Virgin Australia's shareholders, creditors brace for impact

Virgin Australia's administrator also says that the shortlist for take-over bids is now down to eight serious players.

By David Flynn, May 14 2020
Virgin Australia's shareholders, creditors brace for impact

Virgin Australia's shareholders – including Singapore Airlines, Etihad Airways, Richard Bransons's Virgin Group and Chinese conglomerates HNA and Nanshan Group – are set to be wiped out during the creation of Virgin Mk II, while creditors owed as much as $7 billion will also be short-changed in the process.

That's the prognosis of Deloitte partner Vaughan Strawbridge, who leads the administration team behind Virgin Australia's sale, as the new airline begins to take shape.

“I don’t think anyone is under the illusion that all creditors will get their money back,” Strawbridge told The Australian. “It is very unusual in this process for all creditors to get their money back."

Unsecured creditors are at most risk, and that cohort includes customers holding travel credit vouchers for flights cancelled by Virgin Australia as the coronavirus pandemic took hold.

According to Deloitte, Virgin received about 340,000 requests for refunds after cancelling 65,000 flights between March 1 and April 30.

The administrators will soon begin issuing ‘conditional credits’ to customers on cancelled flights, in place of cash refunds or regular travel bank vouchers, but can't guarantee they would be honoured by the airline’s new owners.

The credits will also have a strict use-by date: they'd be valid only while Virgin Australia remains in administration, and it would be at the discretion of any new owner of Virgin Mk II as to whether any outstanding conditional credits would remain valid.

Read more: Virgin Australia administrators say no refunds, just 'conditional' credit

And then there were eight...

Strawbridge also revealed that of the 19 "interested parties" which have been crunching the numbers on a take-over bid, only around eight have received the "forward business plan around that Virgin 2.0 would look like."

“We have worked with them and provided them with the business plan going forward in order to allow them to finalise their indicative non-binding offers," he said. "It is that smaller group that we are expecting the bids from on Friday.”

However, some of the original 19 could re-emerge as consortium members, under the lead of the eight shortlisters, when it came to presenting a final bid by June 12.

The Queensland Government has emerged as another potential suitor, launching what it calls 'Project Maroon' through the state-owned Queensland Investment Corporation in an attempt to not only bring the failed airline back into the skies and into profitability, but to keep it based in Brisbane.

Strawbridge added that discussions were “focusing around keeping the business together and bringing Virgin as much out of administration in its current form as we can" – indicating that the new Virgin Australia is more likely to resemble the old one, rather than spear off in the direction of being a low-cost Virgin Blue 2.0 play.

“We believe that the highest offer will most likely align with the best outcome for employees,” he told The Australian“It will be keeping the majority of the aircraft fleet together and taking on the majority of the business, with staff receiving continued employment through that process."

Also read: Virgin Australia Mk II to keep flying to Los Angeles, Japan?

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

Virgin Australia - Velocity Rewards

13 Jan 2015

Total posts 593

In terms of fleet, hopefully they can limit the reductions to removing just the 77Ws and A330s (yes, no more of "the business") and keep all the 737s in place to maintain good domestic coverage and maybe limiting the international flying to places within the 737's range (e.g. NZ)

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 219

They weren't making money on regional either, plus VAH owns 4x of tthe 77Ws, and there is currently little to no market 2nd-hand widebodies. Likely cheaper to park the owned 77Ws and/or bid for freight contracts to keep the 77Ws in a job.

Chances are (if VAH survives) the fleet reductions will be down to 737s and the owned 77Ws (either parked or doing other jobs such as Trans-Cons or Freight).

The entire Airbus fleet (A320s and A330s) across the TT, VARA and VAi fleets are leased, so high chance all of that will be returned.

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 219

Also to add, the Fokkers (legacy SkyWest) from the VARA FIFO charter operation in W.A will also likely remain in the fleet on the assumption that (a non LCC consortium gets the nod) and survives.

31 Mar 2014

Total posts 325

Removing the A330's should be as easy as handing them back to the lessor. However I believe only one of the 777's are leased, with the rest owned. Nobody would be buying them anytime soon and would imagine be about as valuable as parts/scrap. From memory Virgin also went with the small cargo door, reducing their desirability further.

Virgin Australia - Velocity Rewards

05 Sep 2013

Total posts 53

By exiting the lease early they are still liable for fees associated with the early exit of the contact.

08 Feb 2018

Total posts 87

maybe they could do a single aisle version of the Biz....would be a point of difference

07 Oct 2012

Total posts 1254

It would be an own goal for the new owners, if that happens, to not honour travel credits and vouchers. While they may not legally have too, if they don't honour them in some form, it will leave a bad taste in many of their customers mouths - which will not help them with bookings or people wanting velocity points.

Qantas - Qantas Frequent Flyer

26 May 2014

Total posts 438

Whether or not a VA 2 honours travel credits, and standing bookings, they have a massive challenge to convince travellers that future bookings will be honoured. Given the history of re-launches, I will be more likely to pay a premium for a QF ticket (and no I don't have any affiliation with QF!)

Qantas - Qantas Frequent Flyer

29 Nov 2013

Total posts 477

Any word on what the credit card companies are doing re customers requesting chargebacks? Does VA going into admin mean customers can't request chargebacks?

I can't imagine the card companies will be keen to take on the debt?

Virgin Australia - Velocity Rewards

05 Sep 2013

Total posts 53

Per ACC under “When a business goes bust”:

“When will I be paid back?

The Corporations Act 2001 determines the order in which the external administrator has to repay money owed by a company to certain creditors. Consumers will generally be ordinary unsecured creditors and will only be paid after monies owing to other classes of creditors, such as employees and shareholders, have been repaid.

Payments made on credit:

Where you have paid for a product or service by way of a credit arrangement (credit card or loan) and the product or service does not arrive because the company has gone into external administration, you may be able to request a chargeback on the transaction from your financial institution or bank that issued the credit card. You should make this request as soon as possible as there may be time limits on chargeback claims.”

Per Choice:

“Time limits for chargeback apply and vary between financial institutions, so it's important to contact your bank or credit union as soon as possible.

MasterCard holders should contact their card issuer within 120 days of when the transaction was debited to the account. All chargebacks are considered on a case-by-case basis.

Visa cardholders have 120 days to initiate a chargeback and are advised to contact their card issuer as soon as possible. All chargebacks are considered on a case-by-case basis.

American Express cardholders should call Amex on the phone number on the back of their card no later than 120 days from the transaction date or expected date of receipt of goods. All chargebacks are considered on a case-by-case basis.

Joe
Joe

03 May 2013

Total posts 490

Brace! Brace! Brace!

Delta Air Lines - SkyMiles

16 Oct 2017

Total posts 96

It's always the passengers that suffer isn't it? They buy a ticket, get no flight no credit and no refund. The money they have in existing credits and Travel Bank disappears. How is that right? Does anyone believe that the directors, CEO and others did not know months ago that the company was heading to insolvency? Yet they will all walk away with no consequences. How is that right?

08 Feb 2018

Total posts 87

agreed. Those who actually pay to keep the whole thing running are those that suffer. Those that make the decisions that ruin the company add it to their CV and move on.


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