Virgin Australia Financially Secure? [Now in Voluntary Administration]

[Cubiscus]

If they keep the 777s you'd think it would do, possibly just to LAX?

 

[Bagpuss]

Can you clarify, please? Virgin's debt reported as A$5 bill. If your scenario has $2 bill debt going forward, is your 'buy-out' figure of $3bill- $5bill including $3 bill of debt repayment by the new owners? So the 'equity' value is between $0 and $2 bill?

I wouldn't think any new party would want to repay debt with their cash straight-up. More likely a restructure of existing debt, with certain guarantees. But difficult with no certainty as to when the airline gets going again. But then, debt holders get b-all if it turns into a liquidation, so I guess they are amenable to a long term restructure, with some guarantees. Maybe convert some debt to equity?

It depends how a deal is done / structured at the end of the day and who the consortium are who buys them. If an existing creditor is part of the deal they could just roll that into the deal.
This is why I thinks there’s a $2billion in difference of the purchase price.

 

[jakeseven7]

If they keep the 777s you'd think it would do, possibly just to LAX?

LAX was becoming marginal as already discussed in this thread for a few reasons and I would also think the short term market for LAX will be extremely thin as well.
Might be easier just to dump all long haul VAi and be done with it.

 

[hydrabyss]

I am truly hoping Branson is able to pull it off and help return Virgin Australia to the skies.

https://www.executivetraveller.com/news/richard-branson-virgin-australia-rescue

 

[Bagpuss]

If they keep the 777s you'd think it would do, possibly just to LAX?

I would expect VAi to keep flying. I wouldn’t be surprised if they go to a different port. There’s a few options. Unsure if MSP becomes a possibility at some stage with the right aircraft.

 

[jakeseven7]

I am truly hoping Branson is able to pull it off and help return Virgin Australia to the skies.

https://www.executivetraveller.com/news/richard-branson-virgin-australia-rescue

Oh, my, goodness.

This guy. Doesn't he realise he is playing straight into the governments hands with distracting cough like this.

I am PRAYING the administrators get a far better offer and jettison Branson along with the other owners.

Please have some rational, business minded new owners come onboard

 

[Bagpuss]

I am truly hoping Branson is able to pull it off and help return Virgin Australia to the skies.

https://www.executivetraveller.com/news/richard-branson-virgin-australia-rescue

I think it’s an obvious yes VIrgin will, likely very small. He wasn’t happy about Virgin America going.
I’m expecting 3 owners as a consortium with Virgin being the smallest. IE Virgin 4%, Company A 51%, Company B 45%

 

[Mogul]

My posts are consistent. If VA does not resurface then that makes Q's weak hand a little stronger - but still a weak hand.

I have no grudge just that companies should be honest & transparent in what they do so that current & potential shareholders can make a fully informed decision. BTW - that is the law believe it or not.

AJ & Q are on a hiding to nothing, and know it. Their one trump card is the "perception" carried over as Australia's flag carrier etc. Post CV - their cash flow is very negative, in the hundreds of millions a month imho. Their balance sheet is a wonder of financial wizardry that may not face scrutiny. This was revealed on their write-down of the international fleet in 2013/14:

Qantas posts 'confronting' $2.8b loss after hefty writedowns

Qantas has reported a lower than expected full-year underlying loss before tax of $646 million, but booked a statutory loss of $2.8 billion as a result of hefty restructuring charges and writedowns to its fleet.

www.smh.com.au

"There had been speculation for nearly a decade that Qantas' fleet was overvalued. The airline said on Thursday the writedowns were triggered by the decision to split its international business from the rest of the operations, because the asset values were then no longer shielded by the surpluses in other divisions."

&

"Following the writedown, the carrying value of the fleet will be more reflective of the current market value, and depreciation charges will be reduced by $200 million a year, the company said."

Now is definitely not the time to be found to be over-valuing.

In doing a plane by plane reconciliation at the time - it became clear that Q seems to have a unique approach to 'valuing' their aircraft', and the movements had an uncanny correlation with reported P&L in a most inventive way. After all, it does seem unusual to have a 21 year old B747 valued in the balance sheet at more than it cost when purchased in the early 1990s DESPITE claiming depn on it every year?

Especially when Q states it uses straight line depreciation on planes & parts over a range of 2 to 20 years.

Is it a Ponzi scheme of sorts? Who knows but 1 + 1 ALWAYS = 2 eventually. In Australia we have a long record of Top 100 companies getting their annual reports signed off by the external auditors year after year - and the company then goes under often accompanied by an 'irregularity' in their accounts.

Looking at the cash flow is normally a good guide. Q raised around $1.4bn by selling of the remaining Terminal leases for Brisbane, Melbourne & Sydney. Over the same time they bought back over 30% of outstanding shares. Looking at their balance sheet and off-balance sheet liabilities - does not fit the description of looking very strong.

