Fin review today just incase anyone couldn't read it, i highlighted the main points
S&P junks Virgin's credit rating, Fitch less harsh
Rating agency S&P Global has junked Virgin Australia's credit rating but rival agency Fitch remains more optimistic, despite a candid admission by the struggling airline its liquidity "could come under pressure quicker than we previously anticipated".
Virgin is upping the pressure on the federal government for more support.
Both agencies downgraded their views on the airline's debt on Friday, just days after
Virgin said it would slash domestic capacity by 90 per cent, stand down 8000 staff and ground budget subsidiary Tigerair Australia indefinitely.
"Despite management initiating decisive measures to preserve cash, we nevertheless believe the scale of the COVID-19 exogenous shock has created an immediate and sizeable cash outflow," S&P said.
Cash flow problems aren't unique to the nation's second-largest airline. The virus –
which has infected 531,860 and killed 24,072 globally – has thrown world aviation off-course as travel demand freezes amid widespread panic and border restrictions.
Some airlines have collapsed or moved into state hands –
such as significant Virgin shareholder HNA Group – while others plead for government support to help outlast the crisis.
Virgin chief Paul Scurrah is ratcheting up the pressure on the federal government – with support from workers groups and Regional Express – to go further than
an initial $715 million fee relief package.
S&P's view does not factor in any taxpayer assistance. It admits timely stimulus could lift its rating, yet any potential benefits seen before the crisis in Virgin are beginning to unwind.
"We estimate that up to half of Virgin Australia's operating costs are fixed and that a reduction in variable costs will not offset the collapse in revenue," S&P says.
"In addition, the positive working capital benefit provided by forward bookings and the Velocity Frequent Flyer business is now likely to partially unwind."
S&P settled on a CCC credit rating for the company, adding a 12-month "Creditwatch" asterisk and valuing Virgin's debt at CCC-. Fitch also downgraded its view. Nevertheless, its B- rating is two notches above S&P's.
"The longer the restrictions remain in place, the larger the impact on [Virgin Australia," Fitch said.
It had previously believed Virgin had enough cash to ride out the crisis, though new restrictions on state-based travel and other issues appear to have had a significant impact on this.
"[Virgin's] liquidity could come under pressure quicker than we previously anticipated should the restrictions on travel be longer than three months or demand remains subdued over the longer term, without the airline obtaining additional liquidity over the coming months."
One option open to Virgin Australia is approaching its five significant shareholders – Singapore Airlines, Nanshan, HNA Group, Etihad and Richard Branson's Virgin Group – for capital. Mr Scurrah has so far ruled this out. But the situation may have changed since Singapore Airlines secured $21 billion of funding to survive the crisis on Friday.
Fitch believed the government would come to the aid of Virgin if needed."We believe that the Australian government wants to ensure that Australia has two viable domestic airlines to avoid a monopolistic market," it said. "We believe VAH's infrastructure will ensure its entrenched position and provide barriers to entry, limiting any risk of loss of market share to new or existing competitors as a result of the current travel restrictions
