Keep Virgin Australia in the Skies

[Bagpuss]

https://www.facebook.com/video.php?v=451925435600693

Interesting seeing the original coaster.
IMHO the biggest issues they wasted millions (maybe over a billion) :
Should have stayed single fleet, though the B777 was the right aircraft for international to USA only.
Never really understood why they had to rebrand to Virgin Australia, nothing wrong with the Virgin Blue name.
Should not have bought Tiger
Buying Skywest was a bit of a lemon. Though apparently the due diligence was poor by Virgin. But I think it makes sense. Also rebranding the airline aircraft to Virgin probably wasn’t really required.

 

[samh004]

If it took 3 years for VirginBlue to capitalise on Ansett's demise, then I personally would cop the short term monopoly of qantas for a similar duration, rather than have my taxes prop up the Emerati, Singaporean, Chinese investors..

It's a fair point to make I feel, that if the government propped up VA the eventual winners of this lifeline wouldn't be the Australian aviation market and low fares (though they may get a side benefit), but rather Etihad, SIA and the Chinese airlines who would again continue to use VA to feed their networks. By writing them a cheque with no conditions on it, VA would be in the same position they are in now in the future, because their investors would continue to take advantage of them.

I'm not sure if the market will be able to sustain 2 major carriers next year and into the future, but without wiping foreign equity (which isn't helping them right now) I can't see how VA wouldn't just end up in the same position. Their foreign owners don't care about profitability in Australia, they just want to feed their interests. I would hope by now VA realises that they're not in bed with partners, but competitors.

 

[oz_mark]

It's a fair point to make I feel, that if the government propped up VA the eventual winners of this lifeline wouldn't be the Australian aviation market and low fares (though they may get a side benefit), but rather Etihad, SIA and the Chinese airlines who would again continue to use VA to feed their networks. By writing them a cheque with no conditions on it, VA would be in the same position they are in now in the future, because their investors would continue to take advantage of them.

WHo has suggested that anyone would be writing cheques with no conditions on it?

 

[samh004]

WHo has suggested that anyone would be writing cheques with no conditions on it?

The original "loan" had the condition that if they couldn't re-pay then the government would take a share, but I wasn't really suggesting anyone in particular. Just that there SHOULD be conditions, as the investors of VA don't actually give a toss about VA, they want to feed their own networks. It is perhaps why VA has ended up in the situation they are now.

Do you 'follow' me (have notifications on)? ...you always manage to find a post of mine to reply to immediately after I post it. Reminds me of @munitalP.

 

[oz_mark]

Do you 'follow' me (have notifications on)? ...you always manage to find a post of mine to reply to immediately after I post it. Reminds me of @munitalP.

LOL. As if

 

[jakeseven7]

It's a fair point to make I feel, that if the government propped up VA the eventual winners of this lifeline wouldn't be the Australian aviation market and low fares (though they may get a side benefit), but rather Etihad, SIA and the Chinese airlines who would again continue to use VA to feed their networks. By writing them a cheque with no conditions on it, VA would be in the same position they are in now in the future, because their investors would continue to take advantage of them.

Exactly which is why they won’t get a taxpayer bailout.

What, we pay to fund foreign government controlled state assets and make them richer? I don’t think so.

The best course for VA is to go into administration do some serious chopping and pruning which PS started doing (tentatively), get some new private capital to tide them over and come out leaner and stronger.

 

[Melburnian1]

..Aside from the many thousands of Australians that VA employs (who would lose their jobs), if the airline doesn't make it out the other end of all this, we'll be left with a monopoly in the Australian aviation market. That will lead to much higher domestic airfares and a reduction in service (both in terms of frequency and quality). In turn, less people will travel to/within Australia, which will also hurt the tourism industry and small businesses all across the country...

While I prefer VA to QF/JQ (and even on occasion flew TT - maybe uncommon for AFFers), the Federal Government doesn't - and shouldn't - have the funds to bail out failing businesses. which sadly VA is. There's no rational reason why it should pick a winner in aviation when it doesn't give similar assistance to failing retailers who collectively employ far more people, or failing hotels, cinema chains, motor body repairers, wildlife parks, gyms or perhaps the hardest hit of all, major employment subsector of cafes and restaurants.

No one (even the Treasurer) really knows how much the Federal (and for that matter State) government budget deficits will be in 2019-20 and the next two financial years, but unless the virus is a thing of the past quickly - unlikely given lack of a vaccine - they'll be high. Some claim in 2020-21 the Federal Govt will run a deficit of A$100 billion. This is all money that workers today, or even those yet to be born, have to pay back through either higher taxes or fewer government services, assuming the economy doesn't go gangbusters and thus generate a lot more in company/personal/payroll tax post-virus.

