Virgin Australia, Australia’s second biggest airline, has become a victim of the COVID-19 crisis after the airline confirmed it would enter voluntary administration this morning.
WHAT IS ADMINISTRATION?
Voluntary administration in short, is bankruptcy, but isn’t necessarily the end of the road for an airline. Instead, here are the steps forward:
- An administrator will assess the airlines situation (which includes negotiating with shareholders and creditors for the best outcome)
- The process will include trying to find new owners for the airline so it can continue operating
- If new owners are not found then the airline will sell off all assets to repay creditors (atleast as much as possible). Caveat: If the airline does sell off the assets, creditors will likely only receive a fraction of their investment they put into the airline
THE OPTICS FOR VIRGIN AUSTRALIA
Here’s where things get kinda complicated. The ownership of the airline probably doesn’t lead to the best optics. In addition to Richard Branson owning 10% of the airline, three foreign airline groups own a majority of the airline:
- Etihad