Virgin headed for another disaster, says REX chairman
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Virgin headed for another disaster, says REX chairman
I agree largely with most of it. The earnings claims are beyond laughable.
They were fairly direct in that they were not cutting staff, so if they are not planning to cut the fleet, the risk is high. The revenue numbers they are giving to potential buyers would indicate a fleet fairly close to what it is today.
The ACCC can’t do squat about the guys over the fence filling its aircraft to ‘cost’. They are just trying to reduce the cash burn. They also can’t do anything in regards to the competitor returning its full pre virus network very fast, they are simply reinstating what they had. The ACCC won’t save Virgin in any circumstances.
They need to rip cost out otherwise they are about to have their balls ripped off when they kickstart. If they choose to think ops normal, then they deserve anything that comes their way.
They were fairly direct in that they were not cutting staff, so if they are not planning to cut the fleet, the risk is high. The revenue numbers they are giving to potential buyers would indicate a fleet fairly close to what it is today.
The ACCC can’t do squat about the guys over the fence filling its aircraft to ‘cost’. They are just trying to reduce the cash burn. They also can’t do anything in regards to the competitor returning its full pre virus network very fast, they are simply reinstating what they had. The ACCC won’t save Virgin in any circumstances.
They need to rip cost out otherwise they are about to have their balls ripped off when they kickstart. If they choose to think ops normal, then they deserve anything that comes their way.
Mr Lim says Virgin's administrator, Vaughan Strawbridge from Deloitte, must rewrite the EBAs, restructure the aircraft leases, cancel an order for Boeing 737 MAX aircraft and convert all debt into equity while the company is insolvent.
REX executive chairman Lim Kim Hai has slammed Virgin's board as dysfunctional.
"Originally when it was first announced that Virgin was going into administration we were quite interested because we thought the period of administration would be a wonderful opportunity to really, in fact, make really deep-seated changes to Virgin," Mr Lim said in an interview with The Australian Financial Review.
"But when the administrator from Deloitte started making his public comments I very quickly realised that the administrator has no intention at all of really effecting any fundamental changes.
"It would appear from his timeline that he just wants a quick sale and he actually leaves the problems to the buyer to solve."
The earnings forecast, which was revealed byStreet Talk on Monday night, said Virgin expected to record about $5 billion revenue in 2022, back to 2015 levels and about 15 per cent less than last year.
"Virgin has a chance, but without fixing its chronic problems, whoever is the buyer, no matter how financially sound they are, they would just continue down the path of losing money every year," he said.
"Unfortunately, I have come to the conclusion that the way its headed, even if there is a buyer, we are just looking at another disaster down the road."
"It is well known that in the last 10 years Virgin's management has been extremely lax and extremely non-courageous in their negotiations over EBAs," Mr Lim said.
"It ended up with EBAs that are even more costly than what Jetstar has. This is another reason why Virgin is never going to make money. Part of the profitability depends on the cost of pilots and so on.
"And the EBAs are really too restrictive and punitive. So this is another opportunity to reset it and get it down to the right level."
Mr Lim said the politics of the Virgin administration meant Mr Strawbridge could not make changes to the EBAs.
"Given how the unions are getting in and how they are lobbying behind the scenes and given how there is KordaMentha, who is also putting up his hand to be administrator, I don't think the administrator would touch the EBAs at all," he said.
It ended up with EBAs that are even more costly than what Jetstar has. This is another reason why Virgin is never going to make money.
— Lim Kim Hai, REX chairman
"That would be the reason for the administrator to get sacked. It's not going to happen."
Mr Lim was critical of Virgin's board of directors, which he described as "dysfunctional".
"Obviously, the writing has been on the wall for Virgin for quite a while," he said.
"It's just unbelievable how in Australia one could tolerate a board that for 10 years constantly lose money.
"They have lost $2 billion in the last 10 years. I don't know how anybody would tolerate such a board.
"The second thing that's amazing is how five shareholders, four of them very big airlines, could actually get themselves in a position where they are just bystanders when they are holding 90 per cent of the company.
