Virgin Australia Financially Secure? [Now in Voluntary Administration]

[Must...Fly!]

I have wondered the same (buying shares). But the free float is so small, how does one even be sure the price will rise when things start going better?

There are currently 5 brand new Etihad A350s in storage in southern France, as they don't want them - either at the moment, or ever. I've been wondering if these could possibly form part of the widebody fleet renewal. It might just suit everybody, if the A330s can be returned early for no penalty and (major if) the aircraft themselves can do LAX-AU without payload problems.

Plus it would unlock a fair bit of cash for Virgin through the sale of the 4 owned B777s.

I know it would cost money to repaint and install Y+ etc in the A350s but I don't think that would be prohibitive and perhaps if EY really was a motivated seller, it might sort it out itself.

 

[ja1]

Ooooh, I know I'm going to get lynched for this. But I have just read back though all 8 pages and don't recognize many names from the Virgin discussion group. Now, I first concede that everyone on AFF has a right to comment here.....but I'm interested to know how many of you actually fly Virgin Australia as a default?

I don't think you're going to get lynched bit..

It's a discussion about their financial stability - flying on VA has absolutely no relevance to commentary so I'm not sure why you'd want to ask this question. Did you imagine that people who fly VA understand numbers differently to people who don't ? People who fly more understand the numbers better than people who fly less ? I don't think so..

For the record, I've been flying almost exclusively on VA for 6+ years (WP for the last 3?) and I'd also be pretty sad if they folded but that's a personal/emotional point and not going to make any difference to VA's finances other than if I wasn't buying a product or service from them, clearly that doesn't help them at all..

Discussions make some people uncomfortable but I prefer the transparency. I'd rather understand clearly what's going on (and there are people here who are providing excellent information or analysis which I really appreciate).

I also think there's 0% chance that anyone from the VA executive layer would see these discussions so it makes little difference what's discussed here.. other than clear misinformation etc and that's usually picked up by mods or the community generally.

 

[Bagpuss]

I also think there's 0% chance that anyone from the VA executive layer would see these discussions so it makes little difference what's discussed here.. other than clear misinformation etc and that's usually picked up by mods or the community generally.

As Karl is no longer CEO I guess I am now safe to say .... when I used to have issues I used to email his direct (his email address was on the VA website) on a number of occassions.
He referenced in e-mail he (did) and management do read these forums.

With CEO that could be different.

 

[bulldog88]

If the company runs short of cash, the dIrectors will most likely appoint Administrators to run the company and search for a new owner. Equity and debt get erased and someone can buy the airline cheap, renegotiate the aircraft leases, cut the bad contracts etc. Bit harder in Australia because of union influence, But might be a chance for Singapore Air to take control.

Personally I don't think VAHHA is suitable for retail investors. I would only buy a diversified portfolio of bonds (no more than 5% in any one company), so VA going bust would not erase my investment. Airline stocks and bonds are avoided by many investors for good reason.

Don't always trust anything the company directors say, they have a duty to protect the interests of the company and shareholders, not necessarily the travelling public.

 

[pauly7]

International airlines are reporting “no shows” by 50 per cent of passengers as the coronavirus crisis deepens.

In response to the crisis, IATA has called for aviation regulators to suspend rules governing airport slots immediately, until the end of the 2020 season.

At present, the rules for slot allocation mean that airlines must operate at least 80 per cent of their allocated slots under normal circumstances.

Failure to comply with this means the airline loses its right to the slot the next season.

“In exceptional circumstances, regulators can relax this requirement,” said the IATA statement. “The COVID-19 crisis has had a severe impact on air traffic. Airlines are experiencing serious declines in demand.”

IATA director general and CEO Alexandre de Juniac said even countries without major outbreaks of COVID-19 were experiencing decreases in air traffic.

“There are precedents for previous suspension of the slot use rules and we believe the circumstances again calls for a suspension to be granted,” Mr de Juniac said.

This makes a lot of sense for everyone involved.

It also gives VA the opportunity to delay their Japan launch / operate low frequency to begin with so they aren’t stuck losing tens of millions of dollars flying planes with no passengers to a virus infected country.

 

[moa999]

If the company runs short of cash, the dIrectors will most likely appoint Administrators to run the company and search for a new owner. Equity and debt get erased and someone can buy the airline cheap, renegotiate the aircraft leases, cut the bad contracts etc.

In a typical admin situation the lenders take control, having priority to equity. Debt certainly doesn't get erased. It might get converted to equity.

Far harder in an airline due to the amount of secured debt and leases. If VAH went that way you'd expect to see a large number of the flying assets repossessed and out of the country quickly.

 

[HS-TQE]

If the company runs short of cash, the dIrectors will most likely appoint Administrators to run the company and search for a new owner. Equity and debt get erased and someone can buy the airline cheap, renegotiate the aircraft leases, cut the bad contracts etc. Bit harder in Australia because of union influence, But might be a chance for Singapore Air to take control.

As mentioned previously, SQ would not be interested in VA and are on record writing down their VA losses on their own financial reports, despite SQ being equally responsible with EY and HNA, and to a lesser extent NZ for blowing VA's financial through reckless CapEx spending over the years with JB being the "front man" for those investors.

IMO, as stated previously in past posts, if "worse comes to worse", the only assets I can see SQ being interested in is Velocity (One of the primary reasons why SQ bought a VA stake in the first place, where they can integrate the VA FF customer base into SQ's Krisflyer), and a slimmer chance of some of VA's owned 738s and some of VA's SYD/MEL slots to run a bare bones domestic operation.

 

[andrewpf]

Small anecdote, but since Trans-Tasman is seen as a weak financial point since the end of the Air NZ alliance ... I flew to Auckland return on VA last weekend. I would say both flights were 85% to 90% full.

Also flew VA OOL to SYD, and would say that flight was packed (maybe 95% full)!

 

[bulldog88]

If the opportunity arises, I have no doubt SQ will take control of VA . There are so many strategic reasons for SQ to be the #2 airline operator in Australia.

Not to mention all the A359's they have on hand - replacing the VA 77W's at significant cost benefit.

 

[HS-TQE]

If the opportunity arises, I have no doubt SQ will take control of VA . There are so many strategic reasons for SQ to be the #2 airline operator in Australia.

Not to mention all the A359's they have on hand - replacing the VA 77W's at significant cost benefit.

There's been the "annual" article of SQ "taking over VA" or "buy a larger stake in VA" (or variations therof) every year for the past 5 years. In all cases, they have been all "fake news" everytime.

In some years, the "takeover/larger stake" articles has been "timed" when the occasional interest from other airlines come in.

Until there's a formal ASX announcement or a pen to paper, any "SQ takeover" news should be considered "fake news".

 

[AviationNZ]

Small anecdote, but since Trans-Tasman is seen as a weak financial point since the end of the Air NZ alliance ... I flew to Auckland return on VA last weekend. I would say both flights were 85% to 90% full.

Also flew VA OOL to SYD, and would say that flight was packed (maybe 95% full)!

Remember that load factors are only one piece of the pie of commercial viability for an airline.

 

[wannabeinvestmentbanker]

Remember that load factors are only one piece of the pie of commercial viability for an airline.

Agreed, especially when the OP travelled on weekends which are full of leisure travellers

 

[cove]

The price of jet fuel should be a lot lower but I don’t know their hedging position. That could really help.
HNA are now getting their assets sold up so their shares are up for grabs.
Beardy bloke has been a seller in the past.
Tiger hasn’t worked.
None of the current major shareholders can make a bid without triggering the takeover rules.
Interesting times......

 

[antycbr]

I'm not seeing much in the way of deep discounting at the moment. We're not that far out from Easter holidays which a lot of people would have booked already. One sign will be the pulling of the "off hour" flights between Sydney and Melbourne - e.g. the 1715 and 1745 services - this happens already with light loads.

 

[HS-TQE]

Agreed, especially when the OP travelled on weekends which are full of leisure travellers

Yields also play a factor in a route's viability for each airline. A full plane where the majority of tickets sold are on VFR (Visiting Family Relatives)/"Sale" fares would be considered a low yield on returns.

 

[pauly7]

I'm not seeing much in the way of deep discounting at the moment. We're not that far out from Easter holidays which a lot of people would have booked already. One sign will be the pulling of the "off hour" flights between Sydney and Melbourne - e.g. the 1715 and 1745 services - this happens already with light loads.

Yes we know both VA and QF make a killing at Easter, it’s bigger than Xmas and all domestic routes are looking solid so let’s hope it remains that way for VA especially who need it the most, but both airlines really, no one wants to see layoffs (or more layoffs if we are talking VA specifically).

 

[amaroo]

But the free float is so small,

<snip>

Agreed. The stock that isn't a stock...

 

[HS-TQE]

The price of jet fuel should be a lot lower but I don’t know their hedging position. That could really help.
HNA are now getting their assets sold up so their shares are up for grabs.
Beardy bloke has been a seller in the past.
Tiger hasn’t worked.
None of the current major shareholders can make a bid without triggering the takeover rules.
Interesting times......

Most of the major shareholders have debt/financial issues of their own to make a bid, or in SQ's case just simply not interested and have been reported writing off their losses in their VA's stake (and subsequently pay less tax by writing off their VA losses).

The SIA group are also buying planes for their Indian JV airline, Vistara (also largely a money drain), which suggests VA is not a priority for them.
In addition prior to VA, SIA also has a past mediocre track record on their investments such as the NZ/AN bankruptcy and the VS investment failure (although not as bad as Hogan-era Etihad), so why they are being seen as the "so-called saviour" by some people is beyond me.

Nanshan Group is dealing with the Coronavirus being largely a boutique domestic airline and tour company.

Branson is largely hands off and will not likely by buying nor selling.

Etihad and HNA Group as we all know are basically bankrupt and doesn't have money on hand.

 

[ja1]

Etihad and HNA Group as we all know are basically bankrupt and doesn't have money on hand.

Given that the ultimate owner of Ethihad is worth $18b and his family's network worth is in excess of $150b and given the ultimate (eventual) owner of HNA is a government with foreign reservers of ~$3.5 trillion...

.. I don't think you could describe either as 'basically bankrupt' at this point

Especially when you consider they have a lot of other factors involved in keeping those airlines going for reasons other than making a profit.

And when you think about how this (airline) game plays out in the long run - it's simply a case of 'last man standing' where the airlines still operating basically call the shots in the recovery phase.

This is why I don't think some of the thought bubbles mooted here about VA's eventual owners are that far out.. They might need VA to survive long enough to have control over something.. which they can't get if it ends up back at QAN or if (yet another) new entrant comes in which has no obligations..

Think about the long game as well as the short term pain?

 

[juddles]

Sorry, I am not a smart investor / savvy capitalist But I do think that a company's share price has some indication of their well being. At the now 8c a share, VA is a complete basket case. In Corona terms, they are a ninety year old with chronic respiratory disease, living in Wuhan, who has tested positive....