Virgin Australia Financially Secure? [Now in Voluntary Administration]

[jakeseven7]

I doubt VA2 could get down to JQ’s cost base quickly enough through VA - they would literally have to gut their current VA1 offering.

 

[andrewpf]

Given Indigo Partners employs a ultra low cost carrier model, what would buying VA get them? Wouldn't it be in their interest for VA to be liquidated?

The airlines they own (Frontier, JetSmart, Volaris, Wizz) all have Airbus A320 (and derivative) fleets. As an ultra-low cost airline, they don't need any of VAs lounges. They probably wouldn't want a large head office setup, or the Velocity program as it is currently set up. The booking system is probably not optimised to the operation they would be looking to run (though perhaps the Tiger one is). They probably won't want staff on their current wages and conditions, except perhaps the Tiger staff. The slots in Australian airports and terminal space will presumably free right up if VA is liquidated too, with the lack of demand likely to make it easier to negotiate a better deal.

The only benefit I could see is that they could get off the ground relatively quickly, using the 737 fleet and staff - but then they would be competing with Jetstar without any particular strategic benefit in terms of cost; a recipe to lose money I would think.

What am I missing?

 

[muppet]

Given Indigo Partners employs a ultra low cost carrier model, what would buying VA get them? Wouldn't it be in their interest for VA to be liquidated?

The airlines they own (Frontier, JetSmart, Volaris, Wizz) all have Airbus A320 (and derivative) fleets. As an ultra-low cost airline, they don't need any of VAs lounges. They probably wouldn't want a large head office setup, or the Velocity program as it is currently set up. The booking system is probably not optimised to the operation they would be looking to run (though perhaps the Tiger one is). They probably won't want staff on their current wages and conditions, except perhaps the Tiger staff. The slots in Australian airports and terminal space will presumably free right up if VA is liquidated too, with the lack of demand likely to make it easier to negotiate a better deal.

The only benefit I could see is that they could get off the ground relatively quickly, using the 737 fleet and staff - but then they would be competing with Jetstar without any particular strategic benefit in terms of cost; a recipe to lose money I would think.

What am I missing?

A much less competitive market than in the US and much higher prices. There's a reason Australia is known to overseas suppliers as "Treasure Island."

Virgin's cASK is actually really good when you exclude the debt. Strip out the debt and expensive leases and there's a fair bit of underlying profit there.

That being said, I agree, I think it would be a mistake to try that low cost path.

 

[AustraliaPoochie]

If Indigo buys it, they would be getting an airline that is ready to continue flying, with minimum cost.
They would have already gotten a crew set up, they would already own planes that VA now own, they would not incur any cost to bring up new staff up to scratch, ie, not nee to train any of the new ones.
Staff who are desperate for work, "will have to take it or lump it".
If Indigo succeed, probably J cabin would be removed, and maybe a less money spent lounge system will start up, or no lounge.
Its a cut throat (so to speak industry), like a lot of other industries around.
I would dare say, that the fleet will be reduced.
**((Now, if the 6 probable/20 new buyers of VA pooled their $, and bought the who thing as a whole, and ran the airline as a whole, maybe it could work to keep things very similar to VA1/the former VA))**.
Just my thoughts.
Just remember, VB when it first started, no J cabin, no lounges, ...
If the first few years profits were used to reduced debt, or to cover initial buying price, the rest of the new buyer's left over, can be pure profit, if they keep their cost under tight control.
If VB ddn't go decide to get involved with international flights, if they didn't change to VA, with the J cabin, they might have been able to make a small profit.
But they got too ambitious.
Main question is, will the current owners agree to the sale?
Or will there be a share dilution/can there be a share dilution, double the 100% to 200%, so every current owners share is halved/reduced.

 

[dajop]

I doubt VA2 could get down to JQ’s cost base quickly enough through VA - they would literally have to gut their current VA1 offering.

Very difficult when you haven’t got a rich mummy or daddy to pick up some overheads and maintenance costs for you.

 

[RooFlyer]

Given Indigo Partners employs a ultra low cost carrier model, what would buying VA get them? Wouldn't it be in their interest for VA to be liquidated?

I would think so. When a business had failed, and some-one wants to enter that market, the best way is to buy the assets of the failed corporation, not the corporation itself. The latter comes with nasties like debt, employee agreements, liabilities etc.

The assets can include landing slots, branding if wanted, leases, planes if owned etc - anything with a positive operational value.

If they buy the assets, a new operator may offer those 'loyal' flyers holding travel credits some shares in the new corporate entity in lieu and/or a 'deal' when they re-float the business.

 

[melb78]

maybe the best bet would be Temasek Holdings with the other backer least they have the money will keep VA as a full service carrier

 

[travel_bug]

Staff who are desperate for work, "will have to take it or lump it".

If any international buyer goes too far in trying to lower wages or lessen staff rights they’ll learn quite quickly that Australian workers have what I understand to be far greater rights than their American counterparts.

Beyond any company’s own enterprise agreement (which must be agreed to by the Fair Work Commision), any employment terms must comply with the National Employment Standards as prescribed by the Fair Work Act, and with the terms of any applicable award (e.g. the Aircraft Cabin Crew Award).

