Government Loan to Virgin Australia
Join Date: Jul 2010
Location: Asia
Posts: 1,124
Credit rating now downgraded to junk status.
https://www.fitchratings.com/researc...ues-17-04-2020
https://www.fitchratings.com/researc...ues-17-04-2020
Fitch Ratings - Sydney - 17 Apr 2020: Fitch Ratings has downgraded Virgin Australia Holdings Limited's (VAH) Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC-' from 'B-' due to the increasing uncertainty around whether the airline will be able to obtain additional financing to ensure it has sufficient liquidity while the coronavirus-related travel restrictions in Australia remain in place. The rating is removed from Rating Watch Negative (RWN), on which it was placed on 26 March 2020.The rating action follows the company's announcement that it is in discussions on restructuring alternatives. While Fitch believes that the company continues to work on financial assistance, we believe that travel curbs to contain the COVID-19 pandemic are increasingly straining its liquidity such that default is a real possibility.
VAH's working capital is increasingly being affected by cancellations, minimal bookings and outflows at its loyalty programme as members redeem points for non-flight benefits. The airline has now grounded most of its fleet to minimise cash outflows, but it is seeking options to shore up its liquidity. VAH's ability to secure this funding is important to maintain its viability.
Fitch believes the measures VAH took to ground its entire domestic fleet and run only the government-subsidised minimum domestic network will help the airline preserve cash flows. However, we believe the airline will run out of liquidity over the next six months without fresh third-party support. It remains uncertain when the travel restrictions will be lifted, and the time it will take for consumers to return to travel and VAH's operations to return to normal.
COVID-19-Related Impact: Liquidity stress has been amplified as all non-essential travel between cities in Australia is effectively prohibited. VAH has suspended international operations and all domestic flights, except for the government-subsidised minimum domestic network. We expect cash-flow generation to fall significantly in the financial year ending June 2020 (FY20), and continue into at least 1HFY21. As a result, we believe that VAH will require fresh third-party financial support to ensure its survival during the travel restrictions and the aftermath once they are lifted.
Liquidity Pressure & Restructuring: VAH says that it remains in discussions on financial assistance. Fitch believes debt restructuring is a possibility unless VAH is able to obtain additional funding or some form of financial assistance from the government or another party. Fitch expects VAH to experience significant working-capital outflows for the remainder of FY20 as customers seek refunds and bookings fall sharply, and there are outflows for aircraft rent, staff costs, frequent-flyer point redemptions and other charges.
In our view, without additional funding over the next few months, there is a high chance that the airline will not be able to survive the impact of the COVID-19 shut down. We believe the government's relief package announced in March 2020, which provides refunds of airport charges incurred since February 2020, provides little support past FY20 given the grounding of most of VAH's fleet. Further, the government's announcement that it will subsidise a minimum domestic network from April to June 2020 will also provide little liquidity relief for the airline above what it could save with the grounding of its fleet.
Coronavirus Assumptions: Fitch now forecasts VAH's domestic capacity to fall by 100% for the rest of FY20, before recovering gradually from August 2020. We believe the government subsidies for flights will be, on the whole, earnings neutral and have not incorporated their effect into our forecast. We assume VAH's revenue passenger kilometres (RPK) and available seat kilometres (ASK) to gradually recover to close to our previous estimates by FY22. We believe that the coronavirus-related curbs in Australia will continue to have a strong impact on travel throughout FY21, although domestic travel may slowly resume over the next couple of months.
VAH's earliest debt maturity is USD350 million in October 2021, however the company is unlikely to be in a position to meet its debt service requirements beyond September 2020 without additional funding.
Limited Levers, but Lasting Impact: VAH has options available that we have not specifically incorporated into our short-term liquidity forecasts, including handing back leased aircraft and selling or borrowing against owned aircraft. We believe these measures, which would have a lasting impact and affect VAH's ability to recover, would be VAH's last line of defence. In addition, we have not included any potential further relief from the government to the aviation sector in our forecasts.
VAH's working capital is increasingly being affected by cancellations, minimal bookings and outflows at its loyalty programme as members redeem points for non-flight benefits. The airline has now grounded most of its fleet to minimise cash outflows, but it is seeking options to shore up its liquidity. VAH's ability to secure this funding is important to maintain its viability.
