Virgin Australia fleet of aircraft to be kept intact until sale

Virgin Australia’s aircraft fleet will remain intact until a buyer is found after administrator Deloitte won a new court order.

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

Virgin Australia’s 98-aircraft fleet will remain intact until a buyer is found for the airline, with administrator Deloitte winning a federal court order to that effect.

Deloitte sought the order extending its exemption from personal liability for the cost of the leases until June 16.

By that time, Deloitte hopes to have a binding offer for Virgin Australia which will include details of what aircraft leases the buyer wants to retain.

Federal Court Judge John Middleton granted the order, over 142 aircraft and engines in the Virgin fleet that are subject to lease agreements.

Aircraft lessors had previously raised concerns about non-payment for aeroplanes being used to operate revenue-generating charter flights and government-subsidised flights by Virgin Australia.

More than 70 lessors and financiers are owed $1.88bn by the airline.

In its submission to the court, Deloitte explained there was an aggregate monthly liability under the leases in excess of $40m a month.

The submission went on to say that in the current COVID-19 environment, Virgin Australia was generating about $25m a month in revenue from aircraft use, before other costs such as fuel, wages, landing charges and navigation fees were deducted.

“The unrestricted cash available to the administrators continues to be used to meet any

shortfall in direct costs and is also applied to meet other aircraft preservation costs

including maintenance, insurance, storage and overheads,” said the submission.

“Accordingly, there continues to be no surplus available to meet lease and finance costs payable to the aircraft lessors during the administration period.

“In addition the administrators do not currently envisage a circumstance (at least, over the course of the next 2-3 months) that will enable any meaningful change to the utilisation of the aircraft lessors’ fleet to generate significant additional revenue during the administration period.”

Deloitte also argued it was in the best interests of the sale process to retain all aircraft and engines that were the subject of aircraft leases, rather than have them seized by lessors.

“It would permit an acquirer of the business and assets of Virgin companies to recommence operations following a relaxation of the COVID-19 restrictions from a moving start rather than a standing start,” said the submission.

“The cost and time associated with the acquisition, financing and mobilisation of new aircraft would, for a number of reasons, make a sale impractical.”

Virgin Australia went into administration on April 21 with debts of $6.8bn.

Buyers were immediately sought for the airline, and as of last Monday, four bidders were left in the race with the list to be reduced to two by Friday May 29.

Of those in the running, the US-owned Bain Capital is the only bidder to have issued a public statement promoting the company’s interest in Virgin Australia.

On Sunday, Sydney-based managing director Mike Murphy confirmed a second round proposal would be made by Bain, which wanted “to make flying fun again”.

Arizona-based airline investors Indigo Partners, New York-based hedge fund Cyrus Capital and Melbourne-based BGH capital are also in the final four.

Representatives of each party met with union officials on Monday, following on from presentations by Virgin Australia CEO Paul Scurrah last week.