Virgin Australia, unions prepare to meet over airline collapse

Pilots, licensed engineers, customer service workers and ground crews, will present a united front through airline’s administration.

Virgin Australia chief executive Paul Scurrah is in talks with Boeing over aircraft orders. Picture: Joel Carrett

Unions representing Virgin Australia’s 16,000 workers will meet with administrators on Thursday as buyers circle the embattled airline.

The Australian understands the unions representing pilots, licensed engineers, customer service workers and ground crews, will present a united front to Deloitte ahead of the April 30 creditors meeting.

ACTU president Michele O’Neil said their clear priority was to put the workers first and make sure they had the best possible advice and information.

Administrator Vaughan Strawbridge of Deloitte said interest in the carrier continued to increase with a wide group of parties involved representing a number of sectors.

They are believed to include private equity firms BGH Capital and Oaktree, at least one other airline, US-based investment company Indigo Partners and even transport magnate Lindsay Fox has been suggested as a potential starter.

Virgin was placed into voluntary administration this week, following a freeze on travel as a result of the COVID-19 crisis which meant the nation’s second biggest carrier was unable to service its $5bn debt load.

Singapore Airlines moved to dampen down speculation it could be in the running to buyout Virgin Australia, after organising $21bn in finance to see it through the coronavirus crisis.

A spokesman said their equity raising in recent weeks was “about the Singapore Airlines group, not about other investments or partners”.

“This is a challenging time for the entire airline industry. Singapore Airlines believes that competition will benefit customers,” he said.

“However, we will not be able to comment on speculation or hypotheticals regarding the future of Virgin Australia.”

The move into administration on Tuesday saw Virgin Australia’s credit rating downgraded once again by Moody’s and S&P Global, with Fitch following suit on Wednesday.

The “D” rating issued by Fitch is the lowest available reflecting the likelihood that “creditors would be required to take a haircut on its outstanding debt”.

“Our downgrade of Virgin Australia’s rating to ‘D’ reflects the increased probability of this occurring,” Ms Amato said.

“Once the airline exits the administration proceedings, we will assess its new strategy and restructured financial profile and re-rate Virgin Australia accordingly.”

The administrator leading Virgin’s administration process has maintained a restructuring of the airline can be achieved within two to three months.

Vaughan Strawbridge, the Deloitte financial advisory partner in charge of the process, said Virgin was in a very different situation to Ansett – which took a decade to wind up - because there are several potential buyers with “a good set of knowledge” of Virgin which gives the restructuring “a massive head start”.

“I think it’s important to distinguish, this is not an Ansett. Ansett was a very different set of circumstances so the two are not comparable,” Mr Strawbridge told ABC radio.

“We have a group of parties who have been looking at this at this business from an interim funding perspective and also around raising debt in the past. So there’s a lot of people who have got a good set of knowledge around this business, which gives us a massive head start,” he said.

With all costs associated with Virgin Australia under review, questions have been raised about whether the brand name could be in for the axe, to save up to $15m a year.

The licensing arrangement with brand owner, Richard Branson, was renewed by former CEO John Borghetti in 2015 for an indefinite period.

But marketing experts suggested it would be to the airline’s detriment to change the name at this point in time.

“It’s not embroiled in a scandal, it’s not a major airline disaster that’s caused the problems, even though there has been mention of mismanagement,” said University of Technology Sydney marketing expert Dr David Waller.

“Customers are very understanding — they accept that there have been problems but the Virgin brand is still very strong.”

He said it was “different to the Ruby Princess” cruise ship, whose name would be associated with a deadly health crisis for years.

“Virgin has a lot of brand equity, there’s history to it, people know it and they know Richard Branson,” Dr Waller said. “It’s not as though it’s the only airline that’s had problems. Every single person has been touched by coronavirus in some way so people are more understanding.”

One deal that was likely to be axed was Virgin Australia’s order with Boeing for 48 737 Max 10s and 8s, with the first aircraft due to be delivered in mid-2021.

“We have indicated to Boeing we want to talk to them about that,” said CEO Paul Scurrah.

“They’ve got a lot on their plate at the moment as you can imagine but our future fleet considerations is something that will be hotly discussed in the administration process.”