"They just got completely outfoxed by management. The management came to a board meeting and said: "Guess what, we have no money and you guys will have to cough up $200 million in two weeks or we are going into insolvency.
"There's such disdain of the board and that's because they have been outfoxed and the five airlines with their representatives are a minority in the board. The other independent board members, they are beholden to certain parties."
Advertisement"Aviation has all its inherent problems, which are relatively high capital costs, very heavily regulated and very much national politics involved," he said.
"So, it already has a heavy set of problems that most other sectors may not have. It would have four or five different unions. And that's, again, something could be the downfall of a particular carrier.
"But what makes it even tougher is the fact that most of the people who end up being in aviation are people who are extremely passionate. You know, that's one thing that defines aviation, that people – both management and most of the staff – have kerosene in their blood.
"The problem with aviation is that there's too much passion, not enough common sense. And the second big problem is that there's too much ego.
"Too often you'll find people have a bit extra cash and they like the glamour of being involved in aviation. So they will start an airline.
"Then very soon they find it's not what they thought. So there's a lot of ego involved and that makes it different from most other big business, where you are really driven by discipline and driven about professionalism."
REX executive chairman Lim Kim Hai has slammed Virgin's board as dysfunctional."Originally when it was first announced that Virgin was going into administration we were quite interested because we thought the period of administration would be a wonderful opportunity to really, in fact, make really deep-seated changes to Virgin," Mr Lim said in an interview with The Australian Financial Review.
"But when the administrator from Deloitte started making his public comments I very quickly realised that the administrator has no intention at all of really effecting any fundamental changes.
"It would appear from his timeline that he just wants a quick sale and he actually leaves the problems to the buyer to solve."
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Mr Strawbridge this week distributed an information memorandum and business plan and asked for indicative bids by May 15. The memorandum forecast about $1.2 billion in earnings before interest, tax, depreciation and amortisation in the year to June 2022.The earnings forecast, which was revealed byStreet Talk on Monday night, said Virgin expected to record about $5 billion revenue in 2022, back to 2015 levels and about 15 per cent less than last year.
Virgin can earn $1.2b a year in 2022: management's pitch to buyers
Mr Lim said his own experience buying Hazelton Airlines and Kendell Airlines out of the Ansett receivership 18 years ago was a model for how Virgin should be restructured using the powers of an administrator."Virgin has a chance, but without fixing its chronic problems, whoever is the buyer, no matter how financially sound they are, they would just continue down the path of losing money every year," he said.
"Unfortunately, I have come to the conclusion that the way its headed, even if there is a buyer, we are just looking at another disaster down the road."
EBAs prove costly
Mr Lim said Virgin's EBAs had lumbered the airline with high fixed costs and they needed to be fixed while Mr Strawbridge had the powers of an administrator and before the release of a deed of company arrangement."It is well known that in the last 10 years Virgin's management has been extremely lax and extremely non-courageous in their negotiations over EBAs," Mr Lim said.
"It ended up with EBAs that are even more costly than what Jetstar has. This is another reason why Virgin is never going to make money. Part of the profitability depends on the cost of pilots and so on.
"And the EBAs are really too restrictive and punitive. So this is another opportunity to reset it and get it down to the right level."
Mr Lim said the politics of the Virgin administration meant Mr Strawbridge could not make changes to the EBAs.
"Given how the unions are getting in and how they are lobbying behind the scenes and given how there is KordaMentha, who is also putting up his hand to be administrator, I don't think the administrator would touch the EBAs at all," he said.
It ended up with EBAs that are even more costly than what Jetstar has. This is another reason why Virgin is never going to make money.
— Lim Kim Hai, REX chairman
"That would be the reason for the administrator to get sacked. It's not going to happen."
Mr Lim was critical of Virgin's board of directors, which he described as "dysfunctional".
"Obviously, the writing has been on the wall for Virgin for quite a while," he said.
"It's just unbelievable how in Australia one could tolerate a board that for 10 years constantly lose money.
"They have lost $2 billion in the last 10 years. I don't know how anybody would tolerate such a board.
