Virgin Australia Financially Secure? [Now in Voluntary Administration]

[dajop]

If VA want that money, perhaps they can pivot to being a rural carrier?

VA and QF both got support, separately to regional support, to maintain a certain level of trunk routes (between capital cities mainly) for 8 weeks 17 April to 7 June. In additiona, QF Link definitely are getting support (and I think VARA too) in the same assistance package as Rex to operate certain regional routes.

Any suggestion that the $198m regional subsidy as going only to Rex is not true (which you most definitely did not).

 

[travel_bug]

As an objectively verifiable resource, should anyone wish to see what airlines have been provided Gov assistance, and in what amount, all grants must be published within a 21 day window to the publically available Grant Connect website.

Here is a search done for "airline": Grant Award List: GrantConnect

Clicking on the grant awards can also provide some insight into the purpose of the grant, what the specific grant program is, and what department or agency administers it.

 

[p--and--t]

As an objectively verifiable resource, should anyone wish to see what airlines have been provided Gov assistance, and in what amount, all grants must be published within a 21 day window to the publically available Grant Connect website.

Here is a search done for "airline": Grant Award List: GrantConnect

Clicking on the grant awards can also provide some insight into the purpose of the grant, what the specific grant program is, and what department or agency administers it.

Very informative. So it appears (if my maths is correct) REX got $66M in total tied to specific grants and purposes, not $198. Good to see facts rather than innuendo.

[I also learnt something new today. Airlines of Tasmania Pty Ltd - never heard of them before.]

 

[travel_bug]

Very informative. So it appears (if my maths is correct) REX got $66M in total tied to specific grants and purposes, not $198. Good to see facts rather than innuendo.

[I also learnt something new today. Airlines of Tasmania Pty Ltd - never heard of them before.]

Ditto re Airlines of Tasmania!

Also good to note that should anyone take issue with the funding or want to know further information, there are semi-regular senate estimates hearings on gov expenditure. You could always write to one of your senators, or any senator who is a member of the Senate Rural and Regional Affairs and Transport Legislation Committee to raise questions on your behalf should it interest them. Responses become a matter of public record on the Hansard.

 

[RAM]

VAs 777 aircraft are the worst type for freight.

Not sure what that is based on?

A380 is far worse for freight than B777 - has only a fraction of the 'other freight' capacity of the B777. As Airbus designed the -800 as the base for both their planned stretches (-900 & -1000), Airbus put in the engineering required to handle the size/weight/requirements of the -1000 into the -800 body.

This is why the A380 has such a massive wing area, reinforced structure and the over-sized landing gear - all of which contribute to the relative poor -800 operating cost metrics.

Certainly a purpose built B747F or B777F beats both hands down.

 

[TheInsider]

Not sure what that is based on?

Yes old story, but here: Small cargo door restricts Virgin

Basically the doors are too small.

 

[RAM]

Didn't see this coming. If the Qld govt becomes an effective owner rather than merely propping them up like Holden, does that present significant potential for conflict of interest, particularly when it deals with QF?

You mean when the Qld Govt chooses to fly it's public servants etc SOLELY on VA2?

A bit like what Trump proposed (& got ridiculed for saying) - in that case he proposed the US Fed Govt (largest buyer of domestic seats!) could prepay a couple of years ticket purchases to provide cash to an airline/airlines if they offered a decent incentive (discount).

No conflict of interest to only buy seats on the airline you part own if the Qld Gov does participate. The NZ Govt (up until CV) had profited from their bailout of Air NZ. From a Qld point of view - if they save 2,000+ jobs in Brisbane by investing in VA2 then that provides a decent revenue stream for them as well. They used to (& may still have been) do most of their B737 maintenance work in Qld.

 

[drron]

There's nothing wrong with government maintaining marginal regional routes. Saying there's no room for government intervention in the market, then gifting millions to a company run by a mate is a scandal.

Prior to the LNP Mr.Dutton was a Liberal.Saying that a former National MP is a mate might be quite wide of the mark.
In the past in 3 way contests-Lib,Nat and ALP the Libs often suffered more dirty tricks from the Nats rather than the ALP.
As a Lib who was in a 3 way contest I can attest to that fact.

 

[Cubiscus]

Bye bye refunds

Virgin Australia Administrator: Customers Likely Won’t Ever See Their Cash For Cancelled Flights Again

Virgin Australia Administration moves into next phase: No cash refunds and Government buyout?

loyaltylobby.com

This is where the regulators should have been firm instead of creating confusion. Giving a voucher refund for a product that isn't provided isn't a reasonable customer outcome.

