Virgin Australia put in hangar for pre-sale financial repairs

Decision to go into administration believed to be triggered by the federal government refusal to provide a $1.4bn loan facility.

Grounded Virgin Australia aircraft at Brisbane Airport. Picture: AAP

After weeks of increasingly desperate pleas for assistance, Virgin Australia will be placed into voluntary administration where it will undergo major financial repair work before likely being sold.

Deloitte, which was recently brought on board to advise on insolvency and restructuring, has been appointed administrator to the airline, which is saddled with more than $5bn of debt and no prospect of increasing revenue in the pandemic.

The decision to go into administration was believed to be triggered by the refusal of the federal government to provide a $1.4bn loan facility and the absence of other offers.

Shareholders, including Singapore Airlines, Etihad Airways, Chinese conglomerates HNA Group and Nanshan and Richard Branson’s Virgin Group also turned down a request for help. Despite being paid by the government to operate a limited domestic network and international rescue flights, the airline was unable to see a way through the coronavirus crisis, which has already resulted in 8000 of its 10,000 workers being stood down.

At least 1000 of those were made redundant; all but a handful of aircraft are grounded while low-cost partner Tigerair has been removed from the skies.

Since the start of the crisis on January 24, the company’s value has nosedived from $1.2bn to $726m as its share price sank from 14.5c to 8.6c, ahead of last week’s trading suspension.

A board meeting late on Monday is understood to have reached the decision to go into administration, which will be relayed to the ASX on Tuesday.

Although the government rejected the request for a bailout, public money could still be funnelled into the airline under a new owner.

On Friday, the Queensland government made it clear it would be willing to stump up $200m to a new operator to buy Virgin out of administration, so long as it was headquartered in the state and continued to support flights into the regions.

The current Brisbane headquarters of Virgin Australia provides employment for 5500 people, after being established in 2000 with the help of a $10m government sweetener.

NSW Premier Gladys Berejiklian also signalled interest in providing financial support for Virgin on the condition the airline relocated to Badgerys Creek, where Western Sydney Airport is under construction.

An on-airport business park planned for the site could house various types of businesses with commercial office space and campus-style accommodation.

The Victorian government could also get involved in a relocation bid, with Premier Daniel Andrews indicating he was in discussions with Virgin “well before this pandemic”.

Tourism operators and unions were expected to mourn the demise of Virgin Australia after 20 years of flying, during which airfares plummeted.

Former Qantas chief executive Geoff Dixon, who set up Jetstar to compete with the then Virgin Blue, said the airline had made an important contribution to the aviation industry.

“It made such a tremendous difference to aviation in Australia when it started, forcing all the other players to step up and become much more efficient carriers,” he said.

“To lose it at a time when Australian tourism is virtually on its knees will make the recovery for both domestic and international tourism extremely difficult.”

Aviation consultant Neil Hansford said it was clear Virgin Australia would look much different after administration, whether the management team led by chief executive Paul Scurrah was retained or not.

He said for starters, the airline was unlikely to have a workforce anywhere near that of its current 10,000 employees.

“I would expect it will shrink to no more than 3000 staff, and will return to its roots as a low-cost carrier. Tigerair will be gone,” Mr Hansford said.

“It will be predominantly domestic, save for perhaps some flights to New Zealand and maybe Bali, with a fleet of all 737-800s, no 737 Max 8s.”

He said a “smart move” would be to take Virgin out of the airline’s name to avoid paying royalties to Richard Branson, who owns the trademark.

“There will be no lounges or business class, and it will only do capital cities and major regional centres like Cairns, Townsville and the Gold Coast,” Mr Hansford said.