"The second thing that's amazing is how five shareholders, four of them very big airlines, could actually get themselves in a position where they are just bystanders when they are holding 90 per cent of the company.
"They just got completely outfoxed by management. The management came to a board meeting and said: "Guess what, we have no money and you guys will have to cough up $200 million in two weeks or we are going into insolvency.
"There's such disdain of the board and that's because they have been outfoxed and the five airlines with their representatives are a minority in the board. The other independent board members, they are beholden to certain parties."
Investors' nightmare
Mr Lim said the aviation sector was "one of the worst, if not the worst industrial sector", to invest in across the world.Advertisement"Aviation has all its inherent problems, which are relatively high capital costs, very heavily regulated and very much national politics involved," he said.
"So, it already has a heavy set of problems that most other sectors may not have. It would have four or five different unions. And that's, again, something could be the downfall of a particular carrier.
"But what makes it even tougher is the fact that most of the people who end up being in aviation are people who are extremely passionate. You know, that's one thing that defines aviation, that people – both management and most of the staff – have kerosene in their blood.
"The problem with aviation is that there's too much passion, not enough common sense. And the second big problem is that there's too much ego.
"Too often you'll find people have a bit extra cash and they like the glamour of being involved in aviation. So they will start an airline.
"Then very soon they find it's not what they thought. So there's a lot of ego involved and that makes it different from most other big business, where you are really driven by discipline and driven about professionalism."
Last edited by wheels_down; 7th May 2020 at 04:25.
Yet another thread about Virgin's downfall and problems. It couldnt have been added to one of the other existing threads??
I honestly believe some of you have serious mental problems. Cannot help yourself and cannot hide the enthusiasm of watching Virgin fail, with 10,000+ people losing their livelihood, houses and possibly life. Enjoy yours why you can........
I honestly believe some of you have serious mental problems. Cannot help yourself and cannot hide the enthusiasm of watching Virgin fail, with 10,000+ people losing their livelihood, houses and possibly life. Enjoy yours why you can........
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He is just reporting on a relevant media matter from a highly successful Singaporean business guy who has had success in
Australian Aviation
Perhaps this Singaporean guy is worth listening too ?
Can't see any glee in his post. There are a million plus Australians who have lost their jobs , why does the fact that someone is
employed by an airline make them more important or more "special" more worthy of a pat on the back.
Like he said the company lost money every year , so it was going to fail
There are many way worse off than Virgin employees & didn't have the benefit of salubrious contracts for years to secure their financial future
Do the Virgin 737 pilots think it was fair & reasonable that they got paid overtime after 60 hours per month ? Aside from QF are there any other airlines with anything like that in 2019 ?
Australian Aviation
Perhaps this Singaporean guy is worth listening too ?
Can't see any glee in his post. There are a million plus Australians who have lost their jobs , why does the fact that someone is
employed by an airline make them more important or more "special" more worthy of a pat on the back.
Like he said the company lost money every year , so it was going to fail
There are many way worse off than Virgin employees & didn't have the benefit of salubrious contracts for years to secure their financial future
Do the Virgin 737 pilots think it was fair & reasonable that they got paid overtime after 60 hours per month ? Aside from QF are there any other airlines with anything like that in 2019 ?
Last edited by Telfer86; 7th May 2020 at 05:48.
It's becoming annoying how many posters here are being accused of having "enthusiasm" for watching an airline fall or people losing their jobs. This is a pilot forum, for pilots who are employed in Australia. The fate of VA is entirely relevant to all of us, those starting out in their flying journey who want to know what the industry is like, those who are working their way up in different jobs and those who are employed within it. It affects everyone and it's important. While I sympathise with everyone's potential personal situation, you aren't entitled to a protected internet shield to defend you from people trying to better understand what's happening and how our entire industry is going to be impacted.
Stop taking discussion about something that is entirely relevant as a personal attack on either individuals or an employee group; it isn't. If you can't bare to read relevant postings on an INDUSTRY sub forum, don't look.
Stop taking discussion about something that is entirely relevant as a personal attack on either individuals or an employee group; it isn't. If you can't bare to read relevant postings on an INDUSTRY sub forum, don't look.
