Virgin Australia Holdings Ltd, Australia’s second-largest airline, yesterday announced it had entered voluntary administration as it seeks to strengthen its finances amid a debt crisis.
Virgin said in a statement to the Australian Securities Exchange that it had appointed a team of Deloitte administrators to “recapitalize the business and help ensure it emerges in a stronger financial position on the other side of the COVID-19 crisis.”
Virgin is one of the first major airlines to seek bankruptcy protection in response to the pandemic. Virgin’s administrators have taken control of the company and will try to work out a way to save either the company or its business.
Photo: AFP
The move came after the Australian government refused Virgin’s request for an A$1.4 billion (US$888 million) loan.
Rival Qantas Airways Ltd argued that it had three times more revenue than Virgin and was therefore entitled to an A$4.2 billion loan if the smaller airline was not to gain an unfair advantage.
“Our intention is to undertake a process to restructure and refinance the business and bring it out of administration as soon as possible,” administrator Vaughan Strawbridge said in the statement.
Photo: Bloomberg
Virgin would continue to operate its scheduled international and domestic flights, the vast majority of which have been canceled due to the COVID-19 pandemic.
Virgin is struggling to repay A$5 billion in debt after several loss-making years.
Some analysts predict that if the airline survives, it will drop international services and focus on the Australian domestic market.
Virgin Australia’s major shareholders are Singapore Airlines Ltd and Etihad Airways PJSC as well as Chinese investment conglomerates Nanshan Group Co (南山集團) and HNA Group Co (海航集團). British billionaire founder Richard Branson holds a 10 percent stake.
The Australian government and businesses fear that a collapse of Virgin would leave Qantas with a virtual monopoly in the domestic aviation market.
Australian Prime Minister Scott Morrison said he was encouraged that “10 parties have shown interest” in Virgin’s future and have approached administrators to discuss financial deals.
“If we’d not taken the actions that we have and not demonstrated the patience that we have, then all we may have ended up doing is sending A$1 billion to foreign shareholders and that was never part of my plan,” Morrison told reporters.
“Our plan was always about seeing two viable airlines on the other side,” he added.
Virgin filled a gap left when Qantas’ former main domestic rival, Air New Zealand-owned Ansett Australia, collapsed in 2001.
Brisbane-based Virgin has 130 aircraft and employs 10,000 staff.
Opposition lawmakers and union leaders called for the government to bail out Virgin to save jobs and low-price domestic airfares.
“This crisis isn’t a result of market failure, it’s a result of a government decision to shut the market,” opposition Labor Party leader Anthony Albanese said. “That’s why talk of market-based solutions at the moment is a triumph of ideology over common sense.”
In the US, major airlines are getting US$25 billion in government aid to pay workers and avoid massive layoffs. The assistance includes a mix of cash and loans, with the government getting warrants that can be converted into small ownership stakes in the leading airlines.
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