Virgin Australia Considers Calling In Administrators

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Virgin Australia’s share trading was halted today on the Australian Stock Exchange while the airline tries to renegotiate its debt obligations and extort cash/loan guarantees from the country’s government.

The airline only has A$900M ($575M) cash on hand that could last until September and has debt above A$5B.

You can access Virgin Australia’s website here.

Here’s an excerpt from the Guardian (access their piece here):

It is believed administration, under which control of the company would be handed to insolvency experts, is at one end of the range of options being considered by Virgin Australia.

Administrators have powers not available to company directors, including the ability to force all creditors to take a haircut under a deed of company arrangement. Administrators are also able to disclaim uneconomic contracts, freeing the company from onerous obligations.

To succeed, a deed of company arrangement requires support from half the creditors, by number and amount owed.

Here’s an excerpt from the SMH (access their piece here):

With almost no revenue coming in, Virgin’s interest payments are a major drain on its remaining $900 million cash balance, which analysts estimate could last the company three to six months.

Options being considered include creditors swapping their debt for equity in the company which, with its market value at just $726 million, would wipe out Virgin’s existing major shareholders.

Virgin is 90 per cent owned by Singapore Airlines, Etihad Airways, the Chinese conglomerates HNA and Nanshan, and Richard Branson’s Virgin Group.

Here’s the announcement from Virgin Australia:

Download (PDF, 200KB)

And an email that came in from Velocity:

Conclusion

It is unlikely that the bankrupt HNA group, which is being untangled and sold in pieces by the Chinese government, or Etihad, owned by the Aby Dhabi government, would be willing to spend any more money on their airline investments that have failed miserably.

Singapore Airlines was just bailed out by the country’s government in the tune of $10B and not sure how much free cash Sir Richard has lying around when Virgin Atlantic surely is in need too.

The best course of action would be to convert most of the debt into equity and wipe out the current stockholders.

There is no reason for the Velocity-program to exist without a supporting airline. Airberlin’s Topbonus tried to trade after the airline collapsed before folding itself (separate entity owned by Etihad).

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