The Virgin Australia Group this morning announced that it has entered voluntary administration “to recapitalise the business and help ensure it emerges in a stronger financial position on the other side of the COVID-19 crisis”.
Interestingly, Velocity Frequent Flyer, as a separate company owned by the Group, is not in administration – perhaps reflecting its value as an independent entity with over 10 million customers.
The decision to enter administration comes as Virgin has been seeking financial assistance from a number of parties, including existing owners and Australian governments, to get it through the crisis. These requests have all been rebuffed so far.
The COVID-19 crisis couldn’t have come at a worse time for Virgin, which is financially vulnerable after years of losses and poor management. The new CEO Paul Scurrah began a turnaround program only months ago, with promising early results.
It will be up to the administrators now to find the best path for the airline’s owners and creditors. Administrator, Vaughan Strawbridge, said: “Our intention is to undertake a process to restructure and re-finance 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. 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,” said Mr Strawbridge.
Media reports suggest multiple private equity firms are interested in acquiring the airline if the debt can be restructured.
For now, it looks like members’ Velocity Points balances are safe, however all redemptions have been paused. With travel restrictions in place, many people have been redeeming points for non-flight benefits like wine and gift vouchers. Velocity has issued a statement that suppliers are unable to meet this demand, but another reason for pausing redemptions is no doubt the huge cash drain for Velocity.
Virgin will continue to operate scheduled domestic and international flights, including repatriation flights and the minimum domestic network.
Our thoughts are with all the Virgin Australia staff, whose futures are now very uncertain.
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