Government Loan to Virgin Australia

[Toruk Macto]

Victorian government lost to Queensland government when they originally setup . From memory Queensland offered 10 years of reduced or no state taxes . If it’s something similar to get the operation transferred to Melbourne then it’s not a bailout or federal money so QF should be happy .

[-41]

Originally Posted by flyingfrenchman

Very sad, starting to see the strain and stress of the situation coming through from some contributors here. Look after yourselves, influencing the Prune audience really doesn’t achieve anything. Clutching at straws re QF float and displaying desperation isn’t the way to go for your health and happiness.

same can can be said about the executive at VA spending cash on pointless advertising campaigns lashing out at QF.

[Transition Layer]

Virgin headquartered in Melbourne? Sunfish will be beside himself with excitement!

[Sunfish]

Definitely!

[Tommy Bahama]

https://mumbrella.com.au/campaign-re...le-idea-624886

More wasted money by the village idiots. At least a move to Melbourne might change the permanent holiday mode the place seems to operate in. Even with another 1.4B the world is going to be economically decimated for years so no matter how you rearrange the deck chairs eventually you will have to pay the piper.

[Pedalz]

Unfortunately I feel the argument to support 'foreign owned' is moot with the amount of industries soon to be hat in hand to the Government behind VA and the %GDP costs of Job Keeper etc. There will be fewer and fewer levers for the government to pull.

Save the bickering and look after your mates... best of luck to everyone at VA and fingers crossed for some positive news

[Denning]

Ex Virgin crew and Qantas

If the worst does happen and Virgin go under, from Qantas perspective they have a steady source of qualified pilots looking for work in the future if they need them. Added to the fact that likely Qantas’ future crewing needs will also reduce to some degree, does this signal the end of the cadet school plan (e.g Toowoomba)

Would Qantas want to spend the money on setting up and running the schools bearing in mind the future state of the industry?

denning

[crosscutter]

JONATHAN
ROCHFORD

Narrow Road Capital
FOLLOWVirgin Australia has been poorly managed and poorly capitalised for years. Whilst the Coronavirus lock-down is the most recent cause of its woes it is merely the latest in a long list of excuses. Qantas had its turn with the begging bowl in early 2014, I wrote then that the Australian Government should deny it a bailout as it wasn’t necessary. A bailout would have gotten in the way of Qantas fixing its problems, which it ultimately did without government help. The situation is somewhat different for Virgin, it is most likely to go into administration without a bailout. However, insolvency is the best pathway for Virgin as it is the best opportunity to fix the longstanding problems.

The Problems with Virgin

Virgin’s structural problems are the result of years of mismanagement. It is trapped between being much more expensive than Jetstar and with a lesser offering than Qantas, although routinely being almost as expensive as Qantas. As a result, Virgin has consistently struggled to attract the high paying customers and load factors that would take it from being a loss maker to a strong competitor.

Virgin’s ongoing financial problems are no secret. After an IPO at $2.25 in 2003, its shares have rarely traded above $0.50 in the last decade. The company has pursued growth over profits adding marginal routes that weighed down the good business it had servicing the capital city routes. This failed strategy has left the airline overloaded with aircraft. The sale and subsequent repurchase of part of the frequent flyer business has left it loaded with debt, with most of the fleet and the frequent flyer business locked up by secured creditors.

The Alternatives to Insolvency

Virgin is now pursuing a dual pathway to attempt to remain solvent, searching for fresh equity whilst at the same time negotiating with lenders for a debt restructuring. Whilst either of these, or both in combination would give the business more time, both are likely to be fruitless endeavours. Virgin needs to go through a deep restructuring of its entire business including;

· Handing back/selling off aircraft it will not need in the medium term

· Making redundant staff it cannot put to work in the medium term

· Negotiating with suppliers for cheaper goods and services

· Reducing office space and corporate overheads

All of this needs to be done at the same time as the business is burning through cash, estimated to be at a rate of $5-7 million per day. Without most of the fleet being back in the air and carry near capacity loads, a situation extremely unlikely in 2020, Virgin will simply run out of cash. Even if all the unsecured debt was converted to equity it would make little difference to the cost base. The only feasible option to right size the business is voluntary administration.

The Earlier the Better for Insolvency

Given Virgin has limited cash left and is rapidly burning through it, an insolvency in a matter of weeks offers the best prospects of preserving a broad business. The less cash that is left when insolvency begins, the more likely it is that Virgin will follow in the footsteps of Ansett and be sold off for scrap. With a decent starting cash balance and in the current economic environment administrators would have a strong hand to:

· Cut a new deal on the greatly reduced number of aircraft that will be needed; aircraft lenders and lessors will be reluctant to take back aircraft given the current glut and economic outlook

· Reduce staff numbers and cut staff costs back to levels in line with a low cost carrier; remaining staff will be glad to still have a job

· Negotiate with airports for reduced charges; the alternative for airports is being left with a dominant customer that is already throwing its weight around

· Slash debt levels and reduce the balance of unsecured creditors

· Hand back office space and eliminate unnecessary corporate overheads



A leaner Virgin, with a lower cost base and greatly reduced liability position, has good prospects of attracting new owners and winning back customers. Only an insolvency can deliver this outcome. The alternatives of fresh equity, a debt for equity swap or a government bailout, if put in place without insolvency, would all delay and obstruct the necessary restructuring and increase the risk that Virgin ultimately ends up like Ansett.

[MelbourneFlyer]

I don't think Virgin Australia is serious about a move to Melbourne. So expensive to uproot and re-locate a company like an airline, compared to a law firm that's just a bunch of offices for example. Plus they would lose so many staff who live in sunny relaxed Brisbane, have kids in school there and probably extended family there, and would NOT want to swap that for Melbourne, so Virgin would need to go through the very expensive exercise of finding and hiring and training up new staff. No, I think Virgin is just floating this idea to see what deal the QLD government is willing to cut them. It's a hollow threat.

[VR-HFX]

The Jonathan Rochford analysis is spot on. As it stands the current shareholders have indicated they will not put in another penny. The Australian Government will also do nothing. What they have done for the industry is useless as both majors are effectively grounded. As it stands, VAH will simply run out of cash in 3 months.

This is deja vu all over again.We have had this debate in 2014 when Joyce went to Canberra with his begging bowl. Certainly QF was not in the same situation as VAH but discussion at the time is worth re-visiting. It centred around insolvency laws and whether we need a Chapter 11 type system in Australia. This is a system David Bonderman of TPG used to refer to as the "car wash".

Our insolvency laws have not changed since 1993. As they stand they invariably lead to viable businesses failing and insolvency firms making a motza...think Ansett here.

Creditors all seek to to protect their OWN position in the short-term without coordinating with other parties. They actually work against their own positions by being so short-sighted. The administrator's sole task (apart from making money for itself) is with recovering money for creditors. This single-minded approach leads to the almost instantaneous destruction of any residual value in the company and just cents in the dollar for creditors.

The other major problem with our system is that management is totally sidelined whereas Chapter 11 allows the company to put its affairs in the hands of trustees without having to windup the business and lose key contracts. A company has no chance of recovering once contracts are suddenly voidable.

There is also the issue of director liability if a company trades while insolvent. They will put a company into early administration to protect themselves.

That said, voluntary administration is probably the best option to save the business and make it a viable investment option for one of the big private equity operators with experience in the aviation sector such as TPG. The clock is ticking and if this process drags on until mid year, VAH will be scrap and shareholders and creditors alike will be wiped out. Residual value goes to the liquidators in our system.

Sad indeed but sometimes the facts and the truth are just that.

[Blueskymine]

The problem is while this plays out, there’s no consumer confidence on the other side when flights resume.

Both airlines need a government guarantee for ticketing - without it, even if Virgin do manage to survive, they won’t survive the upswing at the end when people just don’t have confidence in forward bookings.

The only thing that slightly amuses me about this whole fiasco is perhaps Perth airport May have to close T1&2 and send the internationals into T3 for a spell....

[Foxxster]

Yes that Rochford article is spot on.

the question is what happens to the Australian domestic airline scene in the mid term.

We may see a revived Virgin of some sort with new owners or given the outlook and the likelihood that nobody would want to invest in any airline , will we see the federal government relaxing the laws to allow the void to be filled by foreign airlines being allowed to operate domestic routes.

given Friday evening is a prime time for bad news to be released, can we expect an announcement from Virgin confirming voluntary administration tomorrow..

[ampclamp]

Virgin placed in an indefinite trading halt.Trade has been halted for an indefinite period as announced just before trading began today by ASX listings compliance adviser Neel Bhowmick.

"The securities of Virgin Australia Holdings (VAH) Limited will be suspended from quotation immediately under Listing Rule 17.2 at the request of VAH, pending the release of an announcement regarding its ongoing financial assistance and restructuring alternatives,"

[Section28- BE]

(ASX: VAH and VAHHA) - Announcement 16/04/20

ASX Announcement 16/04/2020 link: https://www.asx.com.au/asxpdf/202004...q1xk1ytv35.pdf

Part B of announcement here:

"b) requests that the voluntary suspension remain in place until the Company makes an announcement to the market regarding this, or the expiry of 7 days from today's date, whichever occurs first;"

Rgds
S28- BE

[John Citizen]

A reporter just asked the PM (during a coronavirus update) if he will save Virgin.

He said any help will be on a "sector basis". This basically means NO I think.

[Pearly White]

Originally Posted by John Citizen

A reporter just asked the PM (during a coronavirus update) if he will save Virgin.

He said any help will be on a "sector basis". This basically means NO I think.

What kind of sector? Industry sector? Or city pair basis?

[LostWanderer]

I think he meant there would be funding and general assistance to various sectors such as hotels, retail, airlines - as they have already done...and so on, but nothing is coming to directly save any one company or chain from financial hardship.

I read that as another pretty solid confirmation yet again that there is no government bailout for VA.

[ECAMACTIONSCOMPLETE]

At the end of the day, the govt doesn’t have the ability to save every business in every industry from the effects of COVID 19. The economic impacts are similar to the health impacts, those that were healthy leading into the crisis have a good chance of surviving, those with pre-exisiting conditions may find the pandemic to be fatal.

[Toruk Macto]

But we still try to help the elderly , poor and unfit people who have not looked after their health but now have coronavirus? Or we decide they not worth it ?

[warrior92]

Sector wide... Aviation package much like The US?