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-   -   AFR - Virgin Administrators come under fire for doubtful forecasts (https://www.pprune.org/australia-new-zealand-pacific/632404-afr-virgin-administrators-come-under-fire-doubtful-forecasts.html)

Con Catenator 11th May 2020 22:32

AFR - Virgin Administrators come under fire for doubtful forecasts
 
Potential buyers of Virgin Australia have questioned the bullish profit forecasts issued by Virgin's administrator, Vaughan Strawbridge. Now buyers have to think about Regional Express Holdings potentially flying capital city routes.

May 12, 2020 – 12.00am

The already loopy Virgin Australia sales process got a little crazier on Monday when the administrator, Vaughan Strawbridge, put demands on the potential buyers that are frankly ridiculous.

Strawbridge sent a letter to potential buyers demanding they break their bids into 20 separate components including the amount of the airline's $6.8 billion debt they will roll over, the level of employees being retained and the support from government.

After seeing the letter, one potential bidder told Chanticleer: "This is nuts".

The reaction is understandable given that indicative offers have to be lodged with Strawbridge by Friday. This time line barely allows any time for potential buyers to engage with creditors, government or unions.

Virgin's administrator Vaughan Strawbridge has flummoxed potential bidders with his latest demands. David Rowe

Even before this missive was sent by Strawbridge the Virgin sales process was detached from reality.

Potential buyers were told that an airline that lost $2 billion over the past decade was suddenly going to shoot the lights out within three years.

Incredulous potential buyers were asking themselves how could an airline that made EBITDAR of between $843 million and $900 million over the past five years suddenly make $1.5 billion in 2023?

EBITDAR is defined as earnings before interest and tax excluding costs associated with aircraft rentals and depreciation and amortisation.

What was even less plausible was the breakdown of the underlying profit numbers for fiscal 2023 issued by Strawbridge.

Ex-Virgin Australia contender would run Virgin Mark II

He forecast Virgin Mark II would earn $1.1 billion EBITDAR from its domestic operations and from its short haul international operations, $150 million from its long haul international business and $150 million from a new low-cost carrier in the domestic market, which would compete with Jetstar.

The idea that Virgin could develop and launch an entirely new discount airline service while trying to extract itself from insolvency is implausible, especially considering it has not been able to make a profit on group revenue of $5.8 billion.

The new discount airline is represented in the documents as a blank aircraft.

Also included in Strawbridge's forecast for 2023 was about $40 million in EBITDAR from cargo flights. This deserves to be treated with great scepticism given cargo is one of the most competitive aspects of aviation and has very thin margins.

Strawbridge's business plan for Virgin Mark II does not contemplate large-scale job losses. It seems to want to preserve complexity rather than pursue simplification of the business.

Another wildcard in the Virgin sales process is the sudden intervention of Regional Express Holdings, which has revealed to The Australian Financial Review it wants to spend $200 million launching new capital city services.

Rex deputy chairman John Sharp says the Virgin collapse has provided an opportunity for the regional airline to lease 10 narrow-bodied jets and fly between the capital cities including the highly profitable "triangle" between Sydney, Melbourne and Brisbane.

ACCC boss says Virgin Mark II needs to be full service

Rex's plan was greeted with scepticism in some quarters of the aviation industry simply because it only has about 1 per cent of the domestic market.

But it is worth remembering that the cumulative net profits of Rex over the past six years exceed the combined net earnings of Virgin and Qantas over that same period.

A move from being a purely regional airline to offering capital city flights would be a big step up for Rex. But it can build its business upon its existing infrastructure.

A new entrant in the domestic market offering a service between capital cities that is pitched somewhere between Qantas and Jetstar is bound to be positive for consumers and not so great for Virgin Mark II.

Rex is facing a potential capital expenditure bubble in the future from the cost of replacing its fleet of 60 Saab 340 aircraft, which are more than 20 years old.

But executive chairman Lim Kim Hai told The Australian Financial Review last week Saab has committed to support the aircraft for another 10 to 15 years.

"In terms of support from Saab they have given an undertaking and they have continued to have military customers and with a military customer any time you sign on with them you have to undertake to provide support for 20 years," Lim said.

"So, in terms of support from Saab, we can be assured that over the next 10 to 15 years there is going to be the support as long as Saab is still going to be around. There is no hard deadline for the Saab."

