Virgin Australia aircraft blocked in Perth as collapse could domino air route shutdown across the country
Perth Airport is blocking Virgin Australia aircraft from moving over an unpaid $16 million debt following the company’s administrators requesting a four week exemption from $1.2 billion worth of plane leases.
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Perth Airport is blocking four Virgin Australia aircraft from leaving to ensure it is paid $16 million it claims it is owed by the collapsed airline.
Sources at the airport told The West Australian the airport has a lien – a legal right of possession until a debt is paid – on four planes, though two of them do not have engines at the moment.
One aircraft, a wide-body A330 which is not in use, has an airport vehicle parked in front so a tow bar cannot be attached and another has a bulldozer blocking access.
Perth Airport’s unpaid debt from Virgin comes on top of $20 million which Qantas has refused to pay on outstanding invoices.
The airport had previously confirmed it expects a drop of $100 million in revenue for the next three months due to the impacts of COVID-19.
An airport spokesman said it was “working cooperatively with Virgin’s administrators to try to help the airline come through the current coronavirus crisis”.
“Virgin has significant outstanding invoices from Perth Airport for airfield and terminal use charges – money the airline has already collected from its passengers and the FIFO sector,” he said.
“While Perth Airport is working with the Virgin administrators, it also needs to protect its own interests.
“Perth Airport has taken liens over a number of Virgin aircraft – a standard practice in these situations.
“The aircraft affected are not being used for current FIFO or interstate operations and have been parked at Perth Airport for some time now.
“There will be zero impact on the State’s resources sector.
“At this point in time, we continue to facilitate Virgin’s FIFO flights through T2 while we try to secure an agreement with the administrators.”
Virgin Australia, which went into administration this week, is continuing to fly about 180 mainly FIFO flights each week.
The airport said “maintaining a two-airline system in Australia Post-COVID-19 is absolutely essential for the aviation and tourism sectors, and the broader economy.”
Yesterday, company administrator Deloitte said from its initial review of the airline’s books and records, it appeared the Virgin companies had 10,247 creditors, including about 9020 employees.
It noted “this is likely to change as more information becomes available.”
The administrators said they expect that the total number of creditors to be over 12,000.
On the initial review the debts total $6.90 billion and are made up of: lenders under secured corporate debt and aircraft financing facilities ($2.28 billion); unsecured bondholders ($1.99 billion); trade creditors ($167 million); aircraft lessors ($1.88 billion); landlords ($71 million); and employees ($451 million).
More than 10 groups have expressed interest in Virgin Australia.
A creditors’ meeting will be held next Thursday and at that meeting Deloitte is expected to be challenged.
There is industry speculation that insolvency firm KordaMentha will attempt to replace Deloitte for the role of administrator and will carry the day if half of creditors agree.
KordaMentha started in 2001 with the bankruptcy of Ansett Airlines and sold assets to pay employees 96¢ in the JU dollar.
Virgin said it was aware of the situation and was working with the airport.
VIRGIN ADMINISTRATORS REQUEST FOUR WEEK EXEMPTION
Virgin Australia’s administrators have requested a four week exemption from $1.2 billion of the troubled airline’s plane leases.
The Guardianreports that documents filed to the federal court revealed Virgin’s administrators from accounting firm Deloitte have asked for more time to deal with “questions from creditors”. This matter is expected to be addressed in a court hearing today.
Virgin Australia went into administration on Monday, with debuts totalling nearly $5 billion.
The airline has appointed voluntary administrators to assess whether it can be saved by restructuring or should be sold to other investors. If independent administrators can’t save Virgin, their job is to wind up operations and sell off assets.
Meantime, the collapse of the airline could lead to a shutdown of major air routes across the country in the latest possible blow to our airline industry.
The Australian reports, Australia’s biggest aviation ground operator is set to cut more than 80 per cent of its workers in coming days and start liquidating airport assets.
The move by Swissport to indefinitely suspend operations could cripple the ability of some airlines to resume operations once COVID-19 restrictions are eased. This longer term impact may result because ground operations are seen as essential for aircraft safety, baggage handling and security.
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In the wake of Virgin Australia’s collapse on Tuesday, international ground services and cargo handling giant Swissport, which operates at 32 airports in Australia and New Zealand and is a partner of all major domestic airlines and a number of international carriers in the region, is poised to significantly cut back operations.
