Virgin Australia administrators get Federal Court nod for cancellation credits

Virgin’s administrator wants ‘significant detail’ from potential bidders for the airline ahead of Friday’s deadline.

Virgin staff at Sydney airport in April. Picture: AAP

Virgin Administrator Vaughan Strawbridge has defended his decision to ask the potential bidders for the airline to provide significant detail ahead of Friday’s deadline for first round indicative bids, as he welcomed the Federal Court’s decision on Wednesday to extend the administration period and allow the offer of customer travel credits to affected passengers.

“I said from the outset that we would run a disciplined and fair process. The reason we have asked parties to provide a lot of detail and clarity is to help us determine where the real interest is and understand their thinking and intentions for the future of the airline,’’ he said in a statement on Wednesday afternoon.

“To date, we have been very pleased with the restructuring and sale of business process, and our engagement with interested parties and an incredibly diverse range of stakeholders – from federal and state governments and lessors and suppliers, to regulators and Virgin employees.

“We’ve seen a high level of interest from a number of high-quality parties and discussions with them are progressing very well.”

The Deloitte restructuring partner said the orders made by the Federal Court on Wednesday “were good for customers to retain value and it was also good to extend the administration period to allow the sale process to continue as planned.”

”The order we received on customer travel credits is a positive move and will provide Virgin’s customers with more certainty and preserve value for them. They are important to this business now, and will be important to any new owner of the business, as customer loyalty and goodwill will be a hugely important asset. Initially, customers will be able to use credits to book flights once travel is back on the agenda and during the period of administration. We hope a new owner will continue to honour these credits after administration,’’ he said.

Virgin Australia administrator Deloitte filed an affidavit to a Federal Court hearing in Melbourne saying Virgin has received about 340,000 requests for refunds after cancelling 65,000 flights between March 1 and April 30 due to the pandemic.

On Wednesday morning the court approved a scheme that included a policy proposed by the administrators under which all customers who booked flights before Virgin entered administration and are yet to receive a refund or credit will be given a “conditional travel credit” of the same value.

The scheme will ensure they are not simply treated as creditors to the airline, as they would be in a standard voluntary administration process.

Under the scheme, Deloitte also sought to be excused from being personally liable for the debts incurred by the airline while it continues trading during the administration period.

Mr Strawbridge asked for a broad release from personal liabilities incurred by Virgin in dealings with suppliers such as airports, caterers, cargo operators and fuel suppliers.

“Notwithstanding that the liabilities … are debts incurred by the First Plaintiffs in the performance and exercise of their functions as joint and several administrators of each of the Virgin Companies, the First Plaintiffs will not be personally liable to repay such debts or satisfy such liabilities to the extent that the assets of the particular Virgin Company or Virgin Companies that is or are a party to the particular Applicable Agreement are insufficient to satisfy the debt and liabilities incurred by the First Plaintiffs arising out of, or in connection with, the Applicable Agreements,’’ Deloitte said in its court application.

It remains to be seen if any supplier to the airline opposes the application.

Deloitte said a total of 19 bidders were now in Virgin data room as expectations grow that a streamlined Virgin operation will be able to take to the skies again quickly under new ownership. First round indicative offers are due to Deloitte on Friday.

However doubts are being cast on expectations of Deloitte that the airline can make $1.2 million of pre tax profit in two years time if its international operations are mothballed by the new owners.

A relaunched Virgin is more likely to match the between $843 million and $900 million of earnings it has made over the past five years if it relaunches as a purely domestic carrier.