News Article

Virgin Australia collapses under pressure of coronavirus

Cash-strapped Virgin Australia collapsed last week, making it the largest carrier to crumble under the pressure of the coronavirus pandemic that has devastated the global aviation industry.

In a statement to the Australian Stock Exchange, Virgin said it was preparing to keep flights going while handing over the keys to administrators.

“Today’s decision is about protecting the Virgin Australia Group’s future and emerging on the other side of the COVID-19 crisis,” CEO Paul Scurrah said in the release. “Australia needs another airline, and we’re ready to continue flying.”

The airline was in debt in excess of 5 billion Australian dollars (YEN 338.9 billion; USD 3.2 billion) and had appealed for a 1.4 billion AUD loan to remain afloat, but the government declined to bail out the majority foreign-owned company.

Administrator Vaughan Strawbridge, of Deloitte the accounting firm, said more than ten parties had expressed a “willingness” to be part of the restructuring plans.

“The interest in the company and the restructuring of Virgin Australia has been exceptional,” he told reporters in Sydney.

“And so we are positive that this will bring about a restructuring being achieved in a short time.”

Rating agency Moody’s said unsecured creditors would need to take “a major haircut” if successful restructuring were achieved.

“Nevertheless, such an outcome may remain preferable to placing the company into liquidation with uncertain prospects for recovery,” it said.

The airline had already made 1,000 staff redundant, and 8,000 of its 10,000 pilots, flight attendants and ground crew were standing down.

Strawbridge said that the administrators should “try to retain as many of these jobs as possible.”

Virgin halted all international routes and abolished all but one of its domestic routes after Australia shut down its borders to prevent the spread of COVID-19 and imposed stringent movement restrictions.

More recently, the airline started operating restricted domestic services, as well as flights from overseas to carry Australians home, with government financial support.

Virgin was struggling before the start of the coronavirus outbreak, posting an underlying before-tax loss of AUD 71.2 million last year.

Richard Branson, Virgin Group’s billionaire founder, who holds a 10 per cent stake of the airline, tweeted a message in support of the Virgin Australia team.

“I am so proud of you and of what we have done together,” he said.

“This is not Virgin Australia’s end, but I think it’s a fresh start. I guarantee we’ll be working day and night to make this a reality again.

Branson said on Twitter that to get Virgin Australia back up and running, his company will collaborate with administrators, the management team, investors and government.

Branson also joined a group of voices condemning Australia’s government for refusing to bail out the airline, claiming that governments in most countries had “stepped up” during the “unprecedented aviation crisis” to support their airlines.

Australia’s news follows last month’s collapse of Britain’s largest domestic airline, FlyBe, as the downturn of air travel is bringing many businesses into crisis.

The United States has reserved billions of dollars to fund airlines around the country including giants American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.

There are concerns about what Virgin’s problems could mean for Australians, who are heavily dependent on air travel in the vast country, and about the future of a tourism industry that is still suffering from months-long bush fires and the COVID-19 pandemic.

Australia currently has two full-service carriers, Virgin and Qantas the national flag carrier, complemented by their budget offshoots, Tigerair and Jetstar.

Treasurer Josh Frydenberg insisted that the decision of Virgin to join the voluntary administration was “not the end of the airline,” and that the government should collaborate with the administrators to obtain the best outcome.

“Our objective is a market-led solution. Our goal is to have two major, commercially viable domestic airlines operating in Australia, ” he said.

The federal government also sought the rescue of Virgin’s international creditors, who jointly controlled 90 per cent of the carrier, including Singapore Airlines and Etihad Airways, each with a 20 per cent interest.

Virgin, which grew quickly following Ansett’s failure in 2001, becoming the country’s second-largest carrier, has a share of around one-third of Australia’s domestic aviation sector, but under a consolidation plan that may decrease.

Rico Merkert, a transport professor at Sydney University Business School, said Virgin should concentrate on operating a core fleet of Boeing Co. 737 aircraft on main domestic capital city routes, rather than flying widebodies and regional turboprops as well.

Strawbridge said that the airline is holding talks with Boeing on the future of its 40 737 Max aircraft order. After two deadly crashes, the model has been grounded internationally for more than a year.

Estimated global airline losses from the pandemic have grown to $314 billion and have led to concerns from industry that airlines would fail without proper government aid.

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