Their Earnings per share (adjusted effect of for the buy back) has actually fallen around 30%.

The 30%+ buying back of shares, ceteris paribis, boosts the EPS by more than 42%. Statutory EPS has risen from 49 cps to 55cps since July 2015 to 30 June 2019, a little over 10% increase.

In the year to June 2019, statutory eps was described as flat despite shares on issue falling by 7%. The buy back would have increased EPS by 7.5%, and this period saw the profit on selling its Melbourne lease in the 2018/19 financial year for $355m realising a profit of $141m. Perhaps more disturbing was that Q wrote-back the value of their Helloworld Travel shareholding after managing to sell 2 million shares @ $5.50 - Q reversed its 'impairment charge' on its remaining holding by $43m - so all up increasing its profit by $184m (around 13% of NPBT).

[The current Helloworld Travel share price is around $1.30 having traded as low as $0.67 recently.]

Yet despite all these one-off boosts the EPS was flat. A bit like how Australia's GDP per capita has been falling but total GDP (due to the net 200,000 annual immigration) had been growing perhaps?

Q's cupboard is pretty bare with almost no 'hollow' logs left, and looking at its fleet carrying value suggests that despite writing down the A380s in 2013/14 massively, they may have been revalued (despite claiming annual depreciation) back to around what they were prior to the writedown. If you are interested try sending an email to Q investor realations and ask how much the Q A380 fleet is valued at in the balance sheet as I cannot quite work it out.

AJ & Q's only hope was/is that VA does not get resurrected due to the rest of the world's airlines cash flow woes. Then as Australia's sole remaining domestic/international airline - the Fed Govt will step in to provide whatever they require - or I could be totally wrong.

Q has/operates a fleet of around 314 aircraft with over 100 the basis of their international fleet. Given the well publicised issues with all but Emirates A380s then the BS valuation of these may well get questioned by the external auditor. The first two A380s to reach 10 years (operated by SIA on lease) despite the positive talk encouraged by Airbus - could not find any operator wanting them.

Subsequently when it was revealed that the ex-SIA planes had been sent to be dismantled for parts there were many articles about how the parts where worth more than the sum of the whole etc etc. Subsequently revealed that buyers were proving harder to find for the parts and the 2 A380s were written down substantially more.

Post CV - a number of airlines have parked their A380s with the likelihood that they will not be put back into service. The cost of maintaining them to (say FAA) standards requires between 238 to 407 man hours of maintenance every 48 hours depending on their age for example. Given the A380 requires the highest load factor of any widebody to break even - there are many other planes that will go back into service before A380s.

Air NZ is mothballing their B777s (except one converted temporarily to freight by taking out it's seats) until at least April 2021.

Running the numbers, for some airlines, it seems that retiring the A380s is cheaper than maintaining them for 6 months or more.

In Q's case who knows.

Q has very large fixed costs for its international fleet, plus substantial parking expenses in Australia & overseas (due to lack of space within Australia), Australian & overseas terminal leases (including Q Club lounges etc), locked in fuel hedges at 100% for 2019/20 at much higher levels for perhaps 4x as much fuel as they are currently using - and no place to store it. This will not be cheap.

As of 30 June 2019 they had unearned revenue of just under $6 billion as liabilities of which approx $3.5bn is ticket sales and around $2.5bn of QFF points allocated but yet to be redeemed. Q restricted QFF redemptions back on March 20th despite saying there was no run on points redemption;

"Qantas has limited purchases through its loyalty store to two items of each product every day in response to "high retail demand". The airline - which says there has not been a "run" on points - has told members the limit was to "ensure the continued availability of products to as many members as possible"

Against this Q had around $2bn of cash. Since then share buybacks have chewed through a good portion of the cash as has the interim div payment and the impending final of around $200m.

Time will tell how this all pans out - but Q isn't as safe as the spin may say or many hope. If there's a run on their QFF points then their credit rating is likely to go below investment grade aka become junk.

Of course, international flying might recommence with 78% plus loads from 1 July 2020 but I don't think so. Similarly I don't see any of the European Govts, Asian nor the US doing Q any favours once borders eventually reopen.

Great post.

When you start looking closely at QF's books definately not as rosey as AJ would make out. AJ says they have around $4B in unencumbered aircraft still to borrow against. One would hope this figure doesn't include the A380's which will effective be worthless as airlines around the world start to discard them.

AJ's biggest worry would be VA coming back to life with a reduced cost base, streamlined operation, etc. Domestic flying will be soft for a long time especially business flying which QF generates a lot of $$$ from, and no international in the short to medium term. AJ won't be able to go cap in hand to the Government as the last man standing.

In the wash up QF could quite possibly come out of this a lot worse than VA.

