Virgin Australia Financially Secure? [Now in Voluntary Administration]

[wxxnxs]

To those obsessed with saving $15m per year paying Richard for the Virgin name how about some really rough math to get over it?

Google estimates repainting a 737 costs between US$100,000 to US$200,000.

So how about we call it AUD $200,000 per 737 x 130 planes = $26m .... just for the planes. Then lounges, terminals, gate signage, boarding passes, business class napkins and salt and pepper shakers.

Don't forget the new uniform cost. Redesigning from the scratch could also cost a fortune.

 

[Mogul]

Bidders line up as Virgin clears the debt

Two of Australia’s largest companies, Wesfarmers and Macquarie Group, are said to be contenders in the bidding process to recapitalise Virgin Australia. They join a long list.

www.smh.com.au

It's not the first time Westfarmers has been mentioned in the last few weeks.

 

[aaronm]

Wesfarmers do have something of a war chest following the Coles sale without any significant acquisitions since. And if VA were to be Australian-owned then any government assistance (now or future) would be a far easier sell politically.

 

[hydrabyss]

Air NZ should be thanking their lucky stars that the NZ government just propped them up to the tune of $900m or they would be in more of a perilous position than VA

To get the funding they have to fly certain routes even if they are not profitable so still need to be careful.

 

[antycbr]

To get the funding they have to fly certain routes even if they are not profitable so still need to be careful.

They have to fly ATRs about the place to all sorts of regional ports... they'll cost a bit in wages but don't use too much fuel. Stage lengths in NZ are short compared to Australia so they can pack a lot of flying into a day for a crew.

NZ has an supersized international business for the population base as their model was a scissor hub for Aussies, plus Kiwis travelling internationally. The other thing that amazed me was that there were 16K Germans stuck in NZ when this all happened - there's been a heap of LH group services in to NZ. They must have got there somehow.

NZ has a lot of the issues that QF has in terms of DOM/INT mix but has a government that's willing to write them a big cheque (and another one if needed no doubt). Too big to fail.

 

[hydrabyss]

I'm *not* a fan of the PM, and *am* a fan of VA, but I'll give him that.

When you're right, you're right.

In NZ they called the PM "SCOMO DUNDEE" in a news article I read. If you google it it should come up.

 

[antycbr]

Wesfarmers do have something of a war chest following the Coles sale without any significant acquisitions since. And if VA were to be Australian-owned then any government assistance (now or future) would be a far easier sell politically.

Selling down Coles tranches while the stock was so high due to panic buying is a smart move. When you look at their other retail businesses, sales at Bunnings and Officeworks have been through the roof as well, though Kmart and Target are another matter. Wesfarmers know how to turn a business around as well, which is exactly the skillset required right now. In conjunction with an airline partner they'd be able to pull it off.

 

[Harthagan]

Am I the only one who thinks it's crazy that Virgin expect to get through this without a single job loss or redundancy?

Do they not realise that the entire aviation industry has been brought to it's knees and will not be recovering any time soon. How do they propose to keep 10,000 people in jobs, doing what exactly?

Seems like the only ones being made to hurt are the customers. Points are frozen, refunds refused to be given, travel banks are all but useless between now and when the company goes into liquidation.

In the mean time though at least their ridiculously bloated staff roster remains in tact. How they are allowed to continue on without refunding customers for cancelled flights is beyond me.

 

[antycbr]

The media are shi***ng me right now saying VIRGIN COLLAPSE. I think we need some education for the media about the difference between Administration and Liquidation. In their defence their point of reference is Ansett.

 

[Melburnian1]

Let me walk you though it as you pay income tax.

Now that VA is in administration, if it doesnt make it out the other side there will be obligations on the government to pay for liabilities to the VA employees. These are backed by the government through the Fair Entitlements Guarantee Scheme. (link) After this time the VA employees will be on Jobseeker (the dole) until such time as they find another job, which might be a long time. The FEGS liability has been estimated at $800 million...

I understand the above, and also that VA is now in the hands of administrators, which is NOT receivership/ liquidation.

Can you explain however given the existing company has huge debts, notwithstanding the Jobkeeper scheme that makes it mandatory for the company keeping employees 'on' if Jobkeeper conditions are to be met, why hasn't Scurrah made more staff redundant to minimise costs to the business while Deloittes wait for the creditors' reaction to their appointment, and later (iof court approved) fully assess any expressions of interest?

I'm building on Harthagan's excellent point above (that shamefully I had not read until after I posted the above). Like that AFFer, I just can't see that VA would need 8000 or even 1000 staff at present, given it's flying so little/not at all. Sure, it requires administration staff to tie up loose ends, and engineers to look after the stabled aircraft, and management to deal with other items requiring finalisation, but who else apart from a minority of flight crew?

