Virgin Australia has been on life support since the global outbreak of covid-19, and one of the lifelines just got unplugged. No deal was reached between PM Scott Morrison and the Australian Govt, and as a result the airline has immediately entered voluntary administration.
That doesn’t mean it’s over for Virgin Australia by any means, but it’s a scary precedent in the relations between governments and airlines and the havoc the pandemic will wreak on airlines globally…
Virgin Australia Voluntary Administration
“No deal” is the essence of the story. Virgin Australia was seeking $1.8 billion AUD to shore up immediate concerns, but that makes up less than half the airlines overall $5 billion AUD debt, and the Australian Government said no.
PM Scott Morrison and the Australian Government has been wary of bailing out Virgin Australia, despite the virtual monopoly it would create for Qantas on domestic routes and has stood its ground despite the worsening global situation, which may prove to make life untenable for all airlines.
Just days ago, a drama filled plot emerged with a supposed sweetheart deal between Qantas and the Government, where Qantas was supposedly chosen to receive state aid to maintain flight routes, before Virgin Australia insisted on joining.
Is a “no” retribution for thwarted plans, or is it just a no because of Virgin Australia’s largely foreign ownership? Either way, it’s not the end of the road for Virgin Australia, or those holding Velocity Points, yet – but it’s dire times.
Voluntary administration is simply the directors of a company looking for ways out, and assessing if one exists. It’s a lengthy process, but one where the airline could emerge in tact, in parts, or simply as a loyalty program without an airline.
Yes, even if the airline folds, your Velocity points may be worth less, but not worthless.
During this time, an outside entity is brought in to do some serious accounting work and then in turn make proposals to satisfy, or mortify current shareholders. It could involve anything from selling off part of the business, like the Velocity loyalty program to an outside group, or simply taking a haircut, selling a portion of the business to outsiders on the cheap and so forth.
It’s not the end for Virgin Australia, but the airline is in serious trouble.
The good news is that a near death often raises the alarm for previously unresponsive governments. Queensland, where Virgin Australia is headquartered, had already offered $200 million AUD to keep the headquarters in the region, which then attracted a competing bid from New South Wales.
This voluntary administration Virgin Australia has entered gives the entity greater flexibility to negotiate finances with the government once again, while potentially attracting new investors. For the sake of airline competition and innovation, it’s hard not to hope a solution is found. Plus, all the jobs…