When the coronavirus travel restrictions hit shutting down the airlines Virgin Australia was always in trouble. Unlike Qantas, Virgin Australia had an unhealthy balance sheet. Lots of debt made Virgin Australia vulnerable. The airline undertook its expansion and development by borrowing billions of low-cost monies that was available. The company also pursued growth over profits adding marginal routes that weighed down the good business it had servicing the capital city routes.
After the refusal of the federal government to provide a $1.4bn loan and shareholders including Richard Branson’s Virgin group, Singapore Airlines and Etihad Airways refusing to help Virgin Australia went into voluntary administration with accounting firm Deloitte getting the gig. They are now going through Virgin Australia’s books to identify potential asset sales to pay down debt, or an outright sale of the carrier to another party. Virgin Australia’s books have revealed the depth of the airline’s financial woes, with an enormous $6.8bn owed to more than 10,000 creditors.
In the end Virgin Australia simply run out of cash. The airline was bleeding about $5-7 million per day mostly on debt and lease payments. Virgin Australia customers with vast sums of money worth of forward airline bookings also wanted their money back. By the end Virgin Australia could not pay.
Virgin employees had delivered a passionate plea to Scott Morrison to save their company from collapse. It is now unclear what will happen to Virgin’s 10,000 staff. 8000 of those workers had already been stood down. While the Federal Government has always advocated for a market-based solution the Prime Minister has said that said he has no intention of allowing Qantas to be the only domestic flyer at the end of the coronavirus crisis.
Despite Virgin Australia’s financial difficulties Deloitte says there are more than 10 sophisticated parties interested. Among those believed to be in the running are private equity firm BGH Capital, US-based airline investor Indigo Partners, Wesfarmers, Macquarie and Twiggy Forrest’s West Australian investment group Minderoo. Binding offers are due in June and Deloitte are saying that they are confident of having a buyer locked down by July.
Analysts predict that Virgin Australia Mark II will be predominantly domestic, save for perhaps some flights to New Zealand and maybe Bali. The airline would have a vastly reduced fleet, staff of around 3000 and return to its roots as a low-cost carrier.
Source: Bailout of foreign interests ruled out by J Kelly The Australian April 21st, Heavyweights take their seats for Virgin rescue bid by B Carter The Australian April 21st , How debt left Virgin Australia vulnerable by R Gottliebsen The Australian Apri21st , Virgin creditors owed 6.8b by R Ironside The Australian April 24th.