Virgin Australia Is Entering Their Country’s Version Of Bankruptcy

by Gary Leff

Virgin Australia is entering ‘voluntary administration’, the Australian equivalent to bankruptcy that envisions continued operation in some form. This follows the country’s government declining to extend a bailout of approximately US$892 million. The government has already spent US$105 million keeping planes flying domestically in Australia.

Update: While Deloitte confirmed they were working on the administration, as of this writing papers have not yet been filed. Update 2: they filed (notably, the frequent flyer program is a separate company and not in bankruptcy).

Though the airline had ceased most of its operations and furloughed 80% of its workforce, without revenue it still faced an inability to make payments on about US$3.1 billion in debt. The Transportation Workers Union had implored the government to take an equity stake in Virgin Australia.

Deloitte will administer the airline through the restructuring process, where it will seek new financing. The airline’s CEO remains in place for now.

While the federal government of Australia declined to support the carrier prior to entering administration, Australian states are offering partial funding. New South Wales had offered funds in exchange for Virgin Australia moving its headquarters to Sydney, while Queensland offered to put up US$127 million to keep it based in Brisbane.

Etihad owns 21% of the airline, Singapore Airlines 20%, a Chinese state-backed firm owns 20% (the former Air New Zealand stake) while China’s HNA Group owns 20% and Richard Branson’s Virgin Group owns 10%. Existing investors were unwilling to save the airline. That it’s largely foreign-owned has complicated the politics of asking Aussie taxpayers to fund investors backed by the governments of China, Singapore, and the United Arab Emirates.

Founded as low cost carrier Virgin Blue, the airline pivoted in 2012 becoming Virgin Australia and shifting its model to that of a more full service airline. It grew to over 100 aircraft and more than 10,000 employees. There are approximately 10 million members of its Velocity frequent flyer program. Six months ago times were good enough that the airline was buying back its frequent flyer program which it spun off in 2014.

If no new investors can be found, including debt holders converting their interest to equity and wiping out existing ownership, Australia would be left with a single large domestic carrier – as happened when Ansett Australia entered administration in 2001 and was subsequently liquidated. Of course there remain significant assets in fleet and gates, and like Virgin followed Ansett it’s reasonably likely that a new airline could enter the Australian market once conditions improve if Virgin Australia does not survive.

Those with tickets purchased for future travel on Virgin Australia would be wise to seek assistance via credit card charge back now in most cases.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. I have FF tickets on virgin Australia booked thru Etihad. Any idea what happens to these, would they still be valid or do I cancel and try and get points from Etihad?

  2. They havent entered administration. No source or statements issued and flights still operating.

  4. Thank you for explaining what the term “administration” means in Australia! I had a feeling it would be similar to a bankruptcy in the USA but wasn’t sure. I hope Virgin Australia will eventually survive through all this.

  5. The Australian Govt has made it very clear they won’t be doing a bailout. The govt of Queensland ( the state in which they’re headquartered) has offered a modest sum ( 200 million AUD against debt of 5 billion)
    In the absence of someone coming up with mega bucks, they’re toast. Private equity is hovering in the wings, but nothing specific…and in any case it would likely be slash and burn.
    This is starting to look like ‘ déjà vu all over again’ , as with Ansett 18 years ago.

  7. What happens to flight redemptions with partner airlines? Will they still honor the ticket? Thanks in advance.

  8. The link to Australia, New Zealand and the UK will be very week for DL with both Virgins in big trouble now. Also, their Asian strategy is at risk with Korean Air a complete mess too. UA’s won’t be much better with Luftansa Group falling to 1/3 of their former size. AA might have the stroger partners globally right now (with the except of QATAR which won’t be much of an airline with $10 a barrel oil).

  9. How about some good things that have happened. We all know ever airline is in trouble and many will not make it. I can’t read all this sad. It is something you need to think about. We all here Negative from Trump or is lies how perfect he is and all is so great!

  12. VA can still fly, the majority of staff will still work & be paid, Velocity FF is a separate business, & not affected & a trustee ensures that it remains viable. Its more its debt restructuring, leasing arrangements, and its current main stakeholders that are an issue. But if all goes well it will be a stronger, but likely leaner operation that’s more likely to survive in the long term.

  15. We paid more than US$2500 for a trip to Sydney and Perth with Virgin Australia scheduled for June. They say our money is now in a “travel bank.” Do I kiss it goodbye? Can I try to use the money with one of their partners? Help!

  16. @Marion: Go immediately to your credit card company and file a dispute. Contractual breach.

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