Virgin Australia Financially Secure? [Now in Voluntary Administration]

[Mr H]

I really question how any international flights into or out of Australia will remain viable for any airline until the situation resolves?
- Australian Government is advising its citizens to reconsider all overseas travel
- Australian Government is imposing 14 day quarantine on all arrivals (including crew??)

Surely that's a recipe for pretty much every airline to halt international flights?

It might be possible for some overseas airlines with overseas crews to come to Australia and turn around without the crews going through immigration.

Reality is if this gets as bad as many expect, Qantas nor Virgin will have the capability to get through this without government help. But it doesn't have to be taps of liquidity from the government in to the airline. There are plenty of things the government can do to protect the airlines, and ultimately the jobs and working people within them, without cash.

At the end of all this, the planes will still exist even if their owners have gone bankrupt. Maybe the days of state owned airlines could return. Or phoenix airlines could buy the planes from their bankrupt predecessors.

 

[kamchatsky]

I'ved decided to move all my Velocity points tonight to Krisflyer. Whilst I loved VA, memories of my lost 25K Ansett points reminded me that nothing is ever certain. For me 25K Ansett points was a lot of points.

 

[burmans]

Forgive the very basic question but is the reason why the airlines are so vulnerable due to the inherent massive overhead costs?

I would have thought if they just stop flying the planes that would cut their costs enough to at least not go broke in a matter of months. Is their no leeway in times like these with leases on aircrafts and airport terminal related costs?

VA has been losing money hand over fist for some time, its hard to see this not having an impact. I know people in the company who are concerned every team meeting will bring bad news.

 

[Saab34]

Forgive the very basic question but is the reason why the airlines are so vulnerable due to the inherent massive overhead costs?

I would have thought if they just stop flying the planes that would cut their costs enough to at least not go broke in a matter of months. Is their no leeway in times like these with leases on aircrafts and airport terminal related costs?

Aircraft Leases range from $200,000 to 1m for a wide body per month. There is very little in way of getting out of it. There was an Article recently about Air Asia who asked for an extension on lease payment for a month or two on some A330s. The lessor said they would be lucky to give them a week.

Then there is insurance, wages, high yield corporate traffic lost, engineering.

Generally the issue is overheads remain high while revenue is low.

 

[Melburnian1]

Forgive the very basic question but is the reason why the airlines are so vulnerable due to the inherent massive overhead costs?...

I will leave it to those with greater knowledge of financing to answer your second head, but re the above, IIRC Warren Buffett declined for many years to invest in airlines. On reason was that he perceived airlines constantly needed capital (and he didn't think the returns were there.) He changed his stance, and perhaps may regret that at this moment.

 

[Must...Fly!]

Indeed, @Saab34

It's important to remember that while one can argue against government intervention in protecting airlines from failing as businesses, a global pandemic is quite literally a once in 100 year event that no airline in the world could effectively plan for financially. Financial health at the start of the event is almost irrelevant in the context of a pandemic.

 

[HS-TQE]

One could make an argument that a full takeover bid from EY being the most likely outcome.

Unless the cashed up Abu Dhabi Government/UAE bails out Etihad Aviation Group, an EY takeover of VA is extremely unlikely. Even less likely than the "so called savior" SQ, who are starting to have trouble themselves.

VA is likely going to ride this one out without the assistance of their "owners", which all of them are struggling with their own problems financially. Even the previously mentioned outsiders in past articles over the years (TK, DL, NH, etc) aren't likely to enter the frame.

 

[Must...Fly!]

Unless the cashed up Abu Dhabi Government/UAE bails out Etihad Aviation Group, an EY takeover of VA is extremely unlikely. Even less likely than the "so called savior" SQ, who are starting to have trouble themselves.

VA is likely going to ride this one out without the assistance of their "owners", which all of them are struggling with their own problems financially. Even the previously mentioned outsiders in past articles over the years (TK, DL, NH, etc) aren't likely to enter the frame.

They effectively bail them out every year anyway.

A majority stake may cost nothing in this environment. They have brand new aircraft that VA have expressed a desire in wanting sitting in southern France wrapped up in plastic. I'm not saying it's likely, I'm just saying you can mount the argument that it could make sense.

 

[moa999]

I would have thought if they just stop flying the planes that would cut their costs enough to at least not go broke in a matter of months. Is their no leeway in times like these with leases on aircrafts and airport terminal related costs?

Cut fuel. Yes.
Airport charges. Some but not leases on offices/lounges etc.
Wages. Some - but you've got a lot of fixed head office staff and most pilots/FAs have minimum hours.
Debt/leases - Pretty much fixed. Other than power by hour engines

 

[muppet]

....There was an Article recently about Air Asia who asked for an extension on lease payment for a month or two on some A330s. The lessor said they would be lucky to give them a week.
....

All well and good, but if the lessor takes them back, who will they re-lease to.....

 

[muppet]

It might be possible for some overseas airlines with overseas crews to come to Australia and turn around without the crews going through immigration.
...