Fitch believes the measures VAH took to ground its entire domestic fleet and run only the government-subsidised minimum domestic network will help the airline preserve cash flows. However, we believe the airline will run out of liquidity over the next six months without fresh third-party support. It remains uncertain when the travel restrictions will be lifted, and the time it will take for consumers to return to travel and VAH's operations to return to normal.
KEY RATING DRIVERS
COVID-19-Related Impact: Liquidity stress has been amplified as all non-essential travel between cities in Australia is effectively prohibited. VAH has suspended international operations and all domestic flights, except for the government-subsidised minimum domestic network. We expect cash-flow generation to fall significantly in the financial year ending June 2020 (FY20), and continue into at least 1HFY21. As a result, we believe that VAH will require fresh third-party financial support to ensure its survival during the travel restrictions and the aftermath once they are lifted.
Liquidity Pressure & Restructuring: VAH says that it remains in discussions on financial assistance. Fitch believes debt restructuring is a possibility unless VAH is able to obtain additional funding or some form of financial assistance from the government or another party. Fitch expects VAH to experience significant working-capital outflows for the remainder of FY20 as customers seek refunds and bookings fall sharply, and there are outflows for aircraft rent, staff costs, frequent-flyer point redemptions and other charges.
In our view, without additional funding over the next few months, there is a high chance that the airline will not be able to survive the impact of the COVID-19 shut down. We believe the government's relief package announced in March 2020, which provides refunds of airport charges incurred since February 2020, provides little support past FY20 given the grounding of most of VAH's fleet. Further, the government's announcement that it will subsidise a minimum domestic network from April to June 2020 will also provide little liquidity relief for the airline above what it could save with the grounding of its fleet.
Coronavirus Assumptions: Fitch now forecasts VAH's domestic capacity to fall by 100% for the rest of FY20, before recovering gradually from August 2020. We believe the government subsidies for flights will be, on the whole, earnings neutral and have not incorporated their effect into our forecast. We assume VAH's revenue passenger kilometres (RPK) and available seat kilometres (ASK) to gradually recover to close to our previous estimates by FY22. We believe that the coronavirus-related curbs in Australia will continue to have a strong impact on travel throughout FY21, although domestic travel may slowly resume over the next couple of months.
VAH's earliest debt maturity is USD350 million in October 2021, however the company is unlikely to be in a position to meet its debt service requirements beyond September 2020 without additional funding.
Limited Levers, but Lasting Impact: VAH has options available that we have not specifically incorporated into our short-term liquidity forecasts, including handing back leased aircraft and selling or borrowing against owned aircraft. We believe these measures, which would have a lasting impact and affect VAH's ability to recover, would be VAH's last line of defence. In addition, we have not included any potential further relief from the government to the aviation sector in our forecasts.
Join Date: Apr 2011
Location: 1alpha
Posts: 62
Originally Posted by Paragraph377
Aggs is yet another long term 20 year veteran of the airline who should’ve left many many years ago. After 20 years Stewie look at what you have contributed towards - an airline gone bust. You too deserve a reserved seat onboard VH-SACKED along with your incompetent Board and numerous others who have managed to glue themselves to the VA fabric and remain in a teflon condition for far too many years. You and the Board Chair should’ve gone the day IL Douche bailed from the sinking ship.
So true and accurate but you missed one key point mate . The dozen or so other oxygen thief specialists at the top as well
Join Date: Jan 2006
Location: Australia
Posts: 310
Originally Posted by krismiler
Credit rating now downgraded to junk status.
Join Date: Mar 2005
Location: A house
Posts: 637
Originally Posted by Paragraph377
You must be one of the Village ‘specialists’.
And yes of course, PPPrune is only for those who aren’t retired and are still in the industry working. Of course! And because one retires that means they no longer know anything, they don’t have any vested interests in the industry anymore in any way, shape or form. A retired aviator no longer is allowed an opinion of free speech if it differs from Chadzat..
And yes of course, PPPrune is only for those who aren’t retired and are still in the industry working. Of course! And because one retires that means they no longer know anything, they don’t have any vested interests in the industry anymore in any way, shape or form. A retired aviator no longer is allowed an opinion of free speech if it differs from Chadzat..
