Survival chance in Virgin Australia administration

Virgin on Monday night formally decided to call in Deloitte as administrator to run the company. Picture: AAP

A quick administration is Virgin’s best hope for survival after the board on Monday night formally decided to call in Vaughan Strawbridge from Deloitte to run the company.

As voluntary administrator Strawbridge effectively replaces Virgin chairman Elizabeth Bryan and the board but chief executive Paul Scurrah can remain in place to complete the restructuring.

The formal process includes a formal meeting of creditors in a week and then a second meeting one month later which will likely present the final plan for the restructuring.

Insiders welcomed the decision as offering the best chance to sort through the company’s financial problems.

But the appointment is set to face an early challenge because Deloitte was an advisor to the company before it went into administration.

Creditors can challenge the appointment claiming Deloitte is not independent as happened with Korda Mentha during the administration of free-to-air broadcaster Ten two years ago.

In that case Mark Korda won the fight, but the expected challenge is not the ideal start to what is aimed at a quick resurrection of Virgin.

Virgin has $5 billion in debt of which $3 billion is secured against aircraft and another $2 billion spread across five separate bond issues.

Simply getting this group together as one group was some of the problems faced by Virgin’s management.

The administrator has complete power to restructure the company without worrying about competing interests and it also leaves open the chance the Federal Government could well emerge in a limited away to support its future.

Elizabeth Bryan is to be commended for her quick decision to call in Deloitte as administrator because often board delay the process and condemn the company to further problems.

The present aviation shutdown is a blessing in disguise because it means the restructuring process can happen without the worry about the impact on customers.

This is the biggest aviation collapse in Australia’s history but one which also has a chance of recovering with a chunk of the 9000 staff and 6000 contractors in place.

Last year Virgin flew 25 million passengers and the decisions on its survival is all about the customers and the desire to maintain two domestic airlines to offer a competitive choice.

Alternate buyers have emerged including private equity house BGH which is led by former TPG Australia boss Ben Grey who led the failed Qantas buyout in 2006.

Deloitte’s Strawbridge will make the decisions on issues like closing Virgin’s Tigerair brand and the international routes, cancelling some expensive aircraft leases and other contracts.

Now the decision is taken for administration speed is of the essence and with Virgin’s Scurrah in the wings to help, this process can get going to resurrect the failed carrier.