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Virgin Australia ‘in administration’

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In what would be the biggest coronavirus-related airline failure so far, reports from Sydney say that Virgin Australia has been placed into administration with an announcement due on Tuesday morning.

The airline had been in bail-out talks with both regional and federal Government, with reports that the federal request was for A$1.4 billion (£700 million).

This is NOT necessarily the end of the line.

Virgin Australia 'in administration'

Virgin Australia had exceptionally high debt of A$4.8 billion (£2.4 billion).  The airline is very well regarded in Australia and, freed of its debt burden, should have a future.

There is substantial concern in Australia over what would happen to domestic air fares if Qantas had a virtual monopoly.  The Guardian reports that the head of the Australian Competition and Consumer Commission, Rod Sims, has insisted that Australia needs two airlines, and has launched an investigation into attacks on Virgin Australia by Qantas.

Virgin Australia 'in administration'

The key issue now is whether the Government or a private investor chooses to buy the airline out of administration, or whether the lenders agree to a ‘debt for equity’ swap which would give them the keys.

It isn’t clear what would happen to people waiting for refunds on cancelled tickets, but I would suspect that a credit card chargeback will be required.  I would also suspect that future bookings will not be honoured.

None of these routes would mean that the ‘Virgin’ branding would necessarily disappear.  The administration process should allow the existing contract to be voided but it presumably adds value to the business.  Virgin Group only held a 10% stake in the airline and there is no requirement for Virgin-branded businesses to include Virgin Group as a shareholder.

Deloitte is believed to be lined up to act as adminstrator, with the Virgin Australia CEO Paul Scurrah remaining in place.

Comments (50)

  • Ken says:

    Only last week the request was for a loan guarantee for Virgin Atlantic.
    Unsurprisingly it’s now cold hard taxpayer cash demanded in the form of a loan at “commercial rates”.

    Ramping up the pressure on HMG

    No sign of him (or Delta) dipping significantly into his own pockets

    • J says:

      As Delta have taken money off the US taxpayer I don’t think they can then be seen to propping up a foreign airline. Branson himself obviously does not have the liquid assets required to save it. Maybe the government should take his 51% and if Branson wants to keep some ownership he should do a deal with Delta.

      • marcw says:

        Virgin Atlantic business plan is completely outdated.

        • J says:

          How? What would you do differently? Assuming it’s not just that you dislike Richard Branson.

          • marcw says:

            when (almost) everyone was generating massive profits and your enterprise is just = 0 or negative, then you are doing something wrong. I´m not an aviation strategy manager, but it clearly shows that what they were doing was not right. As you can see now…

          • J says:

            But they were still operational and never at any risk of going bust. Do you think the same about Air France, KLM, Lufthansa, Finnair etc which are all now relying on state aid?

          • marcw says:

            J, as long as you can convince your shareholder/stakeholders, then you can carry on any loss making business (look at all the fintech). Virgin Atlantic has not made profits in the last 10 years (combined). IAG, AFKLM, Lufthansa, Finnair,… were very profitable business, so any help will be paid back. Do you think Virgin Altantic is able to pay back any loan it will get from the Gov?

          • J says:

            Virgin Atlantic have not made losses every year for 10 years. They were profitable until 2017 and pre Corona were probably on track to return to profit next year. Air France KLM were making huge losses before Corona – Air France like Alitalia anyway would have disappeared years ago without bail outs. VS only face the threat of bankruptcy because of a global pandemic – not because of their business strategy before this. I think it would therefore be pretty unfair and bad for confidence in the UK to let such a well known brand go under. It also obviously benefits consumers to have a choice of two British airlines. As a BA customer, Virgin going would be a bad thing. Higher prices, devaluing their product even further, devaluing Avios, scrapping the 2 for 1, etc – they’d be able to get away with it so why wouldn’t they? Of course as a frequent Virgin/BA Flyer my opinion is biased but to me most of the people who want to see Virgin go are mostly motivated by their dislike of Richard Branson, as it’s ok for basically every other major airline to take government money…

  • AJA says:

    Coronavirus: Sir Richard Branson warns his airlines will collapse without government cash
    https://news.sky.com/story/coronavirus-branson-warns-airlines-will-collapse-without-government-cash-11975836

    Apparently SRB is offering up Neckar Island as collateral….