I'd be optimistic that some newbie will arrive on the scene. Whether that's a rebadged smaller "Virgin", one can't say. But there's some chance a percentage of the present VA employees will be gainfully employed in aviation, although whether demand drops in travel after coronavirus is another question.

 

[hydrabyss]

While I prefer VA to QF/JQ (and even on occasion flew TT - maybe uncommon for AFFers), the Federal Government doesn't - and shouldn't - have the funds to bail out failing businesses. which sadly VA is. There's no rational reason why it should pick a winner in aviation when it doesn't give similar assistance to failing retailers who collectively employ far more people, or failing hotels, cinema chains, motor body repairers, wildlife parks, gyms or perhaps the hardest hit of all, major employment subsector of cafes and restaurants.

No one (even the Treasurer) really knows how much the Federal (and for that matter State) government budget deficits will be in 2019-20 and the next two financial years, but unless the virus is a thing of the past quickly - unlikely given lack of a vaccine - they'll be high. Some claim in 2020-21 the Federal Govt will run a deficit of A$100 billion. This is all money that workers today, or even those yet to be born, have to pay back through either higher taxes or fewer government services, assuming the economy doesn't go gangbusters and thus generate a lot more in company/personal/payroll tax post-virus.

I'd be optimistic that some newbie will arrive on the scene. Whether that's a rebadged smaller "Virgin", one can't say. But there's some chance a percentage of the present VA employees will be gainfully employed in aviation, although whether demand drops in travel after coronavirus is another question.

All the businesses you mention don't require large amounts of capital and time which is something they won't have if they want the economy to bounce back in a hurry.

 

[jakeseven7]

While I prefer VA to QF/JQ (and even on occasion flew TT - maybe uncommon for AFFers), the Federal Government doesn't - and shouldn't - have the funds to bail out failing businesses. which sadly VA is.

Exactly. Which is why a taxpayer funded bailout to try and prop up a foreign controlled company won’t be coming.

VA need to stop with the PR ‘save us taxpayers’ line - waste of time - and focus on securing new investors or what a restructure under the protections of administration could look like.

The whole crying for taxpayer money thing looks weak and will only further damage consumer confidence in their brand once they do start flying again.

All the businesses you mention don't require large amounts of capital and time which is something they won't have if they want the economy to bounce back in a hurry.

Everything’s relative I suppose.

 

[moa999]

Agree the PR stuff is just silly.

There is some rationale for the govt saving the airline but at this point it's too early to tell whether it's cheaper than what they'd have to pay in an administration event

Say we have very limited international travel for 3 years and domestic runs at 30% of previous. How many $s would the government need to put in.

 

[Melburnian1]

Exactly. Which is why a taxpayer funded bailout to try and prop up a foreign controlled company won’t be coming.

VA need to stop with the PR ‘save us taxpayers’ line - waste of time - and focus on securing new investors or what a restructure under the protections of administration could look like.

The whole crying for taxpayer money thing looks weak and will only further damage consumer confidence in their brand once they do start flying again...

Given the virus originated in mainland China, it is extremely unhelpful to VA's cause that two major investors are from there. If my reading is correct one of these - Nanshan - "may" be interested in pouring some $$ in (or was) but this all changes so quickly, and is largely behind the scenes and not (immediately) in the media.

And as AFFer TheInsider said "for how long?" (being a reference to if the Federal Govt threw taxpayer funds at VA, what length of time would this last for given its debts?)

jakeseven7, if VA enters administration, creditors may receive a typical few cents in the $ and investors (including the 8.7 per cent or so who are 'Joe and Joan Public' lose the lot, is that correct? And any staff who are owed salary/LSL/annual leave entitlements may be covered by that Ansett-era scheme and be ranked behind the ATO but ahead of unsecured creditors? But staff wouldn't receive an old-style golden handshake as well?

I know someone who worked at Ansett Australia in IT. It took years (three?) before he received what he was owned, with receivers and managers as I think they were called then making gradual payments as the value of assets was realised. The accountants who were engaged from memory did a good job in selling some assets for quite good prices.

 

[RAM]

It's a fair point to make I feel, that if the government propped up VA the eventual winners of this lifeline wouldn't be the Australian aviation market and low fares (though they may get a side benefit), but rather Etihad, SIA and the Chinese airlines who would again continue to use VA to feed their networks. By writing them a cheque with no conditions on it, VA would be in the same position they are in now in the future, because their investors would continue to take advantage of them.

I'm not sure if the market will be able to sustain 2 major carriers next year and into the future, but without wiping foreign equity (which isn't helping them right now) I can't see how VA wouldn't just end up in the same position. Their foreign owners don't care about profitability in Australia, they just want to feed their interests. I would hope by now VA realises that they're not in bed with partners, but competitors.

