Virgin Australia leaves 300 SA staff in limbo as investors circle troubled airline
Virgin Australia’s decision to call in administrators has left hundreds of its South Australian staff without work and uncertain what the future holds for the airline.
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More than 300 Adelaide-based employees of Virgin Australia have been left in limbo as potential investors circle the embattled airline.
Virgin confirmed on Tuesday morning that it had appointed administrators to restructure the company amid a debt pile of $5 billion and a collapsed cash flow due to the coronavirus crisis.
About 10,000 direct and 6000 indirect employees are affected by the decision, including more than 300 direct staff in South Australia according to figures from the Transport Workers’ Union.
The union, which represents baggage handlers, cabin crew, cleaners and check-in staff, said that number would easily double or triple when considering flow-on jobs that support the airline’s local operation.
“It’s devastating – it’s a good airline and it has all the ingredients of an efficiently run airline,” TWU SA/NT branch secretary Ian Smith told The Advertiser.
“Yes they’ve probably made a few bad decisions, but ultimately it’s gone into administration because of the shutdown.
“The government called for the shutdown, and rightly so, but it’s time for the government to take a stake in the airline.”
Prior to the coronavirus outbreak, Virgin operated around 320 flights in and out of Adelaide each week, to Alice Springs, Brisbane, Canberra, Gold Coast, Melbourne, Perth and Sydney.
It currently operates six flights to and from Melbourne each week.
Virgin’s decision comes after the Federal Government refused a $1.4 billion bailout to help the airline survive the pandemic.
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Treasurer Josh Frydenberg yesterday defended the decision, and was confident Virgin would “come out stronger on the other side of the coronavirus crisis”.
“This is not liquidation. This is not Ansett. This is not the end of the airline,” he said.
“Virgin Australia is a very good airline performing a very important role and this is a difficult day for its staff, for its suppliers and for the aviation sector more broadly.
“But the government was not going to bail out five large foreign shareholders with deep pockets who, together, own 90 per cent of this airline.”
Those shareholders include Etihad Airways, Singapore Airlines, Chinese conglomerates HNA and Nanshan Group, and Richard Branson’s Virgin Group.
Sir Richard addressed the airline’s decision on Twitter and in a video message on Instagram.
“Dear Virgin Australia team. I am so proud of you and everything we have achieved together,” he said.
“This is not the end of Virgin Australia, but I believe a new beginning. I promise that we will work day and night to turn this into reality.”
The British billionaire had earlier offered up his personal island, Necker Island, as collateral in a bid to save the Virgin Australia and Virgin Atlantic businesses.
Administrator Vaughan Strawbridge from Deloitte said more than 10 parties had already expressed a “keen interest” in helping restructure the Virgin Australia business.
“There will be a flier going out today, an information memorandum going out next week, and then we’ll define the process and the timetable at that point,” he said.
“But we expect to be in the position to know what the outcome will be, or likely to be, over the next two to three months.”
Virgin will continue to operate its scheduled international and domestic flights, which are helping to transport essential workers and return Australians from overseas.
Mr Strawbridge confirmed there were no plans to make any immediate job cuts and staff would continue to be paid or receive JobKeeper payments.
Captain Scott Rackley joined Virgin in 2008, and most recently trained pilots flying Boeing 777 aircraft.
He was stood down earlier this month but believes investors will be found to save the airline.
“Most of us have families and lives we need to think about so the uncertainty plays a part in our thinking,” he said.
“Sadly there are going to be job losses, that was already in the plan – that’s an unfortunate by-product of what’s happening.
“Potentially I will be one of the job losses, but I will deal with that if it happens. That’s a worst-case scenario.
“But there’s definitely a quality business there and really good people.
“I have a lot of confidence that we will come out the other side in much better shape.”
Virgin chief executive Paul Scurrah said yesterday the airline would come out of administration “leaner, stronger and fitter”.
“We take comfort from the comments from the government that this country needs a robust and healthy two-airline market,” he said.
“And because of this procession we’re going through, because of the early decision of our board, that airline will be Virgin Australia.”
Government must be last port of call, even for high flyer
Analysis – Cameron England
The survival of Virgin Australia is vital for both the nation and South Australia – but the Federal Government did the right thing in letting it slip into voluntary administration.
That’s not an easy thing for the company’s 10,000 or so employees to hear – with maybe 1000 jobs affected here – but the Government should be the last, not the first port of call for a struggling business, no matter how important it is.
Firstly, let’s not underestimate how important having two major airlines operating in Australia is. In SA, Virgin accounts for about 35-40 per cent of the traffic through our airport. Both major airlines also provide a vital trade route overseas for high-value products. And of course, having a viable competitor to Qantas provides downwards pressure on price which benefits us all.
We are living in extraordinary times, when even the best airline will struggle to pay the bills. But Virgin has performed poorly for years. When the impact of COVID-19 became apparent, the company’s management reportedly looked at numerous options to keep it afloat, including an appeal to the Government for a $1.4 billion loan facility and more recently $200 million just to keep the doors open.
Any CEO worth their salt would have done the same.
Both were refused – but that’s the right move. Let’s not forget that Australian shareholders account for less than 10 per cent of the ownership of Virgin, with Chinese companies owning 40 per cent, Singapore Airlines 20 per cent and Etihad Airways 21 per cent. Running a business comes with risk, and in this case it’s the creditors and customers we should concern ourselves with.
The voluntary administration process allows Deloitte to get the business shipshape, and try to resurrect it on a path to profitability. That might involve a new owner. That new owner might be, in part, the Australian taxpayer – with a clear path to exiting that stake if that happens. To bail Virgin out too soon would have been putting the Boeing before the horse, to mix travel metaphors.