Terry McCrann: No demand for seats means Virgin virtually dead

While we would all like a second airline, maybe we will end up enduring a period of only Qantas — and its Jetstar — until a new player comes in to attack the monopoly’s soft underbelly, just like Richard Branson did with Virgin, writes Terry McCrann.

The old Virgin is dead. It was effectively already in a corporate ICU — propped up only by its five big foreign shareholders — running into the virus.

The virus and more exactly the government-ordered grounding of almost all its planes finished it off.

The focus must now be on whether a Virgin Mk II can replace it and whether that is done through the existing corporate structure or in a new entity from the ground up.

The first would allow it to kick-off — as a much smaller, totally domestic, version — pretty much continuously after the planes were allowed to fly again.

The second would allow a new Virgin to start with lower upfront costs — it could even buy some of the existing planes cheaply — and without all the baggage, the debts and other liabilities, of the old Virgin structure.

Either way the voluntary administration allows the accountants to run the airline on a continuing day-to-day basis until either a restructuring deal is done or the airline closed completely, like Ansett back in 2002.

One of the newly appointed administrators, Deloitte partner Vaughan Strawbridge, claimed on Tuesday more than 10 parties had expressed interest in Virgin.

That needs to be taken with a big lump of salt; when something like this happens and billions of dollars are hanging, the sharks and the main-chancers come from everywhere to see whether a lucrative deal can be done.

The same happened with Ansett. Back then the “many interested parties” came down to just billionaires Lindsay Fox and Solomon Lew and after months of teetering on doing a deal they also walked away.

The Ansett of 2002 was in far better financial shape than the Virgin of 2020. So also was the Australian and global airline industry.

We might ‘like’ to have a second airline, to keep a Qantas monopoly from screwing us.

Yes, back then all the planes had also been grounded — the same trigger that sent Ansett over the cliff. But they were grounded only for a couple of weeks after 9/11.

This time around it is going to be for months; and even when they do start flying again, the demand for seats is going to be dramatically less than it was just two months ago. Everywhere.

Ask yourself: would you put $1 billion, far less $2 billion or more, into a business, knowing that you couldn’t earn any revenue for weeks if not months and the costs would start ticking over immediately?

The answer might be a big yes, if the government was putting in money with and even better ahead of you. The government did exactly the right thing in refusing to put that money into the existing Virgin, with its $5 billion of debt and a business that was basically going broke even before the virus.

But now government money and how it might be invested becomes part of the complex arm-wrestle between the accountants, Virgin creditors, any potential new investors and the government.

Or governments, with both Queensland and NSW trying to “buy” the new Virgin’s head office.

Yes, we might “like” to have a second airline, to keep a Qantas monopoly from screwing us.

But you can’t just wish it. Maybe we might end up having to go through period where there is only Qantas (and its Jetstar) — until a new player comes in to attack the monopoly’s soft underbelly. Just like Richard Branson did with Virgin.

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Originally published as Terry McCrann: No demand for seats means Virgin virtually dead