Virgin Australia to cut 3000 jobs, axe Tigerair

Virgin will cut a third of its workforce, simplify its fleet and scrap Tigerair as international routes remain on hold.

Grounded Virgin Australia planes at Tullamarine Airport in Melbourne, the day the airline entered administration. Picture: James Ross/AAP

Virgin Australia will cut 3000 jobs from its 9000-strong workforce in an effort to be a “stronger, more profitable carrier”.

But employees leaving the airline have been promised a special photo signed by Sir Richard Branson and Paul Scurrah as a “parting gift”.

An update to the ASX, which will be shared with employees on Wednesday, revealed the airline will go to a simplified all-Boeing 737 fleet, discontinue budget carrier Tigerair but maintain its commitment to regional and charter flying.

Long-haul international routes will be suspended until the global market recovers from COVID-19, which could be two to three years away.

Virgin Australia CEO Paul Scurrah said together with new owners Bain Capital, the Virgin 2.0 plan would secure 6000 jobs and re-establish the carrier as “an iconic Australian airline”.

“Our initial focus will be on investing in the core Virgin Australia domestic and short-haul international operation alongside our 10-million-member strong Velocity frequent flyer program, continuing to offer an extensive network of destinations, a domestic lounge network and value for money for customers,” Mr Scurrah said.

“Bain Capital recognises the importance of Virgin Australia’s loyal customers and that’s why they will be provided the value of their travel credits post-administration with validity significantly extended to ensure they have plenty of opportunity to book tickets to their favourite destinations.”

All ATR, Boeing 777, A330s and A320s would be removed from the fleet and the Tigerair brand would be shelved, although the airline’s Air Operator Certificate would be retained in case Virgin wanted to re-launch a budget carrier.

Virgin Australia would continue to offer a two-class cabin, and target all travellers from business people and corporates to holiday makers and those visiting friends and relatives.

The airline will also maintain a “network of lounges in key domestic locations with a plan to reopen when demand returns”.

“While these changes are important to manage the impact of COVID-19, they involve some very tough decisions,” said Mr Scurrah.

“We expect approximately 3000 roles will be impacted as a result of the changes announced today. However our intention is to secure approximately 6000 jobs when the market recovers with aspirations for up to 8000 in future.”

Formal consultations with unions and employee groups would start on Wednesday with all options to be explored, including voluntary redundancy, redeployment, leave without pay and flexible work arrangements.

A letter sent to employees by chief legal, risk and people officer Dayna Field set out the steps to be taken, and the entitlements for those who did leave Virgin Australia.

As well as unlimited standby travel for two years after departing the carrier, employees could select a “special photograph signed by Sir Richard Branson and Paul Scurrah” that best commemorated their time with Virgin.

“These will be shipped to your home,” said the letter.

Sir Richard Branson at a Virgin promotion last year. Picture: Liam Kidston.

Bain Capital’s Australian CEO Mike Murphy said it was “backing Paul to successfully lead Virgin through the current turbulence and into the future”.

“Bain Capital is one of the world’s leading private investment firms with more than $150bn assets under management, deep aviation experience, and a long-term Australian presence,” said Mr Murphy.

“The combination of Bain Capital’s private equity, distressed, and restructuring expertise will ensure Virgin Australia has the ability to grow as the market recovers.

“In the context of the toughest aviation market dynamics in history, we are fully supportive of management’s plans to preserve as many roles as possible as we help reset the airline for long term sustainable success.”

Virgin Australia went into administration on April 21 with debts of $6.8bn owed to aircraft lessors, airports and other landlords, bondholders, employees and suppliers.

A second creditors meeting to confirm the sale to Bain Capital is expected to take place early next month.

Virgin Atlantic bankruptcy

As Virgin Australia outlined its plans, Sir Richard Branson’s Virgin Atlantic Airways filed for bankruptcy in the US to put into effect a $US1.5 billion rescue package designed to keep the airline solvent through the coronavirus pandemic and aid the billionaire’s broader efforts to stabilize his travel and tourism businesses.

Virgin Atlantic sought protection under chapter 15 in US Bankruptcy Court in New York, as part of the airline’s court-sanctioned restructuring process in the UK. that includes $US784 million) in financial support from shareholders.

Chapter 15 is the section of the US bankruptcy code that gives foreign companies access to many of the benefits of US bankruptcy law. Virgin’s lawyers are seeking a temporary restraining order from the US court, which would freeze lawsuits and shield its US-based assets from potential seizure during restructurings in their home countries.

The restructuring deal will supply the airline with a £200 million capital investment from Mr Branson’s Virgin Group and £170 million in secured loans from US-based Davidson Kempner Capital Management.

Under the proposal, Virgin Group will retain its 51 per cent controlling stake in the airline, and US partner Delta Air Lines will continue to hold the remaining 49 per cent. Both companies are deferring fees on things like using Virgin’s brand name and Delta’s booking system.

With Dow Jones