MickG0105 12th May 2020 00:21


But it is worth remembering that the cumulative net profits of Rex over the past six years exceed the combined net earnings of Virgin and Qantas over that same period.
That's cute! We bundle in the financial train wreck that was VA and then stretch the period under consideration back just far enough to include QF's motza 2014 loss. Look at the past five years and it's a markedly different story.

Servo 12th May 2020 09:36

More bull**** story writing by so called journalists. I refer to same in another thread. They cant help themselves.

I am sure they were told "this is nuts".

F$%k Off. Maybe I should get into writing for the papers, seems you dont need to verify, justify or even be truthful with what you put in writing and in print.

MelbourneFlyer 13th May 2020 07:29

Why is this article "bull****"? Do you have any proof it's not? The media seem to be all over this and the AFR obviously has connections everywhere.

Denied Justice 13th May 2020 13:25

The AFR is one journal that does have reasonable credentials, so I don’t think this story is bull**** Servo.

TCAS v2 13th May 2020 22:16

Servo - You might have to re-think the term "bull****". The AFR has a fairly good track record on drilling deep into these types of issues and getting the answers. It's fine to disagree, but they are certainly not as you describe.

Being told to 'F$%k Off'' isn't really eloquent mate.

LostWanderer 13th May 2020 23:38


Originally Posted by Denied Justice (Post 10781416)
The AFR is one journal that does have reasonable credentials, so I don’t think this story is bull**** Servo.

Agreed. AFR is generally a pretty respected journal with a lot of contacts.

I have to agree with what they are saying, those earning forecasts for the next few years are pure fantasy and utterly ludicrous. If any of the buyers anxiously jump on board believing the hype from the administrators on these numbers and think they can actually make that sort of money so quickly, I think VA Mk2 is already headed towards a swift end.

ozbiggles 14th May 2020 00:26

I agree with the statement the AFR is generally pretty good but this story has been placed
Like all business it is a case of buyer beware and to do due diligence so what is this story saying? That the buyers are stupid?
And they offer up the typical unnamed source, every slack jurnos go to, to offer up the startling quote of “this is nuts” and then go onto talk about Rex so no surprise who wanted this story run. I don’t believe the numbers myself but I don’t expect a salesman to offer me the best deal or the truth at any time so again what is the point of this ‘article’?

neville_nobody 14th May 2020 01:14

Interesting the AFR hasn't run the same level of skepticism over Rex's idea of creating a jet operation from zero in a few months. They have bought the whole thing hook line and sinker and all Rex have said is they are looking at a business plan with jets.

Arctaurus 14th May 2020 01:50

These "comments" thrown into the public arena are probably designed to disrupt potential bidders from getting the show on the road again (as unlikely as that still is). It positions REX into a better position if Virgin goes into receivership.

Of more real action, Alliance and a deal to buy VARA could be interesting. it would still keep Alliance in a niche market, but at a much higher level. That is a real possibility. Dump the ATRs.

lucille 14th May 2020 02:36

From the article : "But it is worth remembering that the cumulative net profits of Rex over the past six years exceed the combined net earnings of Virgin and Qantas over that same period."

What point does this statement intend to convey? How does it make any sense to combine net profits of QF and VA and then come up with a number which probably the "cumulative net profits" of your average Uber driver over the past six years would also exceed.

This article strikes me as being sourced from a media release by Rex's spin doctors. I cannot imagine any journalist spending the time seeking out and then adding up the profits and losses of each company for the past six years. Why choose six years, why not ten, why not two?

It is possible that Servo may not be so far off the mark after all.

Goat Whisperer 14th May 2020 02:38


Dump the ATRs.
The ATR fleet is no longer part of VARA. And with renegotiated leases could be viable.

B772 14th May 2020 02:54

I expect the administrators forecast of $5B p.a revenue (Average of $96.154M per week) to be a pipe dream.

MickG0105 14th May 2020 12:06


Originally Posted by Blackout (Post 10781855)
Taken from news.com.au

Virgin Australia customers owed refunds to be offered ‘conditional credits'

Quote:

"He said the administrators were considering whether Virgin Australia would need interim funding to allow the business to keep operating until a second meeting of creditors, which they propose to hold in August.

The administrators are seeking permission to issue conditional credits to customers that had booked flights cancelled due to the pandemic which could be honoured by an acquirer, Mr Strawbridge said.

“Potential buyers may be motivated to extend these conditional credits as part of any restructuring or recapitalisation of the Virgin Companies’ business for the purposes of maintaining and enhancing the customer goodwill associated with the Virgin Companies,” he said.