According to The Australian, Swissport has warned that 2000 of its workers, many highly trained in security protocols, will likely be made redundant within two weeks.
The company has also indicated it could move to sell down some of its asses such as baggage-loading equipment and container loaders.
Such moves could delay a restart of Australia’s aviation industry once the threat of COVID-19 passes and could adversely impact upon the speed of the economic recovery.
‘THIS IS NOT ANOTHER ANSETT’
The federal government has vowed to work with Virgin to help the troubled airline survive the coronavirus crisis.
But Treasurer Josh Frydenberg said taxpayers were “not going to bail out five large foreign shareholders with deep pockets who together own 90 per cent of this airline”.
The government has appointed former Macquarie boss Nicholas Moore to lead its discussions with Deloitte, which has been appointed by Virgin as its administrator.
Mr Frydenberg said he believed there was “significant interest” from other parties in taking over Virgin and that the government wanted a “market-led solution”.
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“This is not Ansett. This is not the end of the airline,” he said.
Deputy Prime Minister Michael McCormack said the government had already provided $1.28 billion in financial support to the aviation sector during the pandemic.
He said it was a “dreadful situation” for everyone associated with Virgin.
“We want to see the Virgin come out the other side,” Mr McCormack said.
“We will continue to work with Virgin and with the voluntary administrators to get the best outcome.”
Mr Frydenberg confirmed Virgin could still receive Job Keeper wage subsidies for staff while the company was in administration.
Virgin has officially entered voluntary administration Tuesday morning in a bid to resuscitate the troubled airline.
Virgin Australia informed the share market this morning that Deloitte had been appointed as administrators after a board meeting late yesterday.
Administrator Vaughan Strawbridge said the airline doesn’t plan to make any of its 10,000 staff redundant as the company looks for a new owner.
At a press conference today, Mr Strawbridge said employees who were still employed would continue to receive their wages, and those who are stood down would continue to get the jobkeeper allowance.
“Hopefully we can maintain all the jobs, or as many as possible, through this process,” he said.
“Our intention is to undertake a process to restructure and refinance the business and bring it out of administration as soon as possible.”
He said there had already been several expressions of interest from parties wanting to take over the businesses.
Virgin chief executive Paul Scurrah said the decision was “about securing the future of the Virgin Australia Group and emerging on the other side of the COVID-19 crisis”.
“Australia needs a second airline and we are determined to keep flying,” he said.
“Virgin Australia will play a vital role in getting the Australian economy back on its feet after the COVID-19 pandemic by ensuring the country has access to competitive and high-quality air travel.”
The company said it had been working on changes including “consolidating its workforce, simplifying the fleet, withdrawing from unprofitable routes and reviewing and renegotiating supplier agreements”.
It will continue to operate its scheduled domestic and international services.
In response to the announcement that Virgin Australia has been placed in administration, Virgin Group CEO Josh Bayliss said: “The impact of the COVID-19 pandemic has been catastrophic for communities all over the world.
“In addition to the human suffering and loss, it has caused extreme business and financial disruption.
It’s unlike anything the airline industry has ever seen before. Virgin Australia has been hit by a crisis completely outside of its control.
“Virgin Group is a 10 per cent shareholder in the airline. We remain in constant dialogue with Virgin Australia, focusing on playing our part in the rescue of the airline.
“We are determined to find a way through this situation to keep the airline going for the incredible employees who have served their customers with passion, commitment and incredible dedication.
“We want to see a continuation of the unique culture and spirit which has brought much needed competition to Australia’s aviation market, providing vital connectivity for the country. A monopoly in the Australian domestic market will have serious adverse consequences for customers and other industry stakeholders.
“Our intention is to work with administrators and the management team, along with investors and government, to ensure that Australia maintains two airlines.
“Australia remains a key market for the Virgin brand and we wish to support Virgin Australia to become more resilient and stronger than before.
“We are determined to see Virgin Australia planes, and their wonderful teams, flying again soon.”
BRANSON OFFERS PRIVATE ISLAND
Richard Branson has said he will mortgage his private Caribbean island to raise money to help his flailing Virgin Group empire, as he asked the British government to step in and save his Virgin airline from collapse.
