Virgin Australia aircraft under repossession threat, say lawyers

More than half of Virgin Australia’s fleet could be seized by the aircraft owners within two months, emails reveal.

Virgin Australia aircraft parked at Brisbane Airport. Picture: Patrick Hamilton/AFP

More than half of Virgin Australia’s fleet could be seized by the aircraft owners within two months, if the issue of payment is not resolved by administrators.

Deloitte was appointed by the airline last week after the Virgin board agreed to go into voluntary administration in the hope of restructuring the business.

Documents lodged in the Federal Court revealed Virgin owes $6.84bn to up to 12,000 creditors, including banks, lessors, airports, employees and bondholders.

Lawyers acting for a range of lessors and banks have outlined concerns about aircraft. Although they agreed to a 28-day “relief” period until Deloitte was personally liable for the costs of the aircraft, an undertaking was sought that no out-of-pocket costs would be occurred during that time.

Of particular concern was the ongoing use of leased aircraft to operate charter and government-subsidised flights.

An email from Standard Chartered and Pembroke special assets account manager James Alexio said they did not consider it appropriate that administrators should be “completely relieved of their obligations where they are continuing to utilise aircraft and benefit from their use”.

As an example, Mr Alexio said an A320 used by Virgin Australia Regional Airlines had flown for 141 hours throughout March.

“The maintenance life consumed by (this aircraft) is equivalent to approximately $US85,000 which is a cost (lessor) Pembroke will need to bear on top of foregone rental,” Mr Alexio wrote.

“Further, aircraft which are being flown (especially on a regular basis in the case of the VARA A320) will further depreciate in value as compared to aircraft that are simply grounded. As a consequence, lessors of aircraft which are almost fully utilised are being significantly prejudiced.”

According to the administrator there are about 94 aircraft leases held.

Lawyers King, Wood and Mallesons also put their concerns in writing, telling Deloitte that after 60 days, lessors would take possession of aircraft, engines, technical records and so on, if administrators did not agree “to perform all future obligations”.

“We expect that at the end of this 60-day period, the administrators will have a better view as to the status of any restructuring proposals and which of the aircraft property they will likely require,” said an email from KWM partner John Canning and special counsel Gavin Rakoczy.

Among the clients for which KWM is acting, are AerCap, Bank of America, BNP Paribas, Orix Aviation, ICBC Aviation Leasing, Jackson Square Aviation and ELF Group.

Already 11 Virgin Australia aircraft have been seized by Perth and Adelaide airports over unpaid fees totalling $26m. The first creditors’ meeting will be held electronically on Thursday, with hundreds expected to take part, including employees, union representatives, landlords and lawyers representing banks, lessors and bondholders.

There is not expected to be any challenge to Deloitte, with the ACTU indicating its members were “very happy” with the administrator. Transport Workers Union national secretary Michael Kaine repeated his calls for the government to expedite its next move and take a stake in Virgin Australia.

“This is not a normal voluntary administration process and the government needs to recognise this,” Mr Kaine said. “A Commonwealth stake in Virgin is inevitable and highly desirable if our aviation industry is to return to health, maintain its workforce and serve the national interest.”