Virgin Australia Financially Secure? [Now in Voluntary Administration]

[HS-TQE]

Do we think that VA will use COVID-19 as an excuse to pull international completely? With QF's substantial reductions to US, surely VA's 18 services must be facing difficulties too?

VA have already planned USA cutbacks between April and October due to C-check Heavy Maintenance on the 777s.
As per posted above, perhaps more can be brought forward.

VA 777 Heavy Maintenance (LAX cutbacks) Source: Virgin Australia to temporarily reduce LAX flights in mid-2020

As for pulling International entirely, as stated, that would likely require a "takeover" of VA by either an existing shareholder, or an outsider, none of those scenarios will not likely be happening for the foreseeable future. The majority of the existing VA shareholders has financial difficulties or other difficult priorities (in SQ's case) of their own to make a bid.

 

[ja1]

Do we think that VA will use COVID-19 as an excuse to pull international completely? With QF's substantial reductions to US, surely VA's 18 services must be facing difficulties too?

Nope. Not completely. Too much invested in structure and operations and leases and too much unpredictability as to what that would do to the domestic operations if they had no international at all.

Entirely possible (and sensible) for them to look at cutting or suspending routes internationally but I don't think it's realistic to cut the division.

VA's international is built on a different path to QAN albeit with the same basic premise - if you can carry the same pax between A&B and onto C you can make revenue on each leg and as importantly deny that revenue to your competitor, as long as the profit for A&C)is more than any individual loss on a particular segment. VA cutting say SYD-LAX might lose them a lot more in operating (less VA FF, less VA domestic and so on) than the specific loss on the international route..

 

[jakeseven7]

The 777’s are all scheduled for heavy maintenance from July to September currently and services were due to be temporarily reduced during that time. Perhaps they can bring that forward?

Might be safer to park them in Alice....

Do we think that VA will use COVID-19 as an excuse to pull international completely? With QF's substantial reductions to US, surely VA's 18 services must be facing difficulties too?

AFF user @pauly7 has reported from his contacts that VA US bookings are also being smashed and I think its only a matter of when not if we see further VA cut backs

If VA do the right thing and announce delay of Tokyo and official rationalisation of capacity across the network, I can see the market panicking further and dropping the price to 5c within a few days. If so, I might be convinced to roll the dice.

If all other carriers Japan bookings are being destroyed, VA"s lonely BNE route not already launched is going to be too unfortunately. They are probably facing a horrific decision right now to give up the slot before they fly a single flight. SURELY the airports can't be far off giving slot relief?!

 

[jase05]

SURELY the airports can't be far off giving slot relief?!

This is the key IMO

 

[Major]

Share price dropped to 0.07 at one stage today but has recovered to 0.075 so far

 

[woodborer]

SURELY the airports can't be far off giving slot relief?!

Not really up to the airports. Slots are generally managed by a govt authority,

 

[jakeseven7]

Not really up to the airports. Slots are generally managed by a govt authority,

SURELY the government authorities / airports / whoever can't be far off giving slot relief?!

 

[ja1]

This is the key IMO

The circumstances for NOT giving slot relief would be if there were other takers for that slot.

Is that likely at the moment ? And if there are other airlines lining up to take the slot (because they have the balance sheet to support it) then it's a tough decision for VA isn't it.. shoot yourself in the head now vs shooting yourself in the foot now..

I'd suggest if airlines are actually cutting routes into Japan (rather than just reducing capacitythe size of the aircraft using that slot - like QAN is doing with an A330 instead of 747 for SYD-HND)

 

[Mr Pumblechook]

This is fake news. Yes the guy is paid extremely highly, probably way too highly.

But it has been proven again and again that quite a few airline CEOs are “paid” more handsomely than AJ. The guy did very well because he cashed in some shares that he was granted at $1 when they reached $6, like many investors I bet. But his “pay” (including base pay, bonuses, stock options and stock grants) is definitely below the CEOs of Delta, United and American. There was a figure of $24m floated around -that was for one specific year - and 60% of that figure was due to one off stock market gains.

I detest a lot of executive remuneration. I’m not a fan of AJ or what he’s done at QF(from customer point of view). But above all the I detest distortion of facts.

Fair enough, let me correct my statement. Giving taxpayer's money to airlines - one with a CEO who earned $24 million in a single year, and the other majority owned by foreign governments - so they can pay that money on to airports, would not be a popular policy.

 

[Prof Henry]

Not sure if I'm posting in the right place this time; if I'm not – profuse apologies

I need to take my grandson back to Tokyo on 31 March*. VA have announced a 29 March commencement date for their new BNE-HND service, but I have seen discussions suggesting they may decide to postpone commencement for the onbvious contemporary medical and financial reasons.

Has anyone heard anything that might help me assess whether booking this route would be viable??

Much appreciated

(*The COVID-19 connection is that his father was booked to take him back but he lives/works Hong Kong and Japan has issued a travel ban on HK residents

 

[jakeseven7]

Being discussed extensively in 'Is Virgin Financially Secure' thread in Virgin forum.

Look, they are publicly saying (right now) they will fly it, but if I was you there is no way I'd be booking it as its highly highly likely they will cancel / scale back.