Further to that, Australia has pretty great Unfair Dismissal and Adverse Action options available to workers through the FWC that protects an employee’s employment if they’re simply trying to have their legislated rights respected.

 

[hydrabyss]

If Indigo buys it, they would be getting an airline that is ready to continue flying, with minimum cost.
They would have already gotten a crew set up, they would already own planes that VA now own, they would not incur any cost to bring up new staff up to scratch, ie, not nee to train any of the new ones.
Staff who are desperate for work, "will have to take it or lump it".
If Indigo succeed, probably J cabin would be removed, and maybe a less money spent lounge system will start up, or no lounge.
Its a cut throat (so to speak industry), like a lot of other industries around.
I would dare say, that the fleet will be reduced.
**((Now, if the 6 probable/20 new buyers of VA pooled their $, and bought the who thing as a whole, and ran the airline as a whole, maybe it could work to keep things very similar to VA1/the former VA))**.
Just my thoughts.
Just remember, VB when it first started, no J cabin, no lounges, ...
If the first few years profits were used to reduced debt, or to cover initial buying price, the rest of the new buyer's left over, can be pure profit, if they keep their cost under tight control.
If VB ddn't go decide to get involved with international flights, if they didn't change to VA, with the J cabin, they might have been able to make a small profit.
But they got too ambitious.
Main question is, will the current owners agree to the sale?
Or will there be a share dilution/can there be a share dilution, double the 100% to 200%, so every current owners share is halved/reduced.

It is the creditors that hold its fate by way of majority vote except if the Government does not like the outcome.

 

[jase05]

Article in The Australian suggesting Oaktree Capital Management is partnering with Etihad to potentially buy VA

 

[TheInsider]

Article in The Australian suggesting Oaktree Capital Management is partnering with Etihad to potentially buy VA

Another sound investment by EY then!

 

[jakeseven7]

Another sound investment by EY then!

If any of the existing owners partner in anyway to resurrect VA2 then the government will have the biggest loudest ‘I told you so’ moment ever....

 

[HS-TQE]

maybe the best bet would be Temasek Holdings with the other backer least they have the money will keep VA as a full service carrier

A shame that Temasek's child isn't as co-operative towards their former investment, almost sounded hostile in the article.
Temasek's child's golden egg is Vistara India, as stated in the provided article. Australia remains an important market for the child, but not their former investment in Virgin.

However, chances of Temasek getting involved in the Virgin bidding is still low as it's only a rumour at this stage.

Singapore Airlines Has ‘No Obligation’ To Virgin Australia Cash Infusion, Committed To Vistara

“Singapore Airlines has no requirement or obligation to put in capital for Virgin Australia,” the airline told shareholders ahead of an extraordinary general meeting to raise capital. Singapore Airlines says it has no loans to Virgin Australia, which it owns 20% of.

www.forbes.com

 

[TheInsider]

If any of the existing owners partner in anyway to resurrect VA2 then the government will have the biggest loudest ‘I told you so’ moment ever....

In all seriousness though, why would they even bother?
Their track record with investing in airlines is absolutely abysmal anyway, and then going for a second round with VA?!

 

[oz_mark]

Article in The Australian suggesting Oaktree Capital Management is partnering with Etihad to potentially buy VA

Hmm, I wonder if ANA are still sniffing around..

 

[jakeseven7]

In all seriousness though, why would they even bother?
Their track record with investing in airlines is absolutely abysmal anyway, and then going for a second round with VA?!

Ego.

Post automatically merged: May 4, 2020

Very difficult when you haven’t got a rich mummy or daddy to pick up some overheads and maintenance costs for you.

That's right!

But also pity VA1 didn't have multi billionare royals, and mult trillionare foreign state governments as mummy and daddy too to keep pouring in cash...

Oh, wait...

 

[HS-TQE]

In all seriousness though, why would they even bother?
Their track record with investing in airlines is absolutely abysmal anyway, and then going for a second round with VA?!

Mixture of 'ego and vanity' in the higher circles in Abu Dhabi and amongst the higher circles at Temasek.

Temasek's 'golden child' however has a hostile view towards their former investment in VA1. SQ has also stated that Vistara India is their 'golden egg', which is a huge comparison in statements in their Vistara and former VA1 investment.

However, if another party (not Indigo) gets up in their VA2 bid, I suspect SQ may try to reinstate the codeshare VA partnership with some limited FF benefits (scaled down from the former SQ/VA1 JV).

If Indigo gets up in their VAH bid, I would predict SQ to at least beef up the interline with QF with some limited codesharing to regional towns that the SQ group doesn't serve directly.

 

[HS-TQE]

Main question is, will the current owners agree to the sale?
Or will there be a share dilution/can there be a share dilution, double the 100% to 200%, so every current owners share is halved/reduced.

Current 'owners' has no power, they've been stood down by administrators. They can 'vote', but it'll be on the same weighting as the creditors.

If most of the creditors voted for Indigo and the current (stood down) owners say no, then the current (stood down) 'owners' can't do anything about it.

 

[tomlee1986]

I hope VA to be brought out and survive this... but I am wondering whether the creditors might prefer a quicker death of VA & liquidate the company based on what the administrator discover on the books?

 

[hydrabyss]

It appears the administrators will need to borrow $200m to keep Virgin going to it sells. I was going to say if but I am confident it will.