When I retire I certainly wont be touching anything to do with aviation apart from a back seat going on holidays - but each to their own. I guess some people know nothing else but to spend their days on PPRuNe.
Join Date: Oct 2013
Location: New Zealand
Age: 68
Posts: 175
Originally Posted by Chadzat
When I retire I certainly wont be touching anything to do with aviation apart from a back seat going on holidays - but each to their own.
Join Date: Jul 2008
Location: Sydney
Age: 68
Posts: 59
We Are All In This Together
It would be sad to see either Virgin or Qantas fail. But there may be a way out of this. Whilst Qantas and Virgin are not flying the suppliers of aviation fuel are also suffering. I am showing my age here but there was a period in the late 1950;s and 1960's where we had 'The two airline policy for domestic operations. QF withdrew from domestic services including PNG and Ansett and TAA took over domestic services with identical fleet types and government support. There was a period in the 1960's when Shell,who provided the bulk of aviatiion fuel, helped Reg Ansett with funds to keep the airline afloat. TAA and Ansett even had a spare parts pool (engines, etc.) Even though Ansett and TAA were in competition we respected each other and often socialised together outside work hours. If there was an aircraft breakdown passengers were transferred with ease to the other carrier to ensure they reached their destination. Why not get an Australian based aviation fuel provider interested in giving Virgin the same support that Reg Ansett was given many years ago as this may save the jobs of many dedicated staff at Virgin and the government legislate that the two airlines work together to ensure the viability of both airlines.
Join Date: Jul 2008
Location: Sydney
Age: 68
Posts: 59
We Are All In This Together
It would be sad to see either Virgin or Qantas fail. But there may be a way out of this. Whilst Qantas and Virgin are not flying the suppliers of aviation fuel are also suffering. I am showing my age here but there was a period in the late 1950;s and 1960's where we had 'The two airline policy for domestic operations. QF withdrew from domestic services including PNG and Ansett and TAA took over domestic services with identical fleet types and government support. There was a period in the 1960's when Shell,who provided the bulk of aviatiion fuel, helped Reg Ansett with funds to keep the airline afloat. TAA and Ansett even had a spare parts pool (engines, etc.) Even though Ansett and TAA were in competition we respected each other and often socialised together outside work hours. If there was an aircraft breakdown passengers were transferred with ease to the other carrier to ensure they reached their destination. Why not get an Australian based aviation fuel provider interested in giving Virgin the same support that Reg Ansett was given many years ago as this may save the jobs of many dedicated staff at Virgin and the government legislate that the two airlines work together to ensure the viability of both airlines.
Join Date: Aug 2004
Location: moon
Posts: 0
BOAC;
1. The spare parts pool was a good idea that didn’t last because TAA and Ansett had different policies on optional modifications. TAA did SFA while Ansett did the lot because of tax considerations. I think the final straw was when TAA took Ansetts fully modded B727 flap set at a D check and returned an un modified set to the pool.
2. TAA and Ansett management socialized every day during lunchtime at Macs. That was where policy, services and fares was decided. For example, it was virtually impossible for staff to move from one airline to the other because the two HR departments had a “no poaching”, “no reemployment” agreement. I occasionally ended up at Macs at lunchtime and I saw it. Various departments had other local watering holes as well.It was no accident that Peter Abeles first action was to ban drinking during working hours.
3. Lorna was a lovely Lady and very kind to me.
1. The spare parts pool was a good idea that didn’t last because TAA and Ansett had different policies on optional modifications. TAA did SFA while Ansett did the lot because of tax considerations. I think the final straw was when TAA took Ansetts fully modded B727 flap set at a D check and returned an un modified set to the pool.
2. TAA and Ansett management socialized every day during lunchtime at Macs. That was where policy, services and fares was decided. For example, it was virtually impossible for staff to move from one airline to the other because the two HR departments had a “no poaching”, “no reemployment” agreement. I occasionally ended up at Macs at lunchtime and I saw it. Various departments had other local watering holes as well.It was no accident that Peter Abeles first action was to ban drinking during working hours.
3. Lorna was a lovely Lady and very kind to me.
Thread Starter
Join Date: Nov 2008
Location: australia
Posts: 75
Latest is that Scurrah is talking to a group comprising China Southern, China Eastern and Air China to do the rescue deal. So three Chinese companies as distinct from now with an Arab, a Singaporean, two Chinese and a Pom. Seems likes its Hobsons Choice as D Day approaches.
Join Date: Feb 2001
Posts: 229
Originally Posted by chance
Latest is that Scurrah is talking to a group comprising China Southern, China Eastern and Air China to do the rescue deal. So three Chinese companies as distinct from now with an Arab, a Singaporean, two Chinese and a Pom. Seems likes its Hobsons Choice as D Day approaches.
Join Date: Feb 2011
Location: dubai
Posts: 68
Really ????
What planet are you on - It's fundamentally different with proposed new Chinese (government) investment.
For a start, China Eastern is over 60% government owned.
The parent company of China Southern Airlines Company Limited is China Southern Air Holding Company, a state-owned enterprise (Wikipedia)
What planet are you on - It's fundamentally different with proposed new Chinese (government) investment.
For a start, China Eastern is over 60% government owned.
The parent company of China Southern Airlines Company Limited is China Southern Air Holding Company, a state-owned enterprise (Wikipedia)
Join Date: Dec 2019
Location: Around Here
Posts: 13
There is no way the Australian government should allow a majority Chinese government owned company to invest here in the future.
But this may have all been overtaken by the news that the QLD government is willing to conditionally support VA with $ 200 million.
But this may have all been overtaken by the news that the QLD government is willing to conditionally support VA with $ 200 million.
Join Date: Jun 2011
Location: The World
Posts: 1,206
Originally Posted by Rashid Bacon
If this is true, yet another example of Chinese take-over by stealth. Time to stop this right now 
Scurrah must be dreaming and clutching at straws, but hopefully, the FIRB will knock this one on the head.
Scurrah must be dreaming and clutching at straws, but hopefully, the FIRB will knock this one on the head.
For the sake of 10,000 jobs is any going to knock this deal on the head because of an ideological hate of China whipped up by the media? Any offer of help will be appreciated.
Join Date: Jan 2006
Location: Australia
Posts: 310
Where were the complaints when SIA was a possible new owner? Singapore OK? China Not Ok? Got it. Notwithstanding my own personal desire and bias to have a Australian owner, I think your logic is flawed. Your concerns are valid but you can’t cherry pick overseas governments without sounding like a .....
Saving Virgin was yelled loud and clear, ‘it’s in the national interest’ to ‘keep the air fair.’ It appears blocking China is a greater national interest to some.
Saving Virgin was yelled loud and clear, ‘it’s in the national interest’ to ‘keep the air fair.’ It appears blocking China is a greater national interest to some.
Join Date: Jul 2002
Location: Brisbane
Age: 49
Posts: 230
The government have had zero problem in the past allowing China to invest heavily here. They won’t change their tune now, in fact they will be breathing a massive sigh of relief at the prospect.
As perception is everything, it may be a point of difference with the public initially. But when the first $99 fares are published it will be quickly forgotten.
As perception is everything, it may be a point of difference with the public initially. But when the first $99 fares are published it will be quickly forgotten.
Join Date: Nov 2005
Location: UK
Posts: 134
There is a world of difference between 'Singapore Inc' and the Chinese government - what don't you understand about that ????
So, in this case, it is important to differentiate between the two. One is greatly more insidious with fairly nasty political agendas than the other - I'll leave you to work out which one that is.
So, in this case, it is important to differentiate between the two. One is greatly more insidious with fairly nasty political agendas than the other - I'll leave you to work out which one that is.
Whispering "T" Jet
Join Date: Jun 2001
Location: Melbourne.
Age: 64
Posts: 639
Originally Posted by dr dre
The federal government is going to be hundreds of billions in debt from these relief measures they are implementing. Plus the money to be spent to restart the economy later. They don’t have the ability or desire to bailout virgin, nor do any of its current owners, not does it seems many private investors.
For the sake of 10,000 jobs is any going to knock this deal on the head because of an ideological hate of China whipped up by the media? Any offer of help will be appreciated.
For the sake of 10,000 jobs is any going to knock this deal on the head because of an ideological hate of China whipped up by the media? Any offer of help will be appreciated.
We are all in for a rough ride ahead and we are ALL in it together.
