Déjà Vu
Haemorrhaging cash, a CEO under pressure and those god damned 777 rear cargo doors......
The SMH
July 27 2009
Small cargo door restricts Virgin
Matt O'Sullivan
A SIMPLE rear cargo door could hinder Virgin Blue's ability to raise much-needed cash.
Australia's second-largest airline is believed to have attempted sale-and-leaseback deals for some of the new Boeing 777-300 passenger jets its long-haul carrier, V Australia, flies between Australia and the US.
But Virgin's decision when it ordered the aircraft from Boeing to opt for smaller rear cargo doors means the 777s cannot take freight in pallets.
Not only does this make them less appealing to aircraft leasing companies, it reduces the airline's ability to offset weak passenger loads on flights between Australia and Los Angeles by carrying large cargo.
It is estimated the sale and leaseback of a single 777 could raise more than $100 million for Virgin. Sales and leasebacks of aircraft are one of the few ways for airlines to single-handedly boost their cash reserves.
Boeing 777s and Airbus 320s are believed to be some of the few aircraft models that leasing companies have an appetite for at present amid a large surplus of planes caused by the global downturn in travel.
But industry insiders also say that V Australia's new 777s have been modified to such an extent - each aircraft has inbuilt features such as two bars and high-tech entertainment systems - that the airline cannot gain a fair value from a sale and leaseback. It is believed it would cost up to $10 million to restore each aircraft to a standard state to make it suitable to leasing companies.
"Those leasing companies just don't like non-standard aircraft," an industry official said.
It further limits Virgin's options for gaining working capital after a lukewarm response from institutional investors to a capital-raising.
Although V Australia did lease the first 777, it bought two more directly from Boeing this year. The aircraft have a list price of more than $US250 million ($300 million) each, but the airline paid considerably less.
V Australia is due to take delivery of a fourth 777 this month, which will allow it to begin flights between Melbourne and Los Angeles in September.
At least the first three 777s have smaller rear cargo doors than standard models. The doors cannot be enlarged later to allow the loading of pallets because they are a structural part of the aircraft.
V Australia and Hawaiian Airlines are among the few international carriers flying from Australia that have opted for smaller rear cargo doors on their longer-range wide-body aircraft.
Virgin has recently shown a desire to sell and lease back aircraft to bolster its balance sheet, having completed such a deal for three new Boeing 737-800s and an older plane in March with BOC Aviation of China.