Drowning in debt and with a dubious business model, why was Bonza ever allowed to fly?

Plenty of aviation experts thought Bonza was doomed from the start but the airline still received the regulator’s go-ahead, and that’s raised questions about the need for scrutiny of start-ups.

For many in the cutthroat and challenging business of aviation, budget carrier Bonza was doomed from the start.

With a business plan that used large jets on regional routes at a very low cost to passengers, it was difficult to see how it could work.

As other airlines moaned about inflation pushing up the cost of everything, Bonza sold fares for as little as $49 for hour-long flights and under $100 for longer trips.

Even with the promised backing of “deep-pocketed” US firm 777 Partners, there was scepticism about Bonza’s chances of survival in Australia’s airline industry dominated by the competitive Qantas-Jetstar group.

Griffith University tourism and aviation policy consultant Justin Wastnage said with operating costs of an estimated $12,000 an hour, Bonza would have needed $200 a passenger based on 70 per cent load factors, and two-hour flight turnarounds.

“That’s almost impossible to achieve with such low fares,” Mr Wastnage said.

At the time of its collapse on April 30, Bonza had debts of $133m and had likely been trading insolvent for at least two months – and probably longer – administrator Hall Chadwick found.

There was never any formal loan agreement with 777 Partners, which provided only “sporadic” funding and was at liberty to withdraw support at any time.

Bonza’s livery is gone from Australian skies after just 15 months of operation. Picture: Nilsson Jones

Given its financial position, it was difficult to understand how Bonza was even granted an air operator’s certificate in Australia.

International Aerospace Law and Policy Group senior lawyer Joseph Wheeler said the Civil Aviation Safety Authority required a financial liability assessment as part of the application for an AOC.

“This requires a cashflow forecast for comfort to be given to the regulator that significant outflows for overhaul and maintenance will be able to be covered during the first three years of operation,” Mr Wheeler said. “There is technically no requirement for the regulator to monitor financial viability, however.”

Former Virgin Australia chief executive Paul Scurrah said it was sad to see Bonza added to the long list of airline failures in Australia, and a closer examination by the regulator was needed of the business case.

“I think anyone wanting to enter the aviation space in Australia needs to demonstrate as much to consumers as to the regulator they have the financial backing to sustain a long-term airline, and that has often not been the case,” Mr Scurrah said.

In Bonza’s case, a fleet of three Boeing 737 Max 8s was supposed to expand to eight but the supply chain dried up as aircraft intended for Australia’s shores were sent elsewhere by 777 Partners.

The musical chairs made life difficult for Bonza, which struggled to provide reliable services using just three jets and adding more routes to its network.

As the red flags grew, a lawsuit was filed in the US in mid 2023 which raised serious allegations about the Miami-based 777 Partners and its interest in Bonza.

Former 777 Partners principal Timothy O’Neil-Dunne made the bombshell claim the firm sought to make money from its airlines by overcharging for aircraft it leased to them.

Court documents said the company bought planes at below market rates of about $US42m during the pandemic, and then leased them out at the current market value of $US52m.

At the time, 777 Partners vehemently denied the claims, saying they were “illogical” and “counter to their own interests”.

But a report to Bonza’s creditors by Hall Chadwick said “leasing charges were higher than originally budgeted and anticipated, and deposits requested by the lessors were in excess of those originally budgeted and anticipated”.

It was a known fact 777 Partners held a 49 per cent stake in leasing company AIP Capital until just before Bonza’s aircraft were repossessed at midnight on April 29 forcing the airline into administration with crippling debts.

Some of Bonza’s 323 staff who lost their jobs when the airline collapsed. Pictures: Darwin International Airport

Other revelations in the report concerned what was known about Bonza’s precarious financial state and by whom, given the claims of chief executive Tim Jordan that the repossession came as a shock.

As of June 2022 – before flying even started the following year – Bonza had a working capital deficiency, which reached $252.3m in March 2024.

“This is an indication that the company was cashflow insolvent during the period from June 2022 onwards, and did not have sufficient liquid assets to meet its current liabilities,” the report said.

Although Bonza’s creditors have now voted in favour of winding up the company, it is far from a case of “chapter closed”.

Potential charges ranging from insolvent trading to reckless or intentional dishonesty are being considered, given Bonza had continued to sell tickets to customers in the knowledge the company was running on empty.

The Australian Securities and Investments Commission is considering information provided by Hall Chadwick, in addition to conducting its own inquiries into insolvent trading.

Despite the expectations of many being realised with regards to Bonza, Mr Scurrah is optimistic of a brighter future for the aviation industry.

“I still believe there’s room for multiple airlines in Australia but, to date, history has proven that it’s difficult for second and third carriers to attain levels of profitability to make them a long-term business success,” he said.

Originally published as Drowning in debt and with a dubious business model, why was Bonza ever allowed to fly?