Moody’s downgrades Virgin Australia as coronavirus hits home

In a case of tragic timing, Moody’s Investor Service has downgraded Virgin Australia’s credit rating.

An almost empty Virgin flight VA1244 departs Rockhampton for Brisbane.

In a case of tragic timing, two ratings agencies have downgraded Virgin Australia’s credit rating as the airline continues to search for a white knight to see it through the coronavirus crisis.

Moody’s Investor Service was the first to move taking its B3 credit rating for Virgin down to Caa1, or “very high credit risk”.

Fitch followed hours later, downgrading Virgin Australia from B- to CCC, or “substantial risk” due to “increasing uncertainty around whether the airline will be able to obtain additional financing”.

The downgrades came as Virgin continued discussions with potential investors as well as the federal government, in the hope of saving the company from collapse.

A statement from Moody’s said its “base case assumption was that any outcome (from the discussions) was likely to result in economic loss to creditors”.

“The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets,” said Moody’s senior credit officer Ian Chitterer.

“Today’s action reflects the impact on Virgin of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.”

He said any further downgrade or upgrade of Virgin’s credit rating would depend on details of any announcement about the airline’s capital structure and liquidity; the spread of COVID-19 within Australia; any significant government support that would improve Virgin’s liquidity and the airline’s ability to reduce costs to reduce the cash burn.

Already Virgin Australia has stood down more than 8000 workers, of whom 1000 have been made redundant, and reduced flying to one domestic route and a number of subsidised services for the government.

Along with rival Qantas, Virgin Australia received some good news on Thursday, with the Deputy Prime Minister announcing $165m would be spent subsidising domestic flights by the two airlines.

The federal government continued to talk down prospects of a $1.4bn bailout for Virgin however, insisting any further assistance for the aviation industry would be sector-wide.