He added the airline is seeing a rise in credit card charge-backs from customers seeking refunds. There have been around 340,000 requests for refunds after cancelling 65,000 flights between March 1 and April 30.

That is a potential drain on cash it holds in accounts.

The travel credits will be valid for the administration period, and customers who have not claimed or used the credits during the process are "unlikely to receive a 100 per cent refund on any restructuring or upon liquidation".

Mr Strawbridge said the credits would preserve goodwill in the airline and make it more attractive to potential buyers."

Frankly I'm surprised that that story isn't generating more widespread interest/concern, particularly the


The travel credits will be valid for the administration period, and customers who have not claimed or used the credits during the process are "unlikely to receive a 100 per cent refund on any restructuring or upon liquidation.
bit.

If I were one of the thousands of Virgin customers, sorry, guests, holding a travel credit I'd be extraordinarily pi55ed off. I've been done out of a refund at a federal court hearing that I had no representation at such that I'm now effectively being treated as an unsecured creditor but with no representation on the Committee of Inspection.

As to the 'travel credits will be valid for the administration period', how much flying and on what routes is likely to occur during 'the administration period'? The Administrator is effectively rissoling the customers here and it's all gone under the radar.

And it's made all the more galling knowing that PS is still trousering twenty large a week ... to do what exactly?

MickG0105 14th May 2020 21:48


Originally Posted by Blackout (Post 10782362)
Well it seems that the 'liabilities' doesn't just stop there:

https://www.fedcourt.gov.au/__data/a...on-1252020.pdf

That is somewhat astounding, isn't it?!


6. The conditional credit will only be able to be redeemed for a limited period and will have to be redeemed before the earlier of:

(a) a restructuring or recapitalisation of the Virgin Australia Group Ent ity that issues the credit (unless the right to redeem such credits, or their equivalent, is expressly preserved and extended as part of that restructuring or recapitalisation); or

(b) a liquidation of the Virgin Australia Group Entity that issues the credit.

It may not be possible or practical for Regional Airlines Pty Ltd Virgin Australia Airlines Pty Limited or Virgin Australia to resume commercial flights during this period and nothing in this Proposal should be understood as a promise or warranty that eith er company will do so.

7. A customer's use of the conditional credit will be subject to the availability of flights and, if applicable, payment of any fare differences and applicable fees, taxes and airline surcharges if the credit is not sufficient to cover them or the credit is not redeemable for them. Upon booking a flight with a conditional credit, the terms and conditions applicable to that flight and fare type will apply.

8. A conditional credit cannot be exchanged for a refund or unconditional credit. ...
How is this shafting not getting some airplay?

Rashid Bacon 14th May 2020 21:53

https://www.fedcourt.gov.au/__data/a...on-1252020.pdf

Can anyone who understands legal documents explain in laymans language what this really means ?? :confused:

Denied Justice 14th May 2020 21:56


And it's made all the more galling knowing that PS is still trousering twenty large a week ... to do what exactly?
I really hope you don't mean he's earning $ 20,000 per week ???

Ragnor 14th May 2020 22:23


Originally Posted by Rashid Bacon (Post 10782839)
https://www.fedcourt.gov.au/__data/a...on-1252020.pdf

Can anyone who understands legal documents explain in laymans language what this really means ?? :confused:

Not sure, looks like they’re trying to protect the self from that class action that been taken against travel industry where people who purchase holidays and paid for airfares are entitled to cash refunds. A lot in that document tho.

Paragraph377 15th May 2020 00:25


Originally Posted by MickG0105 (Post 10782337)
Frankly I'm surprised that that story isn't generating more widespread interest/concern, particularly the
bit.

If I were one of the thousands of Virgin customers, sorry, guests, holding a travel credit I'd be extraordinarily pi55ed off. I've been done out of a refund at a federal court hearing that I had no representation at such that I'm now effectively being treated as an unsecured creditor but with no representation on the Committee of Inspection.

As to the 'travel credits will be valid for the administration period', how much flying and on what routes is likely to occur during 'the administration period'? The Administrator is effectively rissoling the customers here and it's all gone under the radar.

And it's made all the more galling knowing that PS is still trousering twenty large a week ... to do what exactly?

A challenge for Virgin will be any of the customers who have been stiffed by their collapse. VA risks having customers move over to Qantas as Qantas will still be seen as ‘reliable and safe’. Virgin on the other hand has a dark cloud hanging over its head. The new entity can redeem itself over time, but there will be an element of customer uncertainty for some time also. If they look after all those who have been inconvenienced they may win their loyal customers back. It is passengers that generate the big bucks so you don’t want them offside.

