Thousands of travellers owed refunds for cancelled Virgin Australia flights may never see their cash again and will instead be issued with travel vouchers under a plan proposed by the airline's administrators.
Virgin stopped giving refunds or travel credits for cancelled flights when it collapsed last month with debts of nearly $7 billion, after the COVID-19 pandemic forced it to ground almost its entire operations.
Virgin's administrators has proposed issuing credit vouchers to customers. Credit: Rhett Wyman
Accounting firm Deloitte's lead administrator Vaughan Strawbridge wrote in an affidavit filed to the federal Court on Tuesday that Virgin has received about 340,000 requests for refunds after cancelling 65000 flights between March 1 and April 30 due to the pandemic.
He added that a total of 19 bidders were now in Virgin data room weighing up a rescue package. Deloitte had previously revealed that it was working with 20 interested parties but only eight had signed confidentiality agreements that let them inspect the airline’s books.
Parties known to be involved include BGH Capital and its partner AustralianSuper, American airline investor Indigo Partners, distressed debt specialist Oaktree, private equity firm Bain Capital and the Perth-based conglomerate Wesfarmers. Canadian asset manager Brookfield is also interested but sources on Tuesday said that investment bank Macquarie is longer working with the firm.
Indicative bids are due this Friday, binding offers are due on June 12 and a binding deal is expected to be completed by June 21, followed by a creditors' meeting in early August to vote on a proposal.
On the refunds front, Mr Strawbridge said while some customers would normally be eligible for cash refunds, Deloitte has proposed a policy where all customers who booked flights before Virgin entered administration and are yet to receive a refund or credit will be given a "conditional travel credit" of the same value.
The travel credits will be valid for as long as the airline is in administration, with the process expected to run until mid-August, and the policy warns that it "may not be possible or practical" for Virgin to resume normal flights by then.
Customers who have not claimed or used their credits will be treated as unsecured creditors in the administration process and are "unlikely to receive a 100% refund on any restructuring or upon liquidation", the court application said.
"The Conditional Credit scheme offers those customers the possibility of realising 100% of the value of their refund by using the credit on a future flight or holiday package," it says.
Whether Virgin honours flight credits or gives refunds after the administration period will be a decision for its new owners. Virgin's normal refund and credit policies apply to all tickets booked after it entered administration.
Mr Strawbridge said giving customers something for the money they are owed would preserve goodwill in the Virgin brand and make it a more attractive business for the 19 parties interested in buying the airline.
"The inability of the Virgin Companies to pay refunds or offer credits at present puts them at a competitive disadvantage," he said.
However, he said administrators will only issue the credits if the court relieves them of their personal liability for any future claims against their value.
The court application, which will be heard on Wednesday, also seeks to limit the administrators' liability for debts incurred from Virgin continuing to fly leased aircraft, airport fees, for use of the Virgin trade mark owned by Richard Branson, and for essential services such as ground handling, fuel, maintenance and in-flight catering.
The administrators also want to be exempt from liability if Virgin receives inaccurate payments from government through the Jobkeeper program.
Virgin has applied for the wage subsidy on behalf of 8228 workers, with payments of $24.8 million claimed in the first two weeks. Administrators are usually responsible for debts they incur while running an insolvent company.