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Yet another thread about Virgin's downfall and problems. It couldnt have been added to one of the other existing threads??
I honestly believe some of you have serious mental problems. Cannot help yourself and cannot hide the enthusiasm of watching Virgin fail, with 10,000+ people losing their livelihood, houses and possibly life. Enjoy yours why you can........
I honestly believe some of you have serious mental problems. Cannot help yourself and cannot hide the enthusiasm of watching Virgin fail, with 10,000+ people losing their livelihood, houses and possibly life. Enjoy yours why you can........
Sadly, he’s just telling it like it is, from a successful business perspective. Good airline it may be. Great staff and work ethic, perhaps. But from a business point of view a very lousy, badly run operation that has destroyed over $2B in capital and loses money every year.
Further, Union interference and bloody mindedness, if not careful, could be the death of Virgin.
Well not really....
Virgin pilots earn OT at 69 hours a roster. And at 69 hours a roster - that’s 790 hours a year. Yes sim, etc counts towards that. But try doing 70-80 hours a month for 12 months....
No one is calling out what’s actually in the article. Our Singaporean friend identifies 3 key issues that he says isn’t being dealt with (the debt, the leases, and employee wage costs). The administration process will deal with a fairly large chunk of the debt - so he is wrong on that front. The administrator is currently talking to lessors and renegotiating leases for a new owner will definitely form part of the DOCA - so he is wrong on that front too. And thirdly - the administrator has said he won’t be making anyone redundant (the administrator doesn’t need to - most people are stood down and then redundancy payments become an issue if he decides to sack a couple 1000 people). The business is being sold as a going concern - so that’s all the employees. If a new owner decided to shrink the business, they can do that. A new owner may also enter into negotiations with unions as well - there might be some pretty big trading going on to secure jobs. So he is arguably wrong on that front too.
And whilst he may be a successful businessman - he operates a lot of monopoly routes, and also quite a lot of government regulated (and subsidised) routes. And they have just got an absolute bucketload of cash to continue operating those routes (disproportionately large when compared to what QF and VA got relative to total revenues - I suppose having a former National Party politician on your Board doesn’t hurt). And he has never addressed the elephant in the room - fleet replacement.
I am not necessarily convinced people here are taking joy out of what’s happening to VA (although comments insinuating VA pilots are overpaid suggest some people are), but there are a lot of people rehashing the same nonsense over and over again. Every time a journalist puts out a piece of ‘expert aviation commentary‘, there are plenty of people on here who attack minute details. When an article is published highlighting the demise of Virgin, there are plenty of people on here who take every word as gospel without checking any of the facts, or applying some common sense.
Virgin pilots earn OT at 69 hours a roster. And at 69 hours a roster - that’s 790 hours a year. Yes sim, etc counts towards that. But try doing 70-80 hours a month for 12 months....
No one is calling out what’s actually in the article. Our Singaporean friend identifies 3 key issues that he says isn’t being dealt with (the debt, the leases, and employee wage costs). The administration process will deal with a fairly large chunk of the debt - so he is wrong on that front. The administrator is currently talking to lessors and renegotiating leases for a new owner will definitely form part of the DOCA - so he is wrong on that front too. And thirdly - the administrator has said he won’t be making anyone redundant (the administrator doesn’t need to - most people are stood down and then redundancy payments become an issue if he decides to sack a couple 1000 people). The business is being sold as a going concern - so that’s all the employees. If a new owner decided to shrink the business, they can do that. A new owner may also enter into negotiations with unions as well - there might be some pretty big trading going on to secure jobs. So he is arguably wrong on that front too.
And whilst he may be a successful businessman - he operates a lot of monopoly routes, and also quite a lot of government regulated (and subsidised) routes. And they have just got an absolute bucketload of cash to continue operating those routes (disproportionately large when compared to what QF and VA got relative to total revenues - I suppose having a former National Party politician on your Board doesn’t hurt). And he has never addressed the elephant in the room - fleet replacement.