 

[RooFlyer]

Saying there's no room for government intervention in the market, then gifting millions to a company run by a mate is a scandal.

So much hyperbole, so little fact ( none actually). DDS?

 

[jakeseven7]

Wow this thread has gone astray.

Back to VA1/2 discussion, looks like 3 firm contenders, maybe 4.... rumours are Macquarie are out....

State of VIC is circling to strike and remove VA2 from QLD - which probably makes the most strategic sense for VA2. I wonder if they will work with 'any' new owner or attach themselves to a particular bid/bid themselves. No wonder the QLD government is running scared....

Love how Bain has the old Jetstar CEO in its team (After Jetstar she went to A2 for 5 mins).

Quite the soap opera!!



---

Three bidders emerge as Virgin race nears first turn

Brookfield, BGH Capital and Bain Capital are favourites to lead the final group of bidders into the next stage of the race to buy Virgin Australia as Friday's deadline for initial offers approaches, sources close to the bidding say.

Bidders are due to hand indicative non-binding proposals to Deloitte and lead administrator Vaughan Strawbridge on Friday. A possible fourth bidder could emerge from among iron ore magnate Andrew "Twiggy" Forrest, billionaire Virgin Group founder Richard Branson and the governments of Victoria, NSW and Queensland which are all vying to host a reborn Virgin Australia's headquarters.

The bidders will have to grapple with the threat of fresh competition from rural carrier Regional Express Holdings, which is expected to raise $200 million in new capital to fund the addition of flights between major capital cities to its network early in 2020. Virgin's big rival Qantas also plans a baptism of fire for a reborn Virgin, with flights proced as low as $19 between Sydney and Melbourne to kickstart domestic aviation after the COVID-19 pandemic.

Three bidders emerge as Virgin race nears first turn

Brookfield, BGH Capital and Bain Capital are tipped to lead the final group of bidders in the race to buy Virgin Australia.

www.afr.com

 

[Mr Pumblechook]

So much hyperbole, so little fact ( none actually). DDS?

Haha Dutton Derangement Syndrome? Maybe. I guess voting Liberal doesn't necessarily disqualify one

But we're getting way off topic.

 

[RooFlyer]

Wow this thread has gone astray.

Back to VA1/2 discussion, looks like 3 firm contenders, maybe 4.... rumours are Macquarie are out....

Three bidders emerge as Virgin race nears first turn

Brookfield, BGH Capital and Bain Capital are tipped to lead the final group of bidders in the race to buy Virgin Australia.

www.afr.com

Paywalled. Can we get some excerpts, please?

 

[jakeseven7]

Paywalled. Can we get some excerpts, please?

Done, have inserted a summary

 

[Notyourbag]

Wow this thread has gone astray.

Back to VA1/2 discussion, looks like 3 firm contenders, maybe 4.... rumours are Macquarie are out....

State of VIC is circling to strike and remove VA2 from QLD - which probably makes the most strategic sense for VA2. I wonder if they will work with 'any' new owner or attach themselves to a particular bid/bid themselves. No wonder the QLD government is running scared....

Love how Bain has the old Jetstar CEO in its team (After Jetstar she went to A2 for 5 mins).

Quite the soap opera!!



---

Three bidders emerge as Virgin race nears first turn

Brookfield, BGH Capital and Bain Capital are favourites to lead the final group of bidders into the next stage of the race to buy Virgin Australia as Friday's deadline for initial offers approaches, sources close to the bidding say.

Bidders are due to hand indicative non-binding proposals to Deloitte and lead administrator Vaughan Strawbridge on Friday. A possible fourth bidder could emerge from among iron ore magnate Andrew "Twiggy" Forrest, billionaire Virgin Group founder Richard Branson and the governments of Victoria, NSW and Queensland which are all vying to host a reborn Virgin Australia's headquarters.

The bidders will have to grapple with the threat of fresh competition from rural carrier Regional Express Holdings, which is expected to raise $200 million in new capital to fund the addition of flights between major capital cities to its network early in 2020. Virgin's big rival Qantas also plans a baptism of fire for a reborn Virgin, with flights proced as low as $19 between Sydney and Melbourne to kickstart domestic aviation after the COVID-19 pandemic.

Three bidders emerge as Virgin race nears first turn

Brookfield, BGH Capital and Bain Capital are tipped to lead the final group of bidders in the race to buy Virgin Australia.

www.afr.com

Is Andrew Forrest out?

 

[jakeseven7]

Is Andrew Forrest out?

So far not on the confirmed list but may be the fourth unknown.....

 

[RooFlyer]

So far not on the confirmed list but may be the fourth unknown.....

The message being, “OK you lot, sharpen the pencils!”

