Virgin Australia Financially Secure? [Now in Voluntary Administration]

[HS-TQE]

That said, the 'Singapore' bid also has some promise if VA ends up tying in nicely with the SIA network into/out of Australia. I guess this would allow them to remain full service as well, and perhaps over time even take it up a notch to match SIA. Star Alliance could eventually be on the horizon and in terms of a full-service road to recovery I think aligning with SIA would be the strongest choice.

What I wouldn't like to see is Etihad taking any control, as they have shown time and again that they can't manage nearly anything they touch – Air Berlin, Virgin Australia, Jet Airways, Darwin Airline and Alitalia. Would also like to avoid multiple owners as VA's last decade has shown that it just becomes self-serving to the owners interests and in a decade we'll be at this stage again.

It's not "SIA" directly, but rather their parent company Temasek instead. Which may potentially do better than SIA proper at managing overseas investments.

Etihad has a terrible track record at investments, but SIA overall are not much better: Air New Zealand/Ansett, Tiger Airways Australia, Virgin Atlantic and now Virgin Australia. All four were dismal failures for SIA.

The only investment that both Etihad and Singapore has done "moderately" reasonable at best is the Air Serbia and Vistara (India) investments respectively.

 

[RAM]

I agree, it’s very weird and I still don’t understand how velocity points can be cash backed when they don’t even have a fixed value in terms of redemption.

VFF Points trust sell the points to a 'partner' at a price. This is how they get the cash in the first place.

What price they sell them at is a 'commercial in confidence' contractual matter but you get some idea for some partners by the way they convert(ed) from say Flybuys to VFF points for example.

Then there is the reverse process where someone redeems VFF points for some good or service. The VFF trust knows exactly how many points get redeemed for G&Ss each week/month and what it is costing them to supply these from their partners (including VA).

This is how they 'value' the VFF points outstanding and decide on the amount of cash required adjusting the value by the normally time delay in redemption (bring on the actuaries).

Anything above that amount is pure profit (theoretically).

Now, add in the time value of money - they get the cash upfront for selling the VFF points to their partners and say, on average, they have to pay for those very same points to be redeemed a wonderful 29 months later - they also make money by investing that cash in the mean time. As paying for VA seat upgrades or seat redemptions would make up a very large proportion of their redemptions - then lending money to the company until they pay them that money would seem money for jam.

That is until the administrator is appointed.

Think about it.

VFF has been growing its number of active members AND the VFF balance/member consistently for years. The reported value of outstanding points at close to $500m would suggest that VA was due to get paid around $200m+ of that amount anyway....

Perhaps much more.

What is IMPORTANT is what interest rate they were notionally being charged. If it does not match the credit-adjusted market rate then the directors/trustees of the VFF Trust may have some fun ahead of them.

As the VFF Trust has been a consistent money-spinner for VA then it is highly likely that it has been financially well-run despite the surprise secured loan. Just makes you wonder how much over-security they had as I understand 2nd hand planes aren't worth as much as they were in late 2019 for some reason.

 

[Melburnian1]

It may not be possible if each creditor is issued with a discrete password (although AFAIK there's not much to stop others doing it) , but does anyone know the log in code (a numerical series) for the creditors' meeting tomorrow morning at 1100 and the password?

It'd be interesting to watch it if practical and legal. However, as a non creditor one could not vote or contribute to the discussion.

 

[jakeseven7]

Breakdown of who VA owes in this article and summary of known interested buyers too.

Virgin Australia owes almost $7b to more than 12,000 creditors

Virgin Australia owes almost $7 billion to more than 12,000 creditors, its administrators Deloitte have disclosed.

www.abc.net.au

 

[travel_bug]

I do wonder what will occur in this meeting or how long it will go for. Going on both the Deloitte general creditor and TWU VA employee proxy forms, the only likely special resolution will the for the formation of a Committee of Inspection which would allow for more streamlined negotiations and passing of future resolutions:

Liquidation: A guide for creditors | ASIC

asic.gov.au

https://www.arita.com.au/documents/Technical/Information-sheets/INFO-COI-Information-Sheet-(Corp)-v1_1.pdf

Proxy forms publicly available and found via Google search of "Virgin creditors meeting". https://www2.deloitte.com/content/d...insolvency/virgin/au-fa-virign-proxy-form.pdf

https://www.twu.com.au/wp-content/uploads/2020/04/Virgin-Australia-proxy-form.pdf

 

[Gold60]

who are the trustees for the VFF Trust ?

 

[andrewpf]

Breakdown of who VA owes in this article and summary of known interested buyers too.

Virgin Australia owes almost $7b to more than 12,000 creditors

Virgin Australia owes almost $7 billion to more than 12,000 creditors, its administrators Deloitte have disclosed.

www.abc.net.au

So is voting by share of debt?

Because that would mean that two of the three groups (if working together): secured creditors (31%), bonds (27%) and lessors (25%); would essentially control the outcome?

 

[Melburnian1]

There will also be at least a second creditors' meeting.

