Australia's Virgin Blue plans to raise A$231.4 million ($190 million) in fresh equity, and says that its CEO Brett Godfrey will quit in 2010 amid a projection that it made its first annual loss in the last fiscal year.
"The operating environment over the last 12 months has been the most challenging in the airline's history," says Virgin Blue in a stock exchange filing. "The strengthening of Virgin Blue's capital position combined with the current strategic initiatives will position the business to weather the current market environment."
The airline will issue 105.2 million shares in an institutional placement and make a a one-for-one offer to existing shareholders. Richard Branson's Virgin Group, its biggest investor, will take up its full entitlement that could be worth between up to A$80 million. If retail investors do not take up the offer, the Virgin Group's holding in Virgin Blue will increase to 30.2% from 25.5%.
Virgin Blue expects to report a loss of A$160-165 million for the year to 30 June 2009, down from a net profit of A$98 million a year ago. However, it expects to break even in the current financial year.
While the short haul business is likely to make a net profit of A$25-30 million in the last year, long-haul operation V Australia is expected to make a trading loss of A$30-35 million and incur another $60-65 million in losses from start-up and foreign exchange losses. Losses arising from fuel and currency hedges could reach A$90-95 million.
The airline pointed out that it had invested in V Australia, which flies on the trans-Pacific routes from Australia to the USA, at a time when the economic crisis was forcing passengers to cut back and as fuel prices remained high. Virgin Blue warned that the "key drivers of the business - capacity, demand and fuel - remain volatile".
Nonetheless, the carrier says that a proposed joint venture with the USA's Delta Air Lines will enhance V Australia's "competitive position and future profitability". Virgin Blue has also been increasing its network, cut costs, and managed capacity as it copes with the economic situation. This is "positioning the company well for when the markets recover", it adds.
Godfrey, its co-founder who has been CEO since its inception 10 years ago, will "retire from the company during the course of 2010", says Virgin Blue. "The board has ample time to manage the succession planning and is confident of appointing the right person to lead the company into the next decade."