​Pain persists for Virgin’s lessors despite Bain sale close

Lessors with exposure to Virgin Australia will have been relieved to see the successful completion of the carrier’s sale to Bain Capital last week, but the airline will still require concessions from lessors as it eases into its new business plan.

Many lessors agreed on by-the-hour contracts with the airline as part of its restructuring process, leasing sources say, adding that some of those contracts will persist into the post-sale period that began on 17 November.

“They get a period of PBH to get [them] going again,” says one lessor with such an agreement.

A typical by-the-hour agreement usually involves a minimum spend amount, as well as a charge per flight hour, although agreements without a minimum spend are becoming more common during Covid-19, according to Thomas Kaplan, senior valuations analyst at Ascend by Cirium. A maximum monthly charge may also be set, plus the minimum monthly charge can be less than half the normal full lease rate.

Virgin Australia negotiated the length of its by-the-hour contracts with lessors on a case-by-case basis, rather than making a blanket ask to all its lessors, according to a person close to the process.

A second lessor, however, tells Cirium his company expects to receive full rentals from the airline now that the sale has completed.

“During the administration part, they are effectively under a power by the hour agreement, but the new leases will now be back to normal,” says the source, who does not want to be named.

“They need to start paying the lease rents as and when due, and that’s presumably going to come from the money paid in by Bain. We are hoping they start paying from now and it remains [that way]. It’s a relatively good outcome for those who have kept aircraft there, but I do know some who have had to reduce their lease rate expectations.”

For his own company, he describes the outcome as “not an ideal conclusion” given the money it lost by offering by-the-hour agreements over a normal lease structure, but admits that “it could be worse”.

Virgin Australia’s in-service and stored leased fleet has shrunk from 75 aircraft in April to 38 aircraft as of 27 November, according to Cirium fleets data. The aircraft that have exited the fleet include six of seven leased widebodies, which had been leased from Aviator Capital, Avolon, Commonwealth Bank of Australia, Doric, Global Knafaim Leasing and ORIX Aviation. Avolon still leases one Airbus A330-200 to Virgin Australia, which is in storage and is the carrier’s only remaining leased widebody.

Under its new owner, Virgin Australia has said it plans to target the mid-market sector and will position itself in between the full-service and low-cost carrier models. It plans to focus on domestic and short-haul flights, services more suited to single-aisle aircraft, while Covid-19-related travel restrictions remain common. The airline said in August that it would operate only Boeing 737s, eliminating 777s, A330s and ATR 72s from its fleet.

Compared with the restructurings of other major carriers in Asia-Pacific, Virgin Australia’s has been relatively swift. Thai Airways International received approval in May to restructure under supervision by a local bankruptcy court, one month after Virgin Australia entered voluntary administration.

However, while Virgin Australia’s sale was concluded in less than seven months, Thai Airways is still in the process of writing its rehabilitation plan and is not expected to submit it for creditors to read until 2021.

“They get a period of PBH to get [them] going again,” says one lessor with such an agreement.

A second lessor, however, tells Cirium his company expects to receive full rentals from the airline now that the sale has completed.

“During the administration part, they are effectively under a power by the hour agreement, but the new leases will now be back to normal,” says the source, who does not want to be named.

Pain persists for Virgin’s lessors despite Bain sale close

“They get a period of PBH to get [them] going again,” says one lessor with such an agreement.

A second lessor, however, tells Cirium his company expects to receive full rentals from the airline now that the sale has completed.

“During the administration part, they are effectively under a power by the hour agreement, but the new leases will now be back to normal,” says the source, who does not want to be named.

Pain persists for Virgin’s lessors despite Bain sale close

“They get a period of PBH to get [them] going again,” says one lessor with such an agreement.

A second lessor, however, tells Cirium his company expects to receive full rentals from the airline now that the sale has completed.

“During the administration part, they are effectively under a power by the hour agreement, but the new leases will now be back to normal,” says the source, who does not want to be named.

Pain persists for Virgin’s lessors despite Bain sale close

“They get a period of PBH to get [them] going again,” says one lessor with such an agreement.

A second lessor, however, tells Cirium his company expects to receive full rentals from the airline now that the sale has completed.

“During the administration part, they are effectively under a power by the hour agreement, but the new leases will now be back to normal,” says the source, who does not want to be named.