I am not necessarily convinced people here are taking joy out of what’s happening to VA (although comments insinuating VA pilots are overpaid suggest some people are), but there are a lot of people rehashing the same nonsense over and over again. Every time a journalist puts out a piece of ‘expert aviation commentary‘, there are plenty of people on here who attack minute details. When an article is published highlighting the demise of Virgin, there are plenty of people on here who take every word as gospel without checking any of the facts, or applying some common sense.
Last edited by Colonel_Klink; 7th May 2020 at 06:33.
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Well I was told it was 60 hours - but that could be incorrect
69 certainly sounds like an unusual number
My understanding was that the latest 737 eba took absolutely forever to negotiate as the Virgin guys were
demanding QF SH rates & pretty much got them didn't they ? Something mad like 35 meetings the virgin pilots voting it down a few times & asking
for more & more
or 95% of them , Virgin management having to say time & time again " we don't pay qantas rates"
Maybe not such a great idea in hindsight
69 certainly sounds like an unusual number
My understanding was that the latest 737 eba took absolutely forever to negotiate as the Virgin guys were
demanding QF SH rates & pretty much got them didn't they ? Something mad like 35 meetings the virgin pilots voting it down a few times & asking
for more & more
or 95% of them , Virgin management having to say time & time again " we don't pay qantas rates"
Maybe not such a great idea in hindsight
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if the following doesn't happen .............. quote from above
must rewrite the EBAs, restructure the aircraft leases, cancel an order for Boeing 737 MAX aircraft and convert all debt into equity while the company is insolvent.
who would buy into Virgin ?
Staff will have to earn less & probably do more. Leased aircraft will have to be well below what Virgin had been paying for 738s (A330s & 1 x B777 - again much less, but surely a domestic only model with single fleet would be optimal to start with ? )
Think anyone who was employed at VA & thinks they are going to get paid the same by new virgin is dillusional. There will also be far fewer staff.
must rewrite the EBAs, restructure the aircraft leases, cancel an order for Boeing 737 MAX aircraft and convert all debt into equity while the company is insolvent.
who would buy into Virgin ?
Staff will have to earn less & probably do more. Leased aircraft will have to be well below what Virgin had been paying for 738s (A330s & 1 x B777 - again much less, but surely a domestic only model with single fleet would be optimal to start with ? )
Think anyone who was employed at VA & thinks they are going to get paid the same by new virgin is dillusional. There will also be far fewer staff.
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Staff will have to earn less & probably do more. Leased aircraft will have to be well below what Virgin had been paying for 738s (A330s & 1 x B777 - again much less, but surely a domestic only model with single fleet would be optimal to start with ? ) Think anyone who was employed at VA & thinks they are going to get paid the same by new virgin is dillusional. There will also be far fewer staff.
Let's not forget too that Rex has collected a nice little handout from the Australian government and does contribute money to the Nationals, and that neither QF or VA has gotten much help from the government. Without the government help where would Rex be?
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He is just reporting on a relevant media matter from a highly successful Singaporean business guy who has had success in
Australian Aviation
Perhaps this Singaporean guy is worth listening too ?
Can't see any glee in his post. There are a million plus Australians who have lost their jobs , why does the fact that someone is
employed by an airline make them more important or more "special" more worthy of a pat on the back.
Like he said the company lost money every year , so it was going to fail
There are many way worse off than Virgin employees & didn't have the benefit of salubrious contracts for years to secure their financial future
Do the Virgin 737 pilots think it was fair & reasonable that they got paid overtime after 60 hours per month ? Aside from QF are there any other airlines with anything like that in 2019 ?
Australian Aviation
Perhaps this Singaporean guy is worth listening too ?
Can't see any glee in his post. There are a million plus Australians who have lost their jobs , why does the fact that someone is
employed by an airline make them more important or more "special" more worthy of a pat on the back.
Like he said the company lost money every year , so it was going to fail
There are many way worse off than Virgin employees & didn't have the benefit of salubrious contracts for years to secure their financial future
Do the Virgin 737 pilots think it was fair & reasonable that they got paid overtime after 60 hours per month ? Aside from QF are there any other airlines with anything like that in 2019 ?
well said, some are just angry little control freaks!
