Good news for airline as travel agencies rally on government support for tourism
Virgin Australia’s administrator, Deloitte, has won a court order preventing planes from being seized and making the airline more attractive to a buyer.
Business
Don't miss out on the headlines from Business. Followed categories will be added to My News.
Virgin Australia’s fleet will remain intact as a buyer is sought for the embattled airline after administrator Deloitte won a court order effectively preventing planes from being seized.
And shares in major travel companies have surged after Federal Treasurer Josh Frydenberg signalled the government may provide extra support to the struggling tourism sector.
Deloitte sought the order extending until June 16 its exemption from personal liability for the cost of the Virgin leases.
By that time, Deloitte hopes to have a binding offer for Virgin that will include details of what aircraft leases the buyer wants to keep. Federal Court judge John Middleton on Monday granted the order over 142 aircraft and engines in the Virgin fleet that are subject of lease agreements.
Aircraft lessors had previously raised concerns about non-payment for planes being used by Virgin for revenue-generating charter flights and government-subsidised flights.
More than 70 lessors and financiers are owed $1.88 billion by the airline.
In its submission to the court, Deloitte said that under the leases, there was an aggregate monthly liability or more than $40 million a month. It said that amid the COVID-19 pandemic, Virgin was generating about $25 million a month in revenue from aircraft use — a “comparatively insignificant sum” compared with revenue before.
The airline’s “direct” costs included fuel, wages, landing charges and navigation fees, the submission said.
“The unrestricted cash available to the administrators continues to be used to meet any shortfall in direct costs and is also applied to meet other aircraft preservation costs including maintenance, insurance, storage and overheads,” Deloitte said. “Accordingly, there continues to be no surplus available to meet lease and finance cost payable to the aircraft lessors during the administration period.
Deloitte argued it was in the best interests of the sale process to keep all aircraft and engines that were the subject of leases, rather than have them seized.
The “cost and time associated with the acquisition, financing and mobilisation of new aircraft would, for a number of reasons, make a sale impractical”, it said.
The developments at Virgin on Monday coincided with a surge in share prices among travel companies after Mr Frydenberg said struggling sectors such as tourism may receive more government support.
Next month, the government is due to review the JobKeeper wage subsidy program that was rolled out to support the economy during the pandemic.
Asked on radio about the review and potential support for specific industries, Mr Frydenberg said the government wanted to “provide support for those sectors that are going to do it tough in the longer-term, like tourism, as a result of the international borders being closed”.
Many workers were forecast to go back to work as restrictions were eased, he told the ABC. “But there’ll be some sectors … like tourism, that will find it more difficult to get back on their feet because the border restrictions will still be in place at an international level,” Mr Frydenberg said.
Travel agencies’ shares, which had plunged late in February and in March as the pandemic intensified, surged on Monday.
Flight Centre shares jumped 15.2 per cent to $13.01 while online agent Webjet spiked 15.6 per cent to $4.16. Helloworld Travel rallied 10.7 per cent to $1.65.
Virgin Australia went into administration on April 21 with debts of $6.8 billion. Buyers were immediately sought for the airline, and as of last week, four bidders were left in the race. The list is expected to be cut to two by Friday.
Melbourne-based BGH capital, in partnership with superannuation titan AustralianSuper, is among the four.
US-based investment companies Bain Capital, Indigo Partners and Cyrus Capital are also in the running.
Representatives for the bidders met with union officials on Monday, following on from presentations by Virgin chief Paul Scurrah last week.
THE AUSTRALIAN
MORE:
Originally published as Good news for airline as travel agencies rally on government support for tourism
How the NBN has delivered just in time
The NBN has delivered, and it has done so in what can only be described as the ultimate — the hit-the-ground running immediate — stress test, rites Terry McCrann.
Sydney airport the wrong place at the wrong time
Sydney Airport has some of the sweetest acreage in Australia but when passengers numbers have dwindled from 9 million in the March quarter to 400,000 in the June quarter, that doesn’t count for much, writes Terry McCrann.