 

[Plutonus]

Yeah earlier this week AFR reported Macquarie was out, but with the proviso that they could be back in when the dust settles after Friday.

Brookfield now discussing teaming up with QIC:

...
It is understood Canadian investor Brookfield and the state-owned Queensland Investment Corporation are mulling joining forces.

Sources cautioned it's a "might be" situation, that talks were at an early stage and that any deliberations around potential partners would continue as the process advanced past Friday's indicative bid stage.

Spokespeople from Brookfield and QIC declined to comment.

Still, Brookfield was left bidding all alone after we revealed earlier this week that Macquarie had pulled out of its joint bid with the Canadian giant.

...
Front runners going into Friday include big name private equity outfits BGH Capital and Bain Capital, as well as Brookfield.

 

[RAM]

With some of the dust settling and non-binding bids due tomorrow....

Ramifications of Administration

1. Shareholders are likely to get as near to zero per share it does not matter. Possibly winning consortium could offer 1 new share for every 100 or 1,000 old shares as a 'goodwill' offer to retain options with SIA, EY & the rest including Australians.
2. The secondary market for off-lease aircraft is now seller no buyer for pretty much all aircraft types. Which is why REX is thinking out loud.
3. The secondary market for now-grounded & unwanted airline owned aircraft is the same. Airbus is looking as if it is going to have to write-off another EUR 5-8bn due to the loss of future parts with the A380 maintenance plummeting AND the supply of near new-parts snowballing.
4. Boeing & Airbus cannot survive without deliveries reverting to at least 65% of the 2018 or 2019 run rate (this includes the hit that Boeing has taken with the grounding of the B737MAX). So there are going to be significant renegotiations on existing orders, similarly for engines etc.
5. All current VA aircraft leases are effectively worthless if no buyer commits to Mk2 being a full service airline - otherwise close to 50+ aircraft will be excess to requirements which pretty neatly matches # leased. Lessors face paying the cost of repainting the VA planes & stripping them of the VA internal configurations as well as any maintenance outstanding (as cost builds for maintenance on days past NOT just flying hours schedule) = VERY willing to renegotiate to secure some of the say 20 to 25 leased planes that could be required going forward.
6. Secured creditors (mainly against company owned planes) are effectively about to become the new company shareholders if no consortium takes VA out of administration & it is liquidated = nightmare situation for secured creditors. 'Official' aircraft valuers have started talking about 25-30% value decreases already on the basis that international flying opens up for Dec qtr with that on the basis that most Govts step in to support airlines. The secured creditors know how Scomo feels about supporting VA & so they want to approve ANY buyer within reason. That way they don't have to write-down the plane valuations and wipe out their capital (yet).
7. Unsecured bondholders won't like it, but any offer > 0.1 cents in the dollar is generous (and all potential bidders know this).
8. VA staff, realistically, know that at least 1/4 will be terminated if it comes out as full service. Nobody wants to admit it, but that's known. None of them are keen to try their hand at getting another airline related job as they can see the outlook is bleak with Q looking to downsize.
9. VFF is a cash cow & everybody knows it which is why so many parties signed up to get access to the data to at least give them the chance at being a player. Its valuation will be at a discount to the $2bn price tag last year but would still be valued between $1.3bn to 1.5bn IMHO.
10. Time is actually in the bidders favour (up to a point). Until domestic flying restrictions are eased - they're in no hurry to have the meter start running. However, it is a fine balancing act between saving the money & damaging the brand image. One solution is the buyers announce they'll honour 100% of vouchers. They'll make the vouchers redeemable for say a 3 to 5 year period, across multiple redemptions PROVIDED that holders spend the same value in new cash as the voucher value redeemed. Ideally the buyers' would not take it over until say July/August so that the bulk of staff continue getting paid Jobkeeper. Offsetting this is potential damage to VFF (as seen within AFF with threads saying people have shifted spending to W from C due to the uncertainty with VFF) - too long and buying behaviour shifts permanently.
11. Airports also know that if they don't play ball with potential buyers then they face dealing with Q unfettered. Not a position anyone but Q desires.

The announcement by Q that AJ is aiming to get to a $40m/wk cash burn by June in itself was revealing. The current cash burn is likely around $70-90m/wk and that is with 80% of Q staff being paid for by the Fed Govt. Q's liabilities, if it had to pay out all staff entitlements, are around 1.8 to 2.3x their recently 'enhanced by $550m raising secured against 3 more B787s' total cash & credit lines. Come September & the mandated end of JobKeeper then the fat does hit the fire.

Just another reason why a successful bidder would like to delay getting the controls of VA mk2.