 

[NM]

If a revised VA goes down the LCC route, they will have less need for Velocity and some of the key benefits of the current Velocity program will be unlikely to exist in a true LCC model (lounge access, business class upgrades for example). So will be interesting to see if VFF is part of the picture of a LCC VA model? That might have a significant impact on the viability (customer loyalty vs previous customer dissatisfaction).

 

[codash1099]

Not a pretty picture.

Virgin Australia collapse: creditors meet amid speculation of steep losses for investors

Fears debt investors including US fund managers and the Anglican church could lose most of the $2bn they poured in last year

www.theguardian.com

And dare I suggest that anyone buying bonds with an 8% interest rate should have had their eyes wide open and deserve everything they get.

 

[muppet]

So is voting by share of debt?

Because that would mean that two of the three groups (if working together): secured creditors (31%), bonds (27%) and lessors (25%); would essentially control the outcome?

If they had shared interest, which we know they don’t.

Lessors want the company to continue so they have someone to lease their planes to. If liquidated they just get their planes back and can’t lease them to anyone.

Secure creditors will get a higher percentage paid back if the company continues and makes a profit or a guaranteed lower amount (unknown to me) if liquidated.

Bond holders will likely get a massive haircut if company continues and nothing if liquidated.

 

[woodborer]

There will also be at least a second creditors' meeting.

Which is probably the more interesting meeting - where the administrator presents its recommendations, and the creditors get to decide how to proceed.

I suspect a DOCA will be proposed, based on the various bids that are received..

 

[jakeseven7]

Not a pretty picture.

Virgin Australia collapse: creditors meet amid speculation of steep losses for investors

Fears debt investors including US fund managers and the Anglican church could lose most of the $2bn they poured in last year

www.theguardian.com

And dare I suggest that anyone buying bonds with an 8% interest rate should have had their eyes wide open and deserve everything they get.

I wonder if anyone on AFF bought any VA bonds.....

Ouch:

In a note to clients, Narrow Road Capital portfolio manager Jonathan Rochford said ratings agencies appeared to be giving Virgin Australia an easy run, “banking much of the hoped for turnaround benefits that the new CEO [Paul Scurrah] is promising”.

“Given this business has a long history of under-delivering on turnaround strategies that’s a significant stretch,” he said.

 

[antycbr]

I wonder if anyone on AFF bought any VA bonds.....

Ouch:

In a note to clients, Narrow Road Capital portfolio manager Jonathan Rochford said ratings agencies appeared to be giving Virgin Australia an easy run, “banking much of the hoped for turnaround benefits that the new CEO [Paul Scurrah] is promising”.

“Given this business has a long history of under-delivering on turnaround strategies that’s a significant stretch,” he said.

All of those strategies were Borghetti's strategies. Scurrah's had less than a year in the job so far.

 

[jakeseven7]

All of those strategies were Borghetti's strategies. Scurrah's had less than a year in the job so far.

PS still has the same old crusty VA management team to deliver them though.... There is much muttering they need to to a big big clean out at VA head office. Wonder if they will bring JT back in the fold....

 

[andrewpf]

If they had shared interest, which we know they don’t.

Lessors want the company to continue so they have someone to lease their planes to. If liquidated they just get their planes back and can’t lease them to anyone.

Secure creditors will get a higher percentage paid back if the company continues and makes a profit or a guaranteed lower amount (unknown to me) if liquidated.

Bond holders will likely get a massive haircut if company continues and nothing if liquidated.

Well, that sounds like there is some alignment between bond holders and lessors.

 

[travel_bug]

Not a pretty picture.

Virgin Australia collapse: creditors meet amid speculation of steep losses for investors

Fears debt investors including US fund managers and the Anglican church could lose most of the $2bn they poured in last year

www.theguardian.com

And dare I suggest that anyone buying bonds with an 8% interest rate should have had their eyes wide open and deserve everything they get.

Plus, though bondholders likely wouldn't be able to claim any loss as a deduction due to the belief that the issuer would fail to pay all amounts owed, it seems that they may be able to use the loss in offsetting future capital gains.
You and your shares 2019

Again though, I feel for the customers who even now are having flights cancelled without even a travel bank (VA's own CS staff stating on social media that no credits are even being processed at the moment). Customers didn't sign up for the same amount of risk as these investors by simply purchasing a service for a fee, and they don't even have the same ability to offset any loss.

 

[bigbadbyrnes]

customers who even now are having flights cancelled without even a travel bank (VA's own CS staff stating on social media that no credits are even being processed at the moment).

I must have missed this story - they're not even providing travel banks any more?

 

[travel_bug]

I must have missed this story - they're not even providing travel banks any more?

This is what I’ve seen on their Facebook page (visitors’ posts), editing only done to block names and profile pictures

 

[AisleSeat]

Administrators have halted payments to bondholders and appointed Morgan Stanley to help sell the airline within four months. (no paywall)

Virgin Australia administrators halt bondholder payments, appoint Morgan Stanley for sale - WallStreetReview

SYDNEY (Reuters) – Virgin Australia Holdings Ltd’s (VAH.AX) administrators have halted payments to bondholders and appointed Morgan Stanley to help sell the airline within four months, said a participant in a meeting of creditors owed nearly A$7 billion ($4.58 billion). FILE PHOTO: A Virgin...

wallstreetreview.com