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50% of the workforce at 75% of VA pay would make a huge difference(that's 37.5% of current staff costs), especially now fuel is so cheap, especially if any fuel hedging at low prices can be achieved.
With the new worldwide glut of aircraft, any sort of decent negotiator would be able to get a massive discount on aircraft leasing costs.
Airport handling would also be negotiated downwards.
50% of the workforce at 75% of VA pay would make a huge difference
Do they make up 50% of the VA (previous) workforce?
Is a 50% pay cut realistic? Cabin crew would walk at that salary.
& how do you arrive at that idea ?
As you can see above Boeing and IATA came up with these figures. So the pilot EBA was not the cause of this, neither was Covid 19, that merely brought forward the move to administration.
In my opinion it was lack of cost control. They turned over around $5.5 billion dollars a year and every time I flew on them the aircraft was full, or close to it and yet they could not make a profit. That says to me that costs were too high. 2-5% either way on a pilot EBA would not be the reason for the last ten years.
salary based on 69 hours/rp (NOT 60 as dopey said, was corrected on and STILL wouldn’t concede)
and then the hourly rate on top of that. It’s no like it’s Double time or anything
& how do you arrive at that idea ?
50% of the workforce at 75% of VA pay would make a huge difference(that's 37.5% of current staff costs), especially now fuel is so cheap, especially if any fuel hedging at low prices can be achieved.
With the new worldwide glut of aircraft, any sort of decent negotiator would be able to get a massive discount on aircraft leasing costs.
Airport handling would also be negotiated downwards.
50% of the workforce at 75% of VA pay would make a huge difference(that's 37.5% of current staff costs), especially now fuel is so cheap, especially if any fuel hedging at low prices can be achieved.
With the new worldwide glut of aircraft, any sort of decent negotiator would be able to get a massive discount on aircraft leasing costs.
Airport handling would also be negotiated downwards.
Now fuel, yeah really cheap, but there's a reason for that. "The earnings forecast, which was revealed byStreet Talk on Monday night, said Virgin expected to record about $5 billion revenue in 2022, back to 2015 levels and about 15 per cent less than last year." Now if they're back to this revenue level I'd say fuel won't be sooo cheap, I know if fell out of bed earlier this year with the Saudi/ Russia dispute, but it literally fell down the elevator shaft when Cov19 appeared, so my guess is it would recover somewhat as well.
Fuel Hedging: must admit I know very little about it. The little I think I understand is that hedging isn't a game of locking in low costs otherwise CX wouldn't have hedged at massive prices some yrs ago, I understand it's to lock in your costs at a point you're happy with, if your competitors don't and prices fall they'll increase their profits or lower fares and take market share off you, if they increase well it's the opposite. I know now is not the time to compare short and long term bond rates, but usually the longer the period the higher the prices. I'd be surprised that you could hedge fuel at todays prices out a few yrs. I'd have though Shell, BP etc have a good idea where demand will go and price accordingly, and if that's low it'll be because demand is low therefore traffic will be low!
I also wouldn't expect lessors to just hand over their a/c for nothing either, not saying they're won't agree to a reduction, but I bet nothing like what you appear to have in mind. Perth Airport also isn't just going to cut their charges as well, I wonder what QF would say on that. Nah, nothing I guess as they're more than happy with Perth Airport right now; they're having a love-fest. Compare a/c leases with commercial property, it's valued by a large part on the rent and when an owner takes a rent cut they're telling the market that the property they own is now worth less. You'll see commercial property empty for months before they cut the rent.
In the meantime the new VA is competing against a QF that has just lost most of it's international market for a good 18 mths. They've had their foot on VA's throat for a long time and I doubt they're going to remove it anytime soon.
I wish the employees all the best, but I think the new VA will be pushing the proverbial up hill.
Btw, "Originally Posted by Icarus2001 View Post
Well it certainly was not crew wages that drove them into administration". Icarus only claimed that crew wages didn't crash the company and nothing you've mentioned proves otherwise.