Best bet is Qantas who will be able to reschedule you onto another service if they have to rationalise their Japan flying.

Virgin Australia Financially Secure? [Now in Voluntary Administration]

Do we think that VA will use COVID-19 as an excuse to pull international completely? With QF's substantial reductions to US, surely VA's 18 services must be facing difficulties too? VA have already planned USA cutbacks between April and October due to C-check Heavy Maintenance on the 777s. As...

www.australianfrequentflyer.com.au

 

[jakeseven7]

Fair enough, let me correct my statement. Giving taxpayer's money to airlines - one with a CEO who earned $24 million in a single year, and the other majority owned by foreign governments - so they can pay that money on to airports, would not be a popular policy.

Australian governments don't like giving money to any airlines period, I wouldn't even be worrying about it

 

[AviationNZ]

If all other carriers Japan bookings are being destroyed, VA"s lonely BNE route not already launched is going to be too unfortunately. They are probably facing a horrific decision right now to give up the slot before they fly a single flight. SURELY the airports can't be far off giving slot relief?!

This is the key IMO

Not really up to the airports. Slots are generally managed by a govt authority,

SURELY the government authorities / airports / whoever can't be far off giving slot relief?!

The circumstances for NOT giving slot relief would be if there were other takers for that slot.

Is that likely at the moment ? And if there are other airlines lining up to take the slot (because they have the balance sheet to support it) then it's a tough decision for VA isn't it.. shoot yourself in the head now vs shooting yourself in the foot now..

I'd suggest if airlines are actually cutting routes into Japan (rather than just reducing capacitythe size of the aircraft using that slot - like QAN is doing with an A330 instead of 747 for SYD-HND)

A few days ago IATA put out a press release asking for exactly this - a suspension of traditional slot rules.

IATA Requests Global Suspension of Slot Rules Due to Coronavirus

Flexibility is needed for airlines to adjust their schedules according to extraordinary demand developments

www.iata.org

 

[Prof Henry]

Many thanks for that reply Jakeseven7.

That confirms my own thoughts; this is a fraught enough booking without that potential wipe-out hanging over it. Your point about QF having more options to get us there is a good one.

cheers

 

[pauly7]

Could you explain this point a little further, @pauly7 ?

Was publicly reported in AFR last week that PS and a couple of his senior teams did back to back IR meetings. They needed to reassure certain folk.

 

[Melburnian1]

...Personally I don't think VAHHA is suitable for retail investors. I would only buy a diversified portfolio of bonds (no more than 5% in any one company), so VA going bust would not erase my investment. Airline stocks and bonds are avoided by many investors for good reason...

Apart from it being an airline and having a large amount of debt (A$5.4 billion), a major reason it's 'unsuitable for retail investors' is that it's thinly traded as only 10 per cent of the stock or less is held by smaller investors once one omits Branson, Hainan, SQ etc etc.

 

[ja1]

So perhaps lets summarise where we got to after 12 pages of posts..

- It is the considered opinion of the posters that VA is 'financially secure' in as secure as you can be as an airline in the current climate
- where 'financially secure' is agreed to mean it won't immediately be in any danger of receivership or in the immediate future (i.e months)
- VA has a lot of work to do just to stay in its current position (i.e not have things get a lot worse) e.g. manage its route expansion to JP being high on that list, though perhaps not higher than managing its Tiger burn rate, etc
- If you have VA status and points, there's no imminent issues that would make you want to switch or burn them quickly
- They are already seen to be doing some necessary moves to head in the right direction, fleet redeployment, route cuts and so on
- Financially secure does NOT mean 'investment grade' for an average investor. AFF says 'AVOID'
- They have ~$1b in liquid assets which is on par with QAN's ~2b in similar assets - but they have a large amount of debt to manage ($5.4b)
- They are unlikely to get any government handouts
- They may be able to negotiate some sort of standstill or short term reduction deal with Airports on fees (but consensus is that this is unlikely as airport operators are b*stards)
- Some of the reductions will impact seat availability (e.g. 77w heavy maintenance) on international

Does that pretty much cover it ?

 

[Melburnian1]

So perhaps lets summarise where we got to after 12 pages of posts..
Does that pretty much cover it ?

An excellent, very well compiled summary save if I may say so for the first point. Some of us may dispute VA is 'financially secure' but obviously the attitude of its lenders, not my attitude, is the critical point for it.

Agree with pauly7 that this has been one of the better discussions. Blogs like this too easily descend into not so terrific discussions and many of us (yes I'm also looking in a mirror) can be to blame at times. I didn't know pauly7 was a consultant so I've learnt something additional.

 

[Bagpuss]

- They are unlikely to get any government handouts

Does that pretty much cover it ?

Lets see what happens with Lufthansa ... Lufthansa asks for government support as coronavirus bites airlines

 

[ja1]

Lets see what happens with Lufthansa ... Lufthansa asks for government support as coronavirus bites airlines

While interesting, I don't think what happens there will have any impact either way on VA.

The politics in the two countries are quite different.

Also frankly speaking I'm not sure VA _need_ a government handout much as it makes life slightly easier in the short term. I think they'd much rather simply have more government business.

Which come to think of it could fall under stimulus spending.. (ah, one can dream!)