It is quite possible that VA mk2 (not having to pay out 10,000 staff worth of entitlements), possibly not even having to pay out any of the 1/4 likely to not ever come back, would then wipe 3 to 4 billion of the 7 billion liability figure thrown about.

• The unsecured $325m bonds issued last November (raised at 8.25% yield - Estate Mortgage anyone?) get zero or maybe 1 cent per $1 face value aka $3.25m.
• Also raised USD425m bonds to pay for the VFF (& yes did anyone notice these two add to much more than the AUD 700m paid for the 35% of VFF?)...
• The VA 7.875% USD 350m maturing 15 October 2021 (issued 2016) last traded at 9.5 cents per $100 face value in late April, & fell from 40c to 16c on April 20th on tiny volume.
• The VA 8.25% AUD 150m maturing 30 May 2023 (issued 30 May 2018) fell to 16.4c on April 16 on tiny volume and became seller no buyer ever since...
• The VA 8.075% AUD 250m maturing 5 Mar 2024 (issued 5 Mar 2019) also fell to 16.5c on April 16 on tiny volume & became seller no buyer...

So all the posturing media articles about the $1.8bn of unsecured bond owners joining together is a bit toothless given the market value was less than 10 cents per $100 face value before an administrator was appointed, & even then it was seller no buyer. All a winning consortium has to do is to say; "Right, let it go to liquidation and you'll get zero after several years of fighting the liquidator in the courts if you're lucky."

Some background. In a few previous examples the unsecured bondholders have waited & watched for over 20 years while the liquidators realised unwanted assets - all the time drawing their fees so that (in one notable case) the total payout was 0.7 cents in total over 21 years! One liquidator was quoted as wondering what would come first - his retirement or the finalisation of the liquidation.

All this boils down to a bidder getting perhaps $1bn worth of owned planes, $1.5bn of value in VFF and a ready to go airline operation who's sunk costs are valued at zero if not revived (so hard for the administrators to push for more than some notional sum). Offset by prepaid tickets/travel credits of say $1.5bn (at worst as credit card chargebacks shift the loss onto the banks/Amex/insurers) and perhaps as low as $600m across around a million people who want VA mk2 to become a reality even if they have to spend a $ to redeem a $.

Aircraft lease commitments of close to zero, a willing workforce on a new enterprise agreement - could become a profitable & extremely viable competitor to Qantas that is no longer hamstrung by 4 major owners pulling in different directions.

Or I've been smoking the teabags again....

 

[jakeseven7]

Ummmmm what on earth are these administrators on?

Is PS feeding them this rubbish?! Feels like JB has been reincarnated himself.... Maybe JT is a better man for the job...

VA2 (which they have called the new airline, following AFF's lead!) should really just stick to narrow body domestic for the time being....


EXCLUSIVE: Virgin Australia plan for Dreamliner fleet fuels bidder disquiet

Virgin Australia’s administrators have proposed the airline buy a fleet of new long-range Boeing Dreamliner 787 aircraft, but prospective buyers are concerned its plan for the collapsed airline ignores how fundamentally COVID-19 has changed the aviation industry.

Several sources close to the process, who spoke on the condition of anonymity due to strict confidentiality agreements, said the plan includes buying eight Boeing 787 Dreamliners to replace Virgin's existing international fleet of five Boeing 777s and six Airbus A330s.

Those details come amid growing frustration from potential bidders that Virgin’s administrator, Deloitte, led by Vaughan Strawbridge, is asking them to buy a business largely as it was before it collapsed and before the COVID-19 pandemic brought the global aviation industry to a standstill.

More than half a dozen people close to potential bidders or working in senior aviation industry roles expressed concern and disbelief Deloitte was not using its administration powers to more aggressively restructure the airline by reducing its aircraft fleet and considering employee redundancies in recognition that a relaunched Virgin will operate in a significantly smaller aviation market.

“There’s no recognition that the market has fundamentally changed," said one source, adding administrators were setting up the winning bidder as the "bad guy" who would have to cut its fleet and workforce after they take ownership.

“They are setting themselves up for the most catastrophic failure - some of the consortiums are close to saying ‘ok, fine we’ll see you in the liquidation'."

“This is the time to fix it,” another source close to one bidder said of the loss-making company. A third said the administration appeared to be controlled by Virgin management, with Deloitte adopting its long-term plan for the airline.

FULL ARTICLE:

Virgin Australia plan for Dreamliner fleet fuels bidder disquiet

Virgin's administrators have proposed the airline buy a fleet of long-range Boeing Dreamliner 787 aircraft, but prospective buyers are concerned the plan ignores the impact of the pandemic.

www.smh.com.au