qantas 747-400 era was over. But at the time, Qantas told Simple Flying that they expected to see the 747-400 back in the air later in the year.

Now, Mr Joyce isn’t so sure. Today he said;

“There’s still the possibility, if there was the demand for it, that the Boeing 747s could fly by the end of the year – but we are planning to retire them at the end of the year.

“There is a likelihood that they won’t come back.”

It looks increasingly like it is the end of the line for the Qantas Boeing 747-400. Photo: Getty Images.

Qantas A380 refurbishment program put onto hold

While that 747-400 news isn’t super surprising, the future of the A380s had seemed more assured. Qantas was investing millions of dollars updating the cabins, installing swish new seats, and readying them for years more of flying. Now midway through the refurbishment program, Qantas has suspended that program.

The bread and butter routes for the Qantas A380s are flying to the USA and the UK. But there is little chance of borders into those countries opening soon. Qantas doesn’t see an immediate future for 12 mega jumbos.

“We are keeping our options open. There is a potential to bring all 12 A380s back, but there is a potential to bring less than 12 back. That will depend on what the recovery scenario looks like.”

The future of the A380 at Qantas is now looking less assured. Photo: Qantas News Room.

If Qantas does decide to “right-size” their A380 fleet, they’ll be following a broader A380 retirement trend in the aviation industry that’s picked up pace this year.

A post-crisis Qantas will be different from a pre-crisis Qantas

Less uncertain is the future of the Qantas Dreamliners. Their spot in the future Qantas international fleet is guaranteed. But with the airline not expecting to get fully back into business anytime soon, the future for the older and more marginal aircraft is less certain.

As Alan Joyce notes, the post-crisis Qantas will be a different airline to the pre-crisis Qantas.

“We need to think about what the Qantas Group should look like on the other side of this crisis in order to succeed. Fleet, network and capital expenditure will all have to be reviewed, but our commitment to serving communities across Australia will not change.”

Source : Simple Flying More   

This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies.