Virgin Australia has hired insolvency and turnaround experts in a bid to fight for its survival amidst the coronavirus crisis.
Australia’s number two airline carrier went into a trading halt on Tuesday after appointing debt expert Jim McKnight of the investment bank Houlihan Lokey to work on restructuring scenarios to try and ease its massive $5 billion debt load.
Virgin has had to ground almost its entire fleet and has virtually no revenue coming in, with experts predicting that the company will not last longer than 6 months without intervention.
Virgin has said that it “continues to consider ongoing issues with respect to financial assistance and restructuring” and that “this situation has arisen due to the unprecedented COVID-19 crisis which has particularly impacted the aviation sector.”
The airline has already asked the federal government for a $1.4 billion loan, which it says is crucial for ensuring they can survive the pandemic, but so far, the deputy prime minister and transport minister, Michael McCormack, has refused to offer them any direct cash injections.
The government has slashed taxes and charges levied on airlines, a package that is said to be worth $715 million. But sources say that this has had little effect on Virgin Australia’s finances as it is predominantly made up of waiver fees that are not charged when their planes are grounded.
Prime Minister Scott Morrison said on Tuesday: “We’ve been very consistent in the support we’ve provided in economy has been sector-wide. We haven’t been picking any winners or picking any favourites here. What we’re doing is ensuring we’re giving sector-wide support, which has been significant to the aviation sector.”
However, sources say that Virgin hopes the government will make the decision to fund key domestic routes, which are currently unprofitable.
There has also been speculation that a foreign airline might swoop in on Virgin Australia. However, this theory has been admonished by Anthony Albanese, the federal opposition leader, who said: “The idea that Virgin can disappear and someone will just come in and pick up what’s left is just a triumph of hope over reality, which is why people in the government are talking about opening up Australian domestic routes to foreign carriers, which would carry foreign crew and pay foreign wages.”
It has been revealed that Virgin is also considering going into administration as their final option, which would involve the control of the company being handed over to insolvency experts.
Virgin Australia grounded all their domestic flights last week until June 15, except for a single Sydney-Melbourne return service that will continue to run six days a week.
Furthermore, an estimated 10,000 Virgin employees have been stood down, and all of its pilots and cabin crew that work for its low-cost airline, Tigerair, will be made redundant.
Albanese has accused the government of not sufficiently supporting the aviation industry, saying that there is no reason why they cannot do more to help the future of Virgin Australia.
He said: “There’s no reason why a government could not make a financial injection through equity and that to be sold down the track. And it should go down that route sooner rather than later.”
However, one observer has said that any deal will be complicated as nobody knows when the coronavirus travel restrictions will be lifted and when the airline will be able to start flying again.
He said: “The risk for the company is they just run out of money waiting.”
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