Virgin Australia Financially Secure? [Now in Voluntary Administration]

[andrewpf]

Reading the financials shines a bit of light on this;
View attachment 212310
attached the balance sheet, highlighted liability called to account at balance date for 'unearned revenue' (what is also sometimes referred to as 'income received in advance').


attached the note highlighting the the amount of 'unearned revenue' made up of tickets purchased in advance.


This is as at 30 June last year, but gives you an approximate idea of what sort of numbers they would have had around Feb. View attachment 212311

So, if I'm reading this correctly, they had (last financial year) $1.7bn in cash and $1.2bn in unearned revenue ... so cash net of unearned revenue is only $500m?

 

[bigbadbyrnes]

So, if I'm reading this correctly, they had (last financial year) $1.7bn in cash and $1.2bn in unearned revenue ... so cash net of unearned revenue is only $500m?

It won't be quite that simple; think about the amount of income received in advance which is non-refundable. If they have your money, how much of that can be clawed back? There will be some wholly refundable tickets, but most will have stings attached. So by now a huge chunk of the 'unearned passenger revenue' would have moved over to 'credit vouchers and unearned revenue'. And that may never be returned as cash - unless people are super successful with chargebacks.

Note the materiality of the unearned loyalty program revenue, around $500m - I'm not sure what would stop them from doing a huge devaluation of that liability by changing redemption rates. That $500m is an approximate valuation (the calculation of which they disclose in the notes in the screenshot) of the total velocity points - and the measures taken over the last 4 days limiting velocity redemption is to slow down that debt effectively being called in by people redeeming points. Anyone's guess what that liability is now.

 

[utaussiefan]

One reason why the government aren't keen on propping up Virgin Australia would be because of the foreign ownership at the moment, this tweet thread shows the huge amount of money Tamasek has.

https://twitter.com/x/status/1246022021739245568

 

[Cubiscus]

One reason why the government aren't keen on propping up Virgin Australia would be because of the foreign ownership at the moment, this tweet thread shows the huge amount of money Tamasek has.

https://twitter.com/x/status/1246022021739245568

That doesn't necessarily mean they have the cash available immediately to invest. Also having no majority owner add complexity to any deal.

IF, and its a big if, VA can ramp up domestic operations again by say June they may pull through regardless.

 

[jakeseven7]

IF, and its a big if, VA can ramp up domestic operations again by say June they may pull through regardless.

I suspect the lockdowns are going to last a lot longer than June unfortunately. And even if they were lifted, no corporate will let their people fly for months after I suspect for a multitude of reasons. So maybe some brave leisure travelers might venture out... Far too early to tell of course.

 

[clipped_wings]

I will jump on a plane in a minute when this is all over. Can't wait to be soaring above the clouds again. Of, course, that all depends on how much they are charging for an airline ticket then......

 

[Cubiscus]

I think it'll be 'eased' in stages if the numbers stay under control for around a month or so, which would lead to in-state and domestic travel slowly returning.

International will take way longer, but LAX aside that's likely less of a concern for VA.

To be honest this isn't going away fully until there's a vaccine, and that itself is incredibly difficult to develop, so I assume the governments will be forced by economic and social reality to allow people to partially resume things soon.

 

[Major]

I will jump on a plane in a minute when this is all over. Can't wait to be soaring above the clouds again. Of, course, that all depends on how much they are charging for an airline ticket then......

...and whether you have to sit next to someone who has Covid 19 and doesn't know it

 

[33kft]

this tweet thread shows the huge amount of money Tamasek has.

Whilst Temasek as a sovereign wealth fund has plenty of capital, I can't see it being politically prudent to invest it in a subsidiary of a subsidiary (Temasek owns only half of SQ who own only 20% of VA). I'm not sure why anyone thinks the SG govt is any more obliged to pump money into VA than the AU govt is?

 

[hydrabyss]

Virgin tight-lipped on equity raising speculation

Fitch Global analyst Kelly Amato says other avenues left open for Virgin to secure cash, like borrowing or a shareholder injection, are unlikely to succeed.

www.afr.com

 

[Mr Pumblechook]

So for those of us who bought a fare with a credit card and were then issued a VA credit, would we be unsecured creditors?

 

[bigbadbyrnes]

So for those of us who bought a fare with a credit card and were then issued a VA credit, would we be unsecured creditors?

I'm afraid so. Best you can hope for is a credit card chargeback, but you'll need to refer to T&Cs of the card's policy to see if that's even possible.

I need to find quality info on this myself (I called my CC provider, they couldn't provide any useful information).

It will be more likely to get chargebacks in your favor if no other remedy is able to be provided. IE if you've already received a 'travel bank', thats a remedy, although likely worthless if VA go into administration. If VA go into administration before a booked ticket is cancelled, no remedy *could* be provided, thus you might be in a stronger position.

 

[dajop]

One reason why the government aren't keen on propping up Virgin Australia would be because of the foreign ownership at the moment,

One thing about foreign ownership, in most instances it is seen as a negative, from a national perspective, as money gets sucked out of the country. But with VA, it's been the opposite as money has poured into the country to support the loss making operation (with the exception of RB's brand royalties)

 

[juddles]

With the whole Corona virus thing, there are myriad companies that will suffer. And all of them seeking government bailouts.

I think most would agree that in the aviation sector it is healthy for VA to survive - as "we" do not want a return to a monopoly where QF can slay us with high fares. But VA is essentially a foreign company!! So to help it would require the government to throw cash at foreign companies...

A truly hard one, in my opinion....

 

[dajop]

But VA is essentially a foreign company!! So to help it would require the government to throw cash at foreign companies...

Foreign owned company, but predominantly Australian operated, employing thousands and bringing competition to the market.

I can recall more than one foreign owned company (even in highly competitive market, in far less dire circumstances) which had cash thrown at them over many years. Those companies said to the government you got this, so they would go further. Oh what a feeling!

 

[juddles]

Foreign owned company, but predominantly Australian operated, employing thousands and bringing competition to the market.

I can recall more than one foreign owned company (even in highly competitive market, in far less dire circumstances) which had cash thrown at them over many years. Those companies said to the government you got this, so they would go further. Oh what a feeling!

dajop, so what is your point or prediction?

 

[dajop]

dajop, so what is your point or prediction?

Hard to predict. Point was that being foreign owned does not automatically preclude government assistance, as we well know. Indeed Rex, majority Singaporean owned has been assisted during this crisis.

However putting aside a minor player like Rex, look at the big foreign owned companies that have received assistance in the past, their workforce was more concentrated in marginal electorates than VA, and we all know in the long run how that assistance worked out for Australia ...

 

[Cubiscus]

But VA is essentially a foreign company!! So to help it would require the government to throw cash at foreign companies...

This one is more shades of grey that that. Its clearly a company dedicated to the Australian market, Australian branding, HQ in QLD, strong domestic route map and 10000+ Australian jobs plus supply chains.

Notwithstanding that there's a strong argument that regardless of ownership its worth supporting just for the good of the Australian market,

 

[MH_fan]

I really do hope VA survive this. They are a great airline and I really enjoy flying with them. If travel restrictions domestically lift by the end of June (not necessarily completely), they have a fighting chance of getting through this. I don't think it's unreasonable for the government to buy into VA at this point in time (rather than bail them out, as that implies throwing money at them with little prospect of getting any back) and become a significant shareholder. It will help to boost the public's confidence in VA, ensure it's survival and provide much needed competition in the aviation sector whilst protecting jobs at the same time. I believe the government has never been particularly happy with VA's foreign ownership status and this is an effective way of dealing with that issue in a cost-effective way, given that VA's share price is so low at the moment. They could buy out HNA's share and possibly some portion of the other shareholder's stakes and this would mean having a significant Australian shareholder in VA that will have an influence on decisions made by the airline that serves Australian interests rather than the interests of the other stakeholders like SQ, EY and DL.

 

[RAM]

With the whole Corona virus thing, there are myriad companies that will suffer. And all of them seeking government bailouts.

I think most would agree that in the aviation sector it is healthy for VA to survive - as "we" do not want a return to a monopoly where QF can slay us with high fares. But VA is essentially a foreign company!! So to help it would require the government to throw cash at foreign companies...

A truly hard one, in my opinion....

In reality when looking at 'brands' there are very few Australian-owned. majority Australian owned and getting to the phase of even minority Australian owned. Sanitarium = US, Nabisco = US, Bass Strait power cable/interconnector = Singapore Govt, various gas pipelines - Chinese (Govt) companies...

Whether its Arnotts, or Holden/Ford/Toyota/Nissan/Mitsubishi - all 100% foreign owned and in the case of the car companies received over $15 billion in subsidies/assistance etc etc BUT never offered any equity stake in return. That was a very well-thought through decision (the consultants actually earnt their money for a change?). The GFC NZ Govt bail-out of Air NZ is a very good & local example of how a Govt can make money out of a bail-out AND achieve major benefits for the country as a whole.

A more recent example (string, bow) is the SA Govt subsidising/contracting the Hornsdale Tesla battery. The lowering of (ACRONYM warning) FCAS and other ancilliary electricity charges for SA in the first 15 months saved the SA economy more than the nominal cost of the Govt contract with the French owners for the ten year life. The Australia Energy Regulator's report (for those with insomnia) is worth reading.

But, as is evident, logic very rarely coincides with reality.

This decision will be driven by the backroom powerbrokers. An area where Q excels. The only way to counter this, if you want to, is to start bombaring your local Federal & State MPs letting them know that you don't want to see a Q monopoly.

Otherwise Q has the 'lobbyists' with a track record of getting what Q wants.

Time to put 'staying home' to good use.