 

[oz_mark]

Am I the only one who thinks it's crazy that Virgin expect to get through this without a single job loss or redundancy?

Do they not realise that the entire aviation industry has been brought to it's knees and will not be recovering any time soon. How do they propose to keep 10,000 people in jobs, doing what exactly?

Seems like the only ones being made to hurt are the customers. Points are frozen, refunds refused to be given, travel banks are all but useless between now and when the company goes into liquidation.

In the mean time though at least their ridiculously bloated staff roster remains in tact. How they are allowed to continue on without refunding customers for cancelled flights is beyond me.

The administrator has said they don't intend to - but this does not mean the future owner will not.

In the meantime, 8,000 staff have been stood down, and many of those will basically be accessing JobKeeper payments. I don't see there is any real impertive for the administrator to fire people just at the moment.

 

[jakeseven7]

The media are shi***ng me right now saying VIRGIN COLLAPSE. I think we need some education for the media about the difference between Administration and Liquidation. In their defence their point of reference is Ansett.

The media has been no friend to VA through all of this that is for sure, but they just blow with the wind of public sentiment which also has been ambivalent at best towards VA’s fate as well.

 

[antycbr]

The administrator has said they don't intend to - but this does not mean the future owner will not.

In the meantime, 8,000 staff have been stood down, and many of those will basically be accessing JobKeeper payments. I don't see there is any real impertive for the administrator to fire people just at the moment.

Making people redundant would be more cashflow out of the entity to pay the entitlements out. it's probably cheaper to keep them on Jobkeeper rather than crystallising the redundancy payment.

This is where this administration is unusual in that someone else is paying for the wages bill (the taxpayer.) Normally this would not be the case.

Better to wait in a holding pattern while the administrator (who was only appointed this morning!) assesses the offers moving forward. If none of the offers are viable then liquidation and FEGS kick in.

Scurrah has made all of the VANZ staff and Tiger staff redundant though before administration, which sends a pretty clear marker about the future direction of the airline.

Edit: There's a number of staff needed in this grounded model - customer facing people who would still be dealing with refunds etc; HR and group medical continues; accounts payable for the accounts you want to pay; media and government relations people; people managing velocity partners; finance department staff will be running around everywhere collecting info for the administrators if they're not replaced by Deloittes people; IT; maintenance as you have mentioned; pilots need to stay current on the simulator etc if they're going to restart; CASA designated roles such as chief pilot etc and they're still operating some flights.

 

[jakeseven7]

Selling down Coles tranches while the stock was so high due to panic buying is a smart move. When you look at their other retail businesses, sales at Bunnings and Officeworks have been through the roof as well, though Kmart and Target are another matter. Wesfarmers know how to turn a business around as well, which is exactly the skillset required right now. In conjunction with an airline partner they'd be able to pull it off.

Wesfarmers are also huge in the loyalty game and VFF would be a very good fit for their retail businesses / integrated or even merged into Flybuys. Im sure if they could pick up A big chunk of VFF they would be happy (and maybe a little of VA to keep some control there.).

Wesfarmers are also exceptional at cost control and VA management need to be fed a very hefty dose of that.

 

[antycbr]

Wesfarmers are also huge in the loyalty game and VFF would be a very good fit for their retail businesses / integrated or even merged into Flybuys. Im sure if they could pick up A big chunk of VFF they would be happy (and maybe a little of VA to keep some control there.).

Wesfarmers are also exceptional at cost control and VA management need to be fed a very hefty dose of that.

Until I went digging I didnt realise that Wesfarmers retained 50% of flybuys when they spun out Coles.
(Link)

 

[jakeseven7]

Until I went digging I didnt realise that Wesfarmers retained 50% of flybuys when they spun out Coles.
(Link)

Yup. VFF x Flybuys - perfect match.

 

[HS-TQE]

What would Westfarmers call "VA Mk II"? -

FlyBuys Airways, Coles Air, Air Kmart? Bunnings Express?

 

[antycbr]

What would Westfarmers call "VA Mk II"? -

FlyBuys Airways, Coles Air, Air Kmart? Bunnings Express?

It's already been proposed that inflight catering could be a sausage sizzle. To be honest it'd be better than a micromuesli bar or strange salty snack that makes you want to buy something from the cart.

 

[Cubiscus]

Wasn't it Wesfarmers who tried to buy Qantas a while back?

 

[hydrabyss]

About a month or two ago Wesfarmers had a list of potential companies that would fit their requirements for investment and Qantas was on the list but not Virgin as far as I know.