 

[jakeseven7]

Depends on the price as always. For short haul recliners with decent AV are fine for me (don't bar me from AFF for saying that)

Haha don't worry takes a lot more to get suspended than that, but it does happen

My point was - is that attractive enough for people to save up VFF points for - if that was the only J class available, if VA get rid of their 777 and A330 fleet (VAi has been unprofitable and a problem child for a long time)

 

[hydrabyss]

I just read this article and you can see similarities between VA and Qantas

https://www.thedailybeast.com/will-richard-bransons-virgin-atlantic-be-the-first-airline-killed-by-coronavirus

 

[Bagpuss]

In the wash up QF could quite possibly come out of this a lot worse than VA.

There‘s also talk of Qantas offloading their stake in Jetstar Pacific. Likely loosing all investment they made for no return.

Will Jetstar Pacific Be Wound Down? Qantas Seeks To Offload Shares

simpleflying.com

I think QF are in for a lot of pain. As mentioned they sold back terminals etc, they done a fair share of smoke and mirrors.
Virgin could come out of this more dominant, some of PS’ comments have hinted this during the course of this week.

 

[jakeseven7]

I think it’s an obvious yes VIrgin will, likely very small. He wasn’t happy about Virgin America going.
I’m expecting 3 owners as a consortium with Virgin being the smallest. IE Virgin 4%, Company A 51%, Company B 45%

As long as Virgin don't have a board seat and Branson is banned from being a company spokesperson I can live with them having a minor stake....

But he just wants the $ from licencing.

 

[jakeseven7]

SO lets list the potential new owners of VA that have popped up in the news:

- EY (in partnership with PE)
- Wesfarmers
- Lindsay Fox (+ Vic Gov, but they have reportedly pulled out for time being)
- Macquarie Group
- Virgin Group (sigh)
- Various PE groups

Have I missed any??

 

[jakeseven7]

Virgin Mark II should stick to Australia

A new-look Virgin Australia should shrink to become a domestic carrier and forget about international routes in the short term to give itself the best chance of long-term reinvigoration, industry players and analysts say.

Virgin International Australia is now, like Virgin Airways, in voluntary administration, having never been profitable and entirely reliant on Virgin to operate. The decision to place that entity in administration was made immediately after Virgin Australia was placed in administration.

Sone of the restructuring options could include relinquishing some of the international landing rights, a source said, which could either be sold or given up. However, they are considered an important feeder for domestic traffic.

Virgin Australia has a fleet of 132 planes, with 63 of them owned by the company and 69 leased.

Virgin Mark II should stick to Australia

Industry players think a narrower focus on the domestic market offers the best model for a revival of the airline once people begin flying again.

www.afr.com

 

[HS-TQE]

SO lets list the potential new owners of VA that have popped up in the news:

- EY (in partnership with PE)
- Wesfarmers
- Lindsay Fox (+ Vic Gov, but they have reportedly pulled out for time being)
- Macquarie Group
- Virgin Group (sigh)
- Various PE groups

Have I missed any??

As mentioned on the other forums NH has 'supposedly emerged' as an contender.
Supposedly talked to SQ about partnering, but SQ has declined getting involved and has given NH their blessing to "go for it".

Sources for that (in the related posts elsewhere) came from varied TV shows using Reuters, Bloomberg, et al.

 

[Bagpuss]

As long as Virgin don't have a board seat and Branson is banned from being a company spokesperson I can live with them having a minor stake....

But he just wants the $ from licencing.

He wants the marketing / brand awareness really. You will know the brand and you have Virgin gyms, Virgin Wine, Virgin Hotels (international), Virgin Trains (USA) Etc etc.

Post automatically merged: Apr 22, 2020

SO lets list the potential new owners of VA that have popped up in the news:

- EY (in partnership with PE)
- Wesfarmers
- Lindsay Fox (+ Vic Gov, but they have reportedly pulled out for time being)
- Macquarie Group
- Virgin Group (sigh)
- Various PE groups

Have I missed any??

Well the list needs to be at least 10.

 

[HS-TQE]

As mentioned by others Velocity Air is an alternative name, on the assumption the new owner intends to keep VFF linked to VA mk II.

Although using Velocity would be out if the new owner decides to take the airline in the domestic 1-class LCC direction and decides to sell Velocity off (edit: to either Wesfarmers or SIA to integrate/absorb the customer base into FlyBuys or KrisFlyer respectively) to focus on the providing core flying between the capitals (with Gold Coast and Cairns thrown in) at LCC prices/methods.

 

[AIRwin]

You will know the brand and you have Virgin gyms, Virgin Wine, Virgin Hotels (international), Virgin Trains (USA) Etc etc.

And Virgin Galactic which may turn out to be quite Covid-safe?

 

[jase05]

Even in administration what’s the fascination with keeping Tiger alive?
Just saw another article saying Tiger will be safe and is needed

 

[Must...Fly!]

Tiger is an unnecessary distraction.

Just like rebranding.