Mr Branson, who is the UK’s seventh richest person with an estimated $7.2 billion fortune, and has lived tax-free on Necker Island in the British Virgin Islands for the last 14 years, promised in a public blogpost on Monday (local time) that he would “raise as much money against the island as possible to save as many jobs as possible”.
In a letter to the Virgin Australia team, Sir Richard Branson said: “This is not the end for Virgin Australia but I believe a new beginning.”
“Never one to give up, I want to assure all of you – and our competitor – that we are determined to see Virgin Australia back up and running soon,” he said.
“We will work with Virgin Australia’s administrators and management team, with investors and with government to make this happen and create a stronger business ready to provide even more value to customers, competition to the market, stimulus to the economy and jobs for our wonderful people.”
Mr Branson, 69, tried to convince the British government to give his airline a $1 million loan to help it through the “devastating impact this pandemic continues to have”.
“The reality of this unprecedented crisis is that many airlines around the world need government support and many have already received it,” Mr Branson wrote.
“We will do everything we can to keep the airline going – but we will need government support to achieve that in the face of the severe uncertainty surrounding travel today and not knowing how long the planes will be grounded for.”
Critics have asked why billionaire Mr Branson shouldn’t use his own fortune to save the business.
Former British Home Secretary Diane Abbott tweeted: “Branson has not paid tax in this country for 14 years. On no account should he get a taxpayer bailout, loan or otherwise.”
Branson partially addressed this criticism in his blogpost, saying, “I’ve seen lots of comments about my net worth – but that is calculated on the value of Virgin businesses around the world before this crisis, not sitting as cash in a bank account ready to withdraw.”
Mr Branson added that “if the UK does help Virgin Atlantic to survive, it will not be free money but repaid on commercial terms.”
Airbus, which makes Virgin Atlantic’s planes, and Rolls-Royce, which makes its jet engines, have warned that the company’s collapse would likely sink their businesses too.
Mr Branson warned of the impact on consumers if his airlines ceased operations both internationally and in Australia, writing: “ … the brilliant Virgin Australia team is fighting to survive and need support to get through this catastrophic global crisis. We are hopeful that Virgin Australia can emerge stronger than ever, as a more sustainable, financially viable airline. If Virgin Australia disappears, Qantas would effectively have a monopoly of the Australian skies. We all know what that would lead to.”
FREQUENT FLYER POINTS FROZEN
Virgin Australia’s frequent flyer scheme, Velocity, has frozen redemptions.
Redemptions are frozen for an “initial period” of four weeks, Velocity said in a statement.
“We know how much our members love to plan their travel and use their Points to redeem flights, however the ongoing travel restrictions and reduced flights have limited the options for them to use Points for flights,” it said.
“We’re seeing more members use Points to shop online for items such as gift cards, electronic goods, and wine. This unexpected demand has made it difficult for our suppliers to provide these offers and limits the availability for all members to redeem their Points.
“What our members need to know:
*Your Points aren’t going anywhere. They will remain in your account.
*Your existing Points will not expire through this period. We will be extending the expiration period for your existing Points by the time frame of the pause.
*You can continue to earn Points with our partners, although you won’t be able to redeem them during the pause.”
AUSTRALIA WON’T BAIL VIRGIN OUT
Finance Minister Mathias Cormann has rejected calls for the federal government to buy a stake in Virgin Australia.
Up to 15,000 jobs are at risk, with the federal government resisting the company’s plea for a $1.4 billion bailout loan.
Senator Cormann says the government wants to see two airlines remain in Australia.
He believes administration can find a sustainable private-sector solution to the company’s future.
“The government is not in the business of owning an airline,” the finance minister told ABC News Breakfast on Tuesday.
“But we do want to see two airlines continue and we believe that the opportunities (are) there out of the administration process for that to happen.” Administrators will look at ways to save the business including restructuring debt, as private equity firms circle, sparking hopes of a sale. Labor wants Prime Minister Scott Morrison to save Virgin through extending or guaranteeing lines of credit and taking an equity stake.
Opposition Leader Anthony Albanese said not only was the government leaving 15,000 workers in the lurch, it was also posing a long term threat to the national economy by putting Australia’s two airline system at risk. “This isn’t a market failure,” he told ABC radio.
“This is as a result of a government decision, the right decision, to shut down sections of the economy to deal with the health crisis.” Mr Albanese said it was fanciful for the government to believe another airline would emerge on the market if Virgin went belly-up.
Senator Cormann said administration would offer a chance to restructure underperforming parts of the business.
“It offers the opportunity for private sector interest to come forward and buy the business or assist with the recapitalisation of the business,” he said. “There’s a lot of opportunities from here on in to ensure that there is a viable second airline in Australia moving forward.”
VIRGIN’S OPTIONS SLOWLY EMERGE
Sources close to the airline said senior figures had been locked down in meetings all Monday but were unable to find a solution to keep the company afloat.
The business has sought financial help from a variety of sources but it is understood the board of directors are preparing to hand the company over to administrators.
Deloitte are set to be appointed as administrators after already being called into to assist Virgin with its restructuring effort.
The Queensland Government had offered $200 million in assistance to the airline to keep it in the state while the New South Wales government had offered support if it moved its base to Western Sydney.
It comes after speculation that a consortium, led by an overseas airline, was also prepared to buy out the business.
Melbourne-based private equity firm BGH Capital is emerging as a strong contender to take over Virgin Australia, with the markets bracing for the embattled airline to go into administration early on Tuesday.
The firm, run by Robin Bishop, Ben Gray and Simon Harle, has been examining the airline’s books in recent days and has expressed strong interest.
It’s thought the firm is one of several interested in the airline, which analysts believe can be run profitably if it can jettison the more than $5 billion of debt it is servicing.
Any deal struck by administrators for a rebooted airline would almost certainly see Virgin’s foreign creditors and shareholders lose billions, with no way forward if the airline is still carrying massive debt.
Analysts believe the airline can succeed without major job losses for Virgin’s 10,000 workforce, and that a restructure could be completed within several months, meaning the airline would be grounded mostly during the coronavirus lockdown.
BGH declined to comment to News Corp.
TWU WANTS A DEAL
The Transport Workers’ Union said this morning that Virgin had told workers their entitlements such as leave would be preserved.
They will still receive government-funded JobKeeper wage subsidies while the company is in voluntary administration.
Transport Workers Union national secretary Michael Kaine urged the federal government to work with administrators to save thousands of jobs if appointed.
“The airline has two decades of providing decent jobs, a safe working environment and excellent service for the travelling public.
“It is a viable and much needed business and without it Australia will struggle to get its economy back on track once the crisis abates.
“The Prime Minister has promoted the concept of hibernation, of keeping viable businesses afloat through this crisis.
“That must include Virgin and the only way to do that is a government equity stake in this business.”
Victorian secretary John Berger said workers now faced uncertainty.
“While all of Australia is experiencing the stresses of altered life, with many people stood down from their jobs, the anxiety among Virgin staff is heightened given the airline’s difficulties and the fact that they worsen in a very public way daily.
“We believe it is also in the interest of the travelling public that Virgin remains a viable airline to ensure an efficient, reliable service right across Australia.”
Labor transport spokeswoman Catherine King accused Prime Minister Scott Morrison of letting Virgin “fall on his watch”.
“His failure to act sees 16,000 workers out of a job,” she said.
“This avoidable outcome is devastating for those workers and their families, and our regional economies.”
Speaking on Monday morning, Treasurer Josh Frydenberg said the government wanted to see Virgin survive “a very challenging period”.
“It will go through its commercial processes, it’s obviously got some very significant shareholders with some very deep pockets, that should be the first point of call for the business,” Mr Frydenberg said.
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“But of course we’re watching this issue very closely, we continue to retain an open door to the parties and we would like to see Australia maintain its situation with two major airlines operating in the domestic routes.”
But it is understood the Morrison Government could play a role in providing support if Virgin goes into voluntary administration and seeks new ownership.
More than $1 billion of support has already been provided to the aviation industry by the Commonwealth during the coronavirus crisis.
Last week, the Morrison Government committed to underwrite a basic domestic aviation network for at least eight weeks, providing $165 million to help Qantas and Virgin keep some planes in the air between capital cities and regional centres.
