Virgin Australia has entered voluntary administration with the cash-strapped airline unable to weather the coronavirus crisis because of its $5 billion of debt.
Australia’s second-biggest carrier, which has about 10,000 employees, last week suspended trading in its shares to continue talks on financial aid and restructuring alternatives. It had requested a loan of $1.4 billion from the government and entered debt-restructuring talks with creditors.
Virgin said the current management team led by chief executive Paul Scurrah would continue to run the business and it would still operate scheduled domestic and international flights to help transport essential workers, maintain freight corridors and return Australians home.
“Our decision today is about securing the future of the Virgin Australia Group and emerging on the other side of the COVID-19 crisis,” Scurrah said in a statement.
Transport Workers’ Union secretary Peter Biagini told the ABC’s News Breakfast “this is terrifying moment” for Virgin employees.
“Being stood down was bad enough, but believing that there would be light at the end of the tunnel and being able to get back to work once the restrictions are lifted, and now that doesn’t look likely,” he said.
“It’s an enormous amount of people that’s going to be affected by this, as well as their families.”
The airline had reported annual losses for seven consecutive years before the pandemic and appointed Deloitte as its administrator.
Administrator Vaughan Strawbridge said Deloitte had begun a process of seeking interest from parties in recapitalising the business and there had been several expressions of interest.
“Our intention is to undertake a process to restructure and refinance the business and bring it out of administration as soon as possible,” he said.
Biagini added that if Virgin falls over, it would take years for another airline to “fill the void” and stressed the need for two strong carriers to operate after coronavirus in order to service Australia’s passenger and freight needs.
“I’m really disappointed that the Federal Government hasn’t stepped up,” he added.
A source said the airline’s board had met on Monday and determined there was only enough cash on hand to keep operating for about four to six weeks, necessitating a restructuring.
Options available under Australia’s voluntary administration regime include asset sales, an agreement with creditors, debt write-offs or a winding up of the company.
Estimated global airline losses from the coronavirus pandemic have climbed to $314 billion and led to industry warnings that carriers will collapse without sufficient government aid.
More than 90% of Virgin Australia’s shares are controlled by a group of investors including Singapore Airlines, Etihad Airways, Chinese conglomerate HNA Group and Richard Branson’s Virgin Group, which have all suffered a sharp deterioration in revenue because of the coronavirus pandemic.
HNA declined to comment. Singapore Airlines and Etihad Airways did not respond immediately to requests for comment.
In a blog post on Monday, Branson said he was hopeful that Virgin Australia could emerge “stronger than ever, as a more sustainable, financially viable airline”.
“If Virgin Australia disappears, Qantas would effectively have a monopoly of the Australian skies,” he said.
Virgin Australia had posted an $88.6 million net loss for the six months to Dec. 31 before, due in part to heavy losses at its small international division.
The former budget carrier moved upmarket to compete against larger rival Qantas Airways for business travellers under the leadership of long-time Chief Executive John Borghetti but racked up losses.
Paul Scurrah, who took over from Borghetti in March 2019, has been cutting costs and reducing the size of the airline’s workforce and fleet in an effort to restore profitability.
The airline, however, took on additional debt under Scurrah to fund the A$700 million buyback of a 35% stake in the frequent flyer programme it had sold to a private equity group when Borghetti was in charge.
After the coronavirus outbreak and imposition of strict travel restrictions, Virgin Australia grounded all international flights with the exception of government charters, drastically reduced its domestic flying and put the bulk of its staff on leave to preserve cash.
Moody’s downgraded Virgin Australia’s credit rating on Friday, citing an assumption that any outcome was likely to result a debt haircut for bondholders. Its Australian-listed bonds last changed hands at about 37% of face value.
Reporting by Jamie Freed; Additional reporting by Paulina Duran.