    “Joan and I did not leave Britain for tax reasons but for our love of the beautiful British Virgin Islands and in particular Necker Island, which I bought when I was 29 years old, as an uninhabited island on the edges of the BVI (British Virgin Islands).

    “Over time, we built our family home here. The rest of the island is run as a business, which employs 175 people.

    “As with other Virgin assets, our team will raise as much money against the island as possible to save as many jobs as possible around the group.”

    • Anna says:

      I’m fairly certain he could still have paid the tax if he’d wanted to. But now would be better than never.

      • Callum says:

        Do you make a habit of calling to the government and offering to pay taxes you aren’t liable for too?

    • Charlieface says:

      Maybe he’s just offered the 1.2m points as collateral, not the whole island…
      🙂

  • Harry T says:

    Great airline, sad to see them in this situation.

    I already had to initiate a chargeback on Amex after they cancelled flights I had booked for my brother, but didn’t inform me or reroute me. They’ve given me travel credit today, which I didn’t ask for, and I suspect is now worthless.

  • Nick says:

    Norwegian now closer to the door as they declare bankruptcy on three subsidiaries used for hiring crews. Clever way to offload them really.
    Can’t post a link as Rob’s rules will block it, but Flight Global has the story for anyone who wants to google it.

    • marcw says:

      The easiest way to publish a link is if you remove the www, so it doesn’t show a link. So for example, headforpoints.com instead of www . headforpoints.com. Everyone can publish it easily, and everyone know it’s a website.

  • Sam says:

    I am surprised by the quality of some comments, Virgin haters at their finest.

    Comments such as ‘let them go bankrupt’ undermine the impact to the monopoly in the Australia airline market, impacts to the existing employees and social problems that we can’t yet anticipate with the fall of such a big business, not to mention the impact to the existing Velocity members as no one can value their loss of their miles.

    Addressing all accuses to an individual (who doesn’t even earn dividends at all) or even celebrating an aviation industry disaster reveals one’s ignorance and lack of awareness of how things work in the world of business.

    Also for those who commented ‘let them go bankrupt’ – FYI they do not go bankrupt. They go under administration. I can’t shocked they can call an administration a bankrupt, it is pathetic to watch these people keep embarrassing themselves and others with their ignorances just because of the hate over a person. It is the illiteracy in the language of business.

    • Ken says:

      It’s somewhat telling that many supporters of bailouts seem as quick to worry about the miles lost (or the risk of Avios devaluation) alongside the job losses.
      Regardless of how many points are lost, it’s trivial to losing your job.

  • Christian says:

    I was working in Oz when Ansett went bust after 9/11. Rod Sims is right – we’ve been here before. Qantas immediately went on an unparalleled price gouging spree. Virgin was only a year old and couldn’t compete while Qantas acted like a rampaging army. You couldn’t get a reasonable fare for love nor money. Australia definitely needs two airlines. The problems come on city pairs beyond the East coast. Sydney, Melbourne, Brisbane are the bankers. Small regionals in the middle of nowhere can lose you a lot of money fast.

  • Barbara Wakely says:

    I have a lot of Virgin Miles. Should I be converting them to another loyalty program or spending them on something? If so, I’d appreciate suggestions. Thank you Barbara

    • No lockdown for moi says:

      a lot of us converted out 50% or 100% to Hilton Honors a couple weeks ago

      downside is, you are guaranteeing a low conversion rate, 0.5p/ mile

      upside: a bit of safety

      50% of something vs 100% of nothing?

      and are HH points any use to you? or could they be?

      process takes a while, do it by SMS, details on Virgin Atlantic members’ site