The 'cheque' asked for has MANY self-imposed conditions on it. Very, very cleverly crafted conditions so that Q would not want the same kind of deal. VA's advisers, or perhaps PS himself, have done a masterful job which is why AJ, Q and their seemingly puppets the Fed Govt have pushed back so strongly.

VA proposed:
# paying an interest rate 3x greater than Q paid recently for its equivalent term debt raising.
# NOT paying any dividends until debt & interest is fully repaid.
# NOT doing any share buy-backs until debt & interest is fully repaid (ud&iifr)
# NOT paying any increases in remuneration for senior executives, directors etc ud&iifr.
# NOT issuing any options or any type of derivative to another party ud&iifr.

If VA are unable to repay the debt & outstanding interest then, based on the VA share price when the deal was proposed, the Federal Govt would end up owning at least 70% of VA. If at such time the share price is lower then the Federal Govt could end up owning 99.7% of Virgin.

Can anyone see Q's directors agreeing to such a 'bail-out'?

Which means AJ's remuneration would be reduced by at least 75% if Q got the same deal. It is disappointing to see how none of the mainstream media have pointed out the voluntary handcuffs that VA proposed - instead they call it a bail-out.

Q has spent all the money raised from selling off its terminals leases to help fund the over 30% of their shares that have been bought back. The buyback alone led to earnings per share growing by over 42%. Not that eps growth was one of the factors in AJ's remuneration hurdles coincidentally.

For example Q sold off the remaining just less than 4 years of its Sydney terminal lease for $525m. It's new costs are much greater, as are what it agreed to with Mebourne & Brisbane according to various commercial property services.

With the potential, supposed, $800m liability for the Federal Govt if VA shuts down compared with the interest cost on $1.4bn of 3 year Commonwealth Govt Loans (correct name NOT bonds) at around 0.30% or $52m a year - it would seem a pretty compelling deal if 'other factors' weren't in play.

 

[samh004]

VA proposed:
# NOT paying any dividends until debt & interest is fully repaid.

Easy to say when you haven't actually paid a dividend since 2008 (from what I can tell – happy to be corrected on this).

If VA are unable to repay the debt & outstanding interest then, based on the VA share price when the deal was proposed, the Federal Govt would end up owning at least 70% of VA. If at such time the share price is lower then the Federal Govt could end up owning 99.7% of Virgin.

But why would the Federal Govt want to end up owning at least 70% of an airline that can't even pay them back... chances are at that stage, the government would most likely do what the rumoured administrators are about to do and start stripping it down to the point that it would be a shell of its former glory, just so they didn't lose any more money on it. I can't see the government being keen to continue running a loss-making airline. Most other former state assets they sold off too, so this would go against that idea.

Regardless, I'm not against VA coming out the other side of COVID-19, I just don't think they need the federal government to get there.

 

[serfty]

Regardless, I'm not against VA coming out the other side of COVID-19, I just don't think they need the federal government to get there.

Well, reports are that if VA do get liquidated the federal government will be up for .8B$ anyway

 

[codash1099]

Well, reports are that if VA do get liquidated the federal government will be up for .8B$ anyway

They would no doubt do what they did in the case of Ansett: place a levy on all tickets until they recover what it cost them.

 

[samh004]

Well, reports are that if VA do get liquidated the federal government will be up for .8B$ anyway

Perhaps, but better than investing nearly double that and if the market didn't recover to what it was, having to double down and invest some more in a year. I guess it comes down to the same decision the existing owners had to weigh up... do you increase the amount of money invested and hope it recovers, thereby making what you put in worth something, or simply take the hit as it stands.

 

[moa999]

This basically shifts a chunk of the burden from Australian taxpayers to foreign shareholders and foreign lessors.

I'm reasonably hopeful that a better VA2 will emerge from this.

 

[jakeseven7]

This basically shifts a chunk of the burden from Australian taxpayers to foreign shareholders and foreign lessors.

I'm reasonably hopeful that a better VA2 will emerge from this.

Which is exactly who should be footing the bill being a foreign owned company.

 

[11sjw]

Am I being naive here or does the fact that the owners didn't want to stump up any extra $$ tell us all we need to know?

 

[dajop]

Am I being naive here or does the fact that the owners didn't want to stump up any extra $$ tell us all we need to know?

In normal time yes.

Now? Maybe, maybe not. Most of it's owners have no capacity to stump extra $$$ even if they wanted to. Most have had revenue cut by 95% in the last few weeks as well. The last thing you do when your market collapses and incoming cash goes to functionally zero is stump up to invest more in non-core assets who not only were on shaky ground previously, but also had their incoming cash go to zero and revenue cut by >95% at the same time you did. Save yourself first.

I do wonder if some of the investors have already written down their VA assets (eg SQ, might well have written down its $319m stake in VA, as part of its $19bn refinancing deal with Singapore Government's sovereign wealth fund, who knows).