As for Scurrah, well he was the Captain of the ship for over a year. Captains should go down with their ships. Once things are all done and dusted and a new owner(s) is/are found there should be no need to keep ‘Mr $20k per week’ on the books. Out with pretty much anyone managerial prior to the collapse. CEO, COO, GM’s and the Board, all gone.





Variable Incidence 15th May 2020 01:27


Originally Posted by Paragraph377 (Post 10782928)
A challenge for Virgin will be any of the customers who have been stiffed by their collapse. VA risks having customers move over to Qantas as Qantas will still be seen as ‘reliable and safe’. Virgin on the other hand has a dark cloud hanging over its head. The new entity can redeem itself over time, but there will be an element of customer uncertainty for some time also. If they look after all those who have been inconvenienced they may win their loyal customers back. It is passengers that generate the big bucks so you don’t want them offside.

As for Scurrah, well he was the Captain of the ship for over a year. Captains should go down with their ships. Once things are all done and dusted and a new owner(s) is/are found there should be no need to keep ‘Mr $20k per week’ on the books. Out with pretty much anyone managerial prior to the collapse. CEO, COO, GM’s and the Board, all gone.

Oh, I know. Jane Hrdlicka would be perfect instead!

Ragnor 15th May 2020 01:48

looks like Deloitte are trying to get out of their obligations, i thought they are responsible for all running cost whilst they had the reins.

Virgin sale: Administrators don’t want JobKeeper bill

The Australian Taxation Office is in discussions with the administrators of Virgin Australia to determine to what extent they should be liable for any overpayments made to the airline’s employees under the federal government’s JobKeeper scheme.

In the Federal Court on Friday morning, the ATO asked for more time to discuss the issue with Virgin’s administrator Deloitte.

It also said it wanted to consider whether there should be any restrictions placed on the waiver of personal liabilities granted by the court to Deloitte for Virgin’s incurred debts during the administration process.

The court will now reconvene next Wednesday to debate or finalise these issues.

The administrators have asked the court to consider that their personal liability be limited where the airline needs to enter into new contracts required to maintain operations during the administration process.

Specifically they want to avoid personal liability for payments under the federal government’s coronavirus wage relief subsidy, JobKeeper
More than 8,200 of Virgin Australia’s 10,000 employees have claimed a total of $24.8m in JobKeeper payments.

On Wednesday the commonwealth Attorney-General also sought to intervene in the proceedings in relation to JobKeeper payments to Virgin staff and the federal government’s Fair Entitlements Guarantee (FEG) scheme, which pays workers’ entitlements if their bankrupt employer cannot.

The administrators have estimated that the value of employee entitlements that would crystallise on the liquidation of the group is approximately $450m.

MickG0105 15th May 2020 01:51


Originally Posted by Denied Justice (Post 10782843)
I really hope you don't mean he's earning $ 20,000 per week ???

That is exactly what I mean. He is currently being paid somewhere between $21,500 and $25,000 a week. What his To Do list and calendar look like given current circumstances is anyone's guess.

B772 15th May 2020 03:21

I have been told some of the initial buying interest in Virgin has waned. This being the case only about 12 parties are expected to lodge a non binding bid by the deadline of 6 pm today. This number will further dwindle with the passage of time due to the heavy baggage in the group. It could end up with no final bids acceptable to the administrator. In this event the administrator will be looking at liquidation.

SHVC 15th May 2020 05:27


Originally Posted by B772 (Post 10783009)
I have been told some of the initial buying interest in Virgin has waned. This being the case only about 12 parties are expected to lodge a non binding bid by the deadline of 6 pm today. This number will further dwindle with the passage of time due to the heavy baggage in the group. It could end up with no final bids acceptable to the administrator. In this event the administrator will be looking at liquidation.

Out of curiosity what would be a minimum bid by your guess or anyone else? Cameron Dick seems to think it’s as easy as going into administration the debt is gone and off ya go. This was what he said this morning on an interview with Karl Stefanovic

Variable Incidence 15th May 2020 06:22

Anyone know how it works? Is the debt just written off and you’re left with aircraft leases and terminal leases etc? Seems the new QLD Treasurer reckons that V2 would almost start with a clean slate? Seems somewhat improbable!

normanton 15th May 2020 06:24

It depends what all the secured creditors agree on!

rmm 15th May 2020 06:26


I have been told some of the initial buying interest in Virgin has waned.
Seems to be so. The article linked below claims 8 and possibly down to 3 serious bidders by Monday.

https://www.brisbanetimes.com.au/bus...15-p54tex.html

Servo 15th May 2020 08:41

So it went from 19 interested "parties" to 8, to 3. I wonder if they were scared off from all the negative press and statements made by various parties, or they never really existed (that is they were only ever tyre kickers and wannabes)?

The figure of 19 was stated somewhere, I am sure................

Its in here, second paragraph:

https://www.smh.com.au/business/comp...13-p54snq.html

Ragnor 15th May 2020 08:54

I would think the 3 (which was always no more than that to begin with) would be genuine. Real question is, are they going to cough up the required figure that Deloitte need to make it work.

Con Catenator 15th May 2020 09:01

https://www.businessinsider.com.au/v...-points-2020-5

That's a very optimistic view of where this is headed - I would question the source of all this new found evidence of a re-start ???

zanthrus 15th May 2020 09:44

Virgin was a dead duck the second it went to Administration. It was insolvent and the managers waited too long to make the decision. Wind it up now and get the employees their entitlements at least. Another few weeks of jerking about with “investors” and their will be nothing left to divide up.

B772 15th May 2020 10:39

Now that the initial offers of interest has closed expect to hear rumours from parties that have walked away. One rumour from a party given access to the data room was that Virgin airfares would need to increase by 40% for the airline to be financially viable. The party lost interest upon reaching this conclusion after accepting the fact the new airline would be attacked by both Jetstar and Qantas.

MickG0105 15th May 2020 10:51


Originally Posted by Con Catenator (Post 10783168)
https://www.businessinsider.com.au/v...-points-2020-5

That's a very optimistic view of where this is headed - I would question the source of all this new found evidence of a re-start ???

Interesting that Velocity has re-opened domestic seat bookings but that 'other redemption opportunities aren't available for the time being'. So, Velocity is happily writing only the cheques that they don't have to cash.

Bear in mind that Velocity is not only a separate entity but it is also a creditor. You've got to wonder if this is some sort of inter-company square-up of the rumoured to be $200 million debt owed to Velocity by Virgin.

Denied Justice 15th May 2020 12:03

I don’t understand how they can re-open bookings when the status of the company is so unresolved.

This has to be positioning for the day of reckoning when the final outcome will be determined as to who gets what.

This is a very complex set of circumstances.


SHVC 15th May 2020 20:39

If it’s still in administration come September and aircraft are flying wouldn’t Deloitte be responsible for any loss making flights? If so, would it be reasonable to assume they know more then they’re letting on.

ampclamp 16th May 2020 01:06

For SHVC.

From the Guardian:

To do this, Strawbridge and the other administrators have also had to convince the federal court judge John Middleton to make extraordinary orders on Friday that allow them to avoid personal liability for the vast bulk of debts the airline continues to incur on their watch.

They’ve also taken legal action in the US to protect the airline’s assets from creditors there.


https://www.theguardian.com/business...es-for-a-buyer




wheels_down 16th May 2020 01:52


Originally Posted by SHVC (Post 10783663)
If it’s still in administration come September and aircraft are flying wouldn’t Deloitte be responsible for any loss making flights? If so, would it be reasonable to assume they know more then they’re letting on.

The longer it drags on the more risk Deloitte needs to take on in the form of more loans to keep the joint running.

They already have $200m taken out. They will want $300m back for that gesture.

SHVC 16th May 2020 02:05

So with that, would it appear they’re not confident in the business themselves? That’s why they want a fast transaction

Con Catenator 18th May 2020 00:05

One of the bidders has made the point that Virgin's liquidity position remained a going concern, with the central question being whether the airline could make it to the second creditors' meeting in August and still be solvent. So, the question is why would anyone bid for the company now, when it would be much cheaper to wait for receivership which would remove all liabilities to creditors and allow a clean slate to start again? :confused:

BNEA320 18th May 2020 01:01


Originally Posted by Con Catenator (Post 10785482)
One of the bidders has made the point that Virgin's liquidity position remained a going concern, with the central question being whether the airline could make it to the second creditors' meeting in August and still be solvent. So, the question is why would anyone bid for the company now, when it would be much cheaper to wait for receivership which would remove all liabilities to creditors and allow a clean slate to start again? :confused:

correct me if I'm wrong, but can't admin get rid of a lot, maybe not all creditors ?


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