Virgin Australia has entered voluntary administration and announced big four accounting firm Deloitte has taken control of the debt-laden airline.
Deloitte will now try to recapitalise the business, to help it emerge “in a stronger position on the other side of the COVID-19 crisis” – though it remains unclear what will happen to Virgin’s 10,000 staff.
Virgin’s management team – led by chief executive Paul Scurrah – will assist voluntary administrators Vaughan Strawbridge, John Greig, Sal Algeri and Richard Hughes as the airline continues to operate a skeleton flight schedule for essential workers, freight corridors, and returning Australians home.
The Velocity Frequent Flyer arm, while owned by the group, is a separate company and is not in administration.
Tuesday’s decision comes as Virgin continues to seek financial assistance from a number of parties, including state and federal governments, to help it through the coronavirus crisis, however it is yet to secure the required support.
Finance Minister Mathias Cormann on Tuesday again rejected calls for the federal government to buy a stake in the struggling airline, which has cut services, stood down staff, and suspended trading on the ASX amid widening coronavirus travel bans.
Up to 15,000 jobs are at risk, with the federal government resisting the company’s plea for a $1.4 billion bailout loan.
Labor wants Prime Minister Scott Morrison to save Virgin through extending or guaranteeing lines of credit and taking an equity stake.
Virgin Australia is 90 per cent foreign-owned, with Singapore Airlines, Etihad Airways and Chinese conglomerates HNA Group and Hanshan owning 80 per cent between them, while Richard Branson’s Virgin Group still owns 10 per cent.
The company – which is carrying about $5 billion in debt after several years of financial losses – has been decimated by the coronavirus pandemic as demand for travel evaporated during increasingly severe quarantine measures.
Its ASX-listed shares have lost 43.67 per cent of their value in 2020 and hit an all-time low of 5.0 cents on March 12 and 13.
It suspended trading on the ASX on April 14 at 8.6 cents per share.
Deloitte says its intention is to restructure and refinance the business and bring it out of administration as soon as possible.
“We are committed to working with Paul and the Virgin Australia team and are progressing well on some immediate steps,” Mr Strawbridge said.
“We have commenced a process of seeking interest from parties for participation in the recapitalisation of the business and its future, and there have been several expressions of interest so far.”
Voluntary administration gives Virgin temporary protection from outright collapse.
Administrators will comb through the books and identify potential asset sales to pay down debt or an outright sale of the business to another party, in this case private equity firms who may be circling.
If this proves impossible, Virgin will “collapse”.
Last month Virgin stood down about 8,000 of its 10,000 workers until at least the end of May and further slashed domestic flight capacity in the wake of the coronavirus border restrictions.
The airline arrived in Australia in August 2000 as ‘Virgin Blue’, operating with two aircraft.
The failure of Ansett Australia in September 2001 allowed Virgin to grow and quickly become Australia’s second domestic carrier, listing on the ASX in late 2003.
Shares in the airline hit an all-time high of $2.36 in March 2007 but have lost 98 per cent of their value over 13 years as it racked up debts and posted a series of big financial losses.
Virgin announced a restructure at its August 2019 full-year result where it lost $349.1 million, leaving it in the red for the seventh year in a row.