Virgin Australia ‘in administration’

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 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.

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.

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