Crew are exempt

 

[Brissy1]

One could make an argument that a full takeover bid from EY being the most likely outcome.

But even getting it all for $1 + existing debt (what VA paid for Tiger au) might be more than what they think one could get it for from a receiver (ie just take on the secured debt). EY don't read this please.

 

[andrewpf]

My back of the envelope maths based on 2019 expenditure is that Virgin burns through $500m a month (although presumably that includes non-cash expenses). Qantas burns through $1.4bn a month.

Even if they halve their expenses; assuming a complete halt in bookings (i.e. if domestic business falls away); neither airline has the cash reserves to last more than 3 to 4 months in this climate without major, deep cuts.

Does this sound right, or am I being overly pessimistic?

It will be interesting to see what happens in Europe given the virtual closure of the trans-Atlantic market plus internal European shutdowns in Italy, Spain and France; it is likely those airlines would be the first to fold.

I suspect the Government would need to step in with equity and/or loan guarantees/interest free loans to prevent that type of situation.

Also, the Federal Transport Minister (Deputy PM) indicated he is in daily talks with Qantas, Virgin and Rex.

 

[pauly7]

Somehow I don't think their partners will be any position to bail out VA. Even SQ will be lucky to survive this without some form of assistance, and EY were already a basket case and let’s not even think about Hainan or their other Chinese investor.

Singapore will save SQ (in some way/form). SQ is far to strategically important for the country.

I'ved decided to move all my Velocity points tonight to Krisflyer. Whilst I loved VA, memories of my lost 25K Ansett points reminded me that nothing is ever certain. For me 25K Ansett points was a lot of points.

I understand you feeling this way.
I wonder if VA will shut this off soon... (temporarily).

Cut fuel. Yes.
Airport charges. Some but not leases on offices/lounges etc.
Wages. Some - but you've got a lot of fixed head office staff and most pilots/FAs have minimum hours.
Debt/leases - Pretty much fixed. Other than power by hour engines

Wages - they may get special exemptions to do partial forced shut downs that place staff on leave. I mean corporates are already allowed to do this anyway and do already at Xmas for example, Easter. So I expect some rules to be relaxed.

Also keep in mind a lot of staff will volunteer in soladarity to help the company survive. You also have the brutal fall back of take some paid leave / unpaid leave if you have no paid left or potentially take a redundancy later.

My back of the envelope maths based on 2019 expenditure is that Virgin burns through $500m a month (although presumably that includes non-cash expenses). Qantas burns through $1.4bn a month.

Even if they halve their expenses; assuming a complete halt in bookings (i.e. if domestic business falls away); neither airline has the cash reserves to last more than 3 to 4 months in this climate without major, deep cuts.

Does this sound right, or am I being overly pessimistic?

It will be interesting to see what happens in Europe given the virtual closure of the trans-Atlantic market plus internal European shutdowns in Italy, Spain and France; it is likely those airlines would be the first to fold.

I suspect the Government would need to step in with equity and/or loan guarantees/interest free loans to prevent that type of situation.

Also, the Federal Transport Minister (Deputy PM) indicated he is in daily talks with Qantas, Virgin and Rex.

Virgin Atlantic is already asking for $ from the UK government they would be at the top of the failure list I suspect.

At the end of the day in AU we need airlines to function as a country and economy. The government will be working on something

 

[andrewpf]

Singapore will save SQ (in some way/form). SQ is far to strategically important for the country.



I understand you feeling this way.
I wonder if VA will shut this off soon... (temporarily).



Wages - they may get special exemptions to do partial forced shut downs that place staff on leave. I mean corporates are already allowed to do this anyway and do already at Xmas for example, Easter. So I expect some rules to be relaxed.

Also keep in mind a lot of staff will volunteer in soladarity to help the company survive. You also have the brutal fall back of take some paid leave / unpaid leave if you have no paid left or potentially take a redundancy later.



Virgin Atlantic is already asking for $ from the UK government they would be at the top of the failure list I suspect.

At the end of the day in AU we need airlines to function as a country and economy. The government will be working on something

Virgin Atlantic aren't the only ones asking ... BA as well.

 

[Sabot]

Am hearing a lot about the imminent collapse of Virgin, hopefully not the case.
Time to park the points somewhere safer I think.

 

[wannabeinvestmentbanker]

Fin Review BOSS: Advisers seek front row tickets for Virgin Australia

Fin review reporting that insolvency advisers are circling

 

[pauly7]

Fin Review BOSS: Advisers seek front row tickets for Virgin Australia

Fin review reporting that insolvency advisers are circling

Wow seriously? From the AFR? That sounds reckless

 

[wannabeinvestmentbanker]

Advisers seek front row tickets for Virgin Australia

Virgin has the potential to be the next Ansett Australia in more ways than one.

www.afr.com

No concrete facts basically just saying there is a buzz in the insolvency industry. Not sure the purpose of the article.

 

[Must...Fly!]

All this speculation is simply reckless.

The entire industry is going to the wall around the world. How fit you were before has little bearing on this current reality.

All these whiz-bang financial journalists living in the world that was, not the world that is.