Virgin Australia shares suspended as the airline hovers on the brink of bankruptcy

By the time you read this on Wednesday the situation may be clearer, but at the time of writing on Tuesday Virgin Australia shares had been suspended on the Australian Stock Exchange.

The suspension was to allow financial restructuring talks to take place.  It is unlikely that the airline will collapse entirely.  It is seeking a A$1.4 billion Government loan which would convert into equity if not repaid. 

If this fails, the existing lenders are likely to agree a debt for equity swap which would see the airline survive but the existing shareholders wiped out.

One problem is that the shareholder group is not exactly in great shape itself.  You are looking at HNA, the struggling Chinese conglomerate, Etihad Airways, which has been perfectly happy to see its other overseas investments fail, Singapore Airlines, which has just received its own bailout and Nanshan Group, owner of China’s Qindao Airlines.  Virgin Group itself controls only 10% of the airline.

Virgin Australia is not out of cash – it is sitting on A$900 million – but this is only enough to last 3-6 months given the interest on its existing A$5 billion debt pile.

You can read the Sydney Morning Herald story here.

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