‘More cash, please’, says Virgin Australia, as it apparently struggles to keep running

Virgin Australia is understood to have reached out to the federal government on Monday night for emergency funds to keep the airline in operation until the conclusion of the sales process, say sources.

It comes after administrator Deloitte shortlisted four parties on Monday to take through to the second round of a sales process, where final bids are due around June 12.

The hope is to reach a conclusion for a transaction by the end of next month.

However, some in the market believe that the timetable could be overly ambitious and say that with all the stakeholders that need to be consulted, including unions, governments and other creditors, they believe that a sale of Virgin Australia is unlikely to be concluded any time before at least September.

Virgin Australia collapsed last month owing its creditors $6.8bn and fears are mounting that it is running out of cash.

Some say that should Virgin Australia be unable to pay its bills to stay in the air, liquidation might be the only option.

However, it is thought that all parties involved would be resistant to see this outcome.

Qantas has earlier made known that it was expecting a cash burn of $40m a week by June.

Earlier this month, The Australian’s John Durie reported that Virgin administrator Vaughan Strawbridge was borrowing around $200m to help keep operations afloat pending a decision on the sale of the airline.

At that time, it was understood free cash stood at just $30m when Mr Strawbridge was called in.

Now, some say that Virgin Australia has about $100m left in cash, which would likely keep the airline in the air for about two months.

This is with lower fuel costs, leasing payments and the JobKeeper scheme, given that services had been heavily cut back.

One interesting point will be how long Foreign Investment Review Board approval could take following a sale or recapitalisation agreement by one of the suitors.

Typically, approval takes at least 42 days.In terms of a sale, some market experts believe that the amount paid by any suitor would be seen from the approach as to what creditors the buyer chooses to pay to keep certain services operating.

In particular, the aircraft leases.

What changes might come?

Certain routes may be abandoned, yet the Virgin Australia camp has earlier indicated that Deloitte would be eager to see as many jobs preserved as possible.

Government subsidies from states such as Queensland could be offered as an incentive to a buyer, provided that it continues to offer certain services.

In the shortlist to buy the business are BGH Capital, Cyrus Capital Partners, US-based Indigo Partners and Bain Capital.

The approach to government comes after Virgin Australia made a plea to the federal government to secure a loan worth up to $1.4bn to keep the business in operation amid the COVID-19 travel restrictions.

It was a plea which triggered much debate about a government bailout of a commercial carrier that had earlier posted losses.

However, it was later placed in voluntary administration.

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