The Australian arm of Sir Richard Branson’s Virgin airline group has gone into voluntary administration to recapitalise the business after the Australian government rejected nine different bailout plans.
Virgin Australia, in which Sir Richard retains a 10 per cent stake, confirmed the appointment of administrators in a stock exchange announcement today. The airline has foundered under a $5.3 billion (£2.7 billion) debt pile, with most of its 94 aircraft grounded and thousands of staff at risk of losing their jobs.
Its final bailout request was for a $200 million (£102 million) cash injection from Australian taxpayers after the government firmly rebuffed a call for a $1.4 billion (£712 million) loan that would have converted into equity if in arrears.
Virgin Australia, which has long struggled against the much larger Australian national flag carrier Qantas, was hit especially hard by the Covid-19 crisis which last month saw most Australian domestic and international flights grounded.
Australia’s treasurer, Josh Frydenberg, made clear that the government was not prepared to bail out the airline while its owners stood by. “The government was not going to bail out five large foreign shareholders with deep pockets who, together, own 90 per cent of this airline,” he said.
Nicholas Moore, the former chief executive of Macquarie Group, has been appointed to engage with the administrator on behalf of the Australian government. “Our objective is two commercially viable, major domestic airlines operating in Australia,” Mr Frydenberg added.
Sir Richard, founder of the Virgin Group, released a video in which he lamented the predicament of his Australian offshoot, which began operating 20 years ago with two aircraft on a single domestic route. It grew to directly serve 42 cities in Australia from hubs in Brisbane, Melbourne and Sydney and built an international route network.
“In most countries, federal governments have stepped in in this unprecedented crisis for aviation to help their airlines. Sadly, this has not happened in Australia,” Sir Richard said. “This is not the end for Virgin Australia. We are determined to see Virgin Australia back up and running soon.”
Vaughan Strawbridge, a Deloitte partner, has been appointed as administrator. He said that more than ten separate parties had expressed interest in buying Virgin Australia. “There is an extraordinary number of parties keen to be involved.”
Two of Australia’s largest companies, Wesfarmers and Macquarie Group, are said to be contenders in the bidding process. Macquarie has extensive experience in managing complex financing and a history of amassing infrastructure assets. Wesfarmers is a conglomerate with a history of owning discretionary consumer goods businesses and has displayed a strong interest in loyalty programmes, giving it detailed knowledge via its retail businesses.
Singapore Airlines, Etihad Airways and China’s HNA Group and Nanshan collectively own 80 per cent of Virgin Australia.
Last month the airline stood down 8,000 of its 10,600 employees, shut down its budget subsidiary, Tigerair, indefinitely, grounded almost all of its international fleet and reduced domestic operations to a skeleton service. It has made 1,000 staff redundant over the past few weeks.
Mr Strawbridge said that Virgin’s remaining staff had been advised that there would be no redundancies and that they would continue to be paid on the Morrison’s government’s Covid-19 wage subsidy scheme.
He said that the administrators wished to retain as much of the airline “as we can, as we come through the other side”.
Virgin Australia’s chief executive, Paul Scurrah, who was recruited a year ago to turn the habitual loss-maker around, said that the decision to go into voluntary administration was about securing a future for the airline.
“This is a tough day for our airline, it’s certainly not the end. We’re not collapsing,” he said.
Referring to the global forced shutdowns of airlines because of the Covid-19 pandemic, Mr Scurrah said: “We’ve had our oxygen supply completely cut off.”
Yesterday Sir Richard Branson pledged to mortgage his home in the British Virgin Islands tax haven as he pleaded with the British government to bail out Virgin Atlantic.Virgin Atlantic will close with loss of tens of thousands of jobs without aid, warns Branson