Virgin Australia has entered voluntary administration as it seeks to recapitalise the business.
“The decision comes as the group has continued to seek financial assistance from a number of parties, including state and federal governments, to help it through the unprecedented crisis, however is yet to secure the required support,” it said in a stock-exchange statement today.
Australia’s second-largest carrier, with over 10,000 employees, has posted losses in the last seven financial years. It sought a A$1.4 billion ($890 million) bailout from the federal government to get it through the coronavirus crisis, which has seen it ground its fleet and halt operations.
The Australian government has provided several relief packages for its aviation industry as a whole, most recently agreeing to underwrite a minimum domestic network operated by Virgin Australia and larger rival Qantas, but never directly addressed Virgin Australia’s request for specific assistance.
Administrators from Deloitte will now attempt to put the business on a better footing. The airline’s frequent flyer scheme, Velocity Frequent Flyer, is a separate company and is not in administration.
In Australia, voluntary administration is a process whereby an insolvent company gets time to work out an arrangement with its creditors.
Administrator Vaughan Strawbridge said in the same statement, “Our intention is to undertake a process to restructure and re-finance the business and bring it out of administration as soon as possible.”
He added: “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.”
Virgin Australia has suspended trading of its shares since 14 April while the company was in talks over its financial options and restructuring. At the end of the financial half-year ended 31 December 2019, it had adjusted net debt of A$5 billion.
When the pandemic hit, it was already undertaking efforts to reduce its cost base, including simplifying the fleet, axing unprofitable routes and renegotiating supplier agreements.
The airline’s chief executive Paul Scurrah said in today’s statement that the airline wants to come through the Covid-19 crisis and help the Australian economy get back on its feet.
“Our decision today is about securing the future of the Virgin Australia Group and emerging on the other side of the Covid-19 crisis. Australia needs a second airline and we are determined to keep flying,” he stated.
Founder and shareholder Richard Branson, who has come under fire for not doing more to provide both Virgin Australia and sister airline Virgin Atlantic with funds, said it is not the end for Virgin Australia.
“This is not the end for Virgin Australia and its unique culture. Never one to give up, I want to assure all of you – and our competitor – that we are determined to see Virgin Australia back up and running soon,” he wrote in a letter to employees.