SYDNEY (Reuters) – Virgin Australia (VAH.AX) is poised to enter voluntary administration, two sources close to the matter said on Monday, with the cash-strapped airline unable to weather the coronavirus crisis because of its A$5 billion ($3.2 billion) of debt.
FILE PHOTO: Travelers stand at a Virgin Australia Airlines counter at Kingsford Smith International Airport, following the coronavirus outbreak, in Sydney, Australia, March 18, 2020. REUTERS/Loren Elliott/File Photo
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 A$1.4 billion from the government and entered debt-restructuring talks with creditors.
The company, which had reported annual losses for seven consecutive years before the pandemic, is expected to appoint Deloitte as its administrator, the sources told Reuters on condition of anonymity because they are not authorised to speak to the media.
A formal announcement is expected on Tuesday, the sources said, confirming earlier local media reports.
One of the sources 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.
The airline is expected to keep flying government-subsidised routes after entering administration, the sources said.
Virgin Australia and Deloitte declined to comment.
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 (SIAL.SI), 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 A$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 (QAN.AX) 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; Editing by David Goodman