Virgin Australia in trading halt amid rescue hopes

Whether Virgin Australia emerges from its latest share trading halt is up in the air, with its best hope some government support.

Grounded Virgin Australia aircraft are seen parked at Brisbane Airport in Brisbane. Picture: AAP

Virgin Australia went into a trading halt on Tuesday and whether it emerges is up in the air, with the best hope being some sort of federal government support.

Virgin chief executive Paul Scurrah spent the Easter weekend calling federal government ministers and opposition frontbenchers in a bid to secure support ahead of a cabinet meeting today that could decide the debt-heavy airline’s future.

The airline has been working behind the scenes on debt for equity plans, while it also awaits any news on a government loan.

A Virgin spokesman said the trading halt was requested as the company continued to consider ongoing issues with respect to financial assistance and restructuring alternatives.

“This has arisen due to the unprecedented COVID-19 crisis which has particularly impacted the aviation sector,” the spokesman said. “We value the ongoing support of our customers.”

It comes as the Morrison government comes under increasing pressure to help the airline stay afloat and maintain a competitive airline market for when the COVID-19 crisis lifts.

Canberra has so far been reluctant to commit to anything, hoping Virgin can first do a deal with debt and equity holders who both face losing much of their investment.

The $2 billion in unsecured debt is spread across five bond issues trading at between 35 and 50 cents in the dollar.

One bond is trading in Australia and is presently at 37 cents in the dollar.

The rest of the debt, around $3 billion, is secured against aircraft and is more complicated to organise, so the plan to is to deal with unsecured holders as one vote and the five equity holders - all foreign airlines and in an equally difficult financial position - as the other group.

The dream deal would be to get 20 per cent stake holder Singapore Airlines to invest but Mr Scurrah is not banking on that happening.

His best hope is some sort of government guarantee in a deal which will see the equity and unsecured debt all but wiped out.

The federal government will on Tuesday release details of a deal with Qantas and Virgin to underwrite a skeleton network across Australia, but this will not save Virgin.

The timing of any deal will determine whether Virgin emerges from a trading halt early next week.

Mr Scurrah has attempted to put together a package which may save the airline.

International routes are gone, Tiger’s future is in doubt and the airline will focus its efforts on the domestic market.

His predecessor John Borghetti built an airline aimed at taking market share from Qantas, more than making money.

Mr Scurrah is putting all his cards on the last option - making money in the most difficult environment for global aviation.

All options are on the table including voluntary administration, but that is hoped to be avoided and instead Mr Scurrah is trying to do a deal with the debt and equity holders.

He has investment bankers Houlihan Lokey and UBS helping him on the job.

Canberra has studiously avoided committing itself to any package for fear it will set in train a congo line of companies wanting a similar deal.

But it also has not ruled out backing Mr Scurrah and has made clear it wants two domestic carriers.

Virgin Australia said today it had been keeping the “air fair” in Australia for 20-years and the company wanted to continue to provide a valuable service to all Australians.

The airline employed 16,000 people “directly and indirectly” and its continued operation would enable the broader economy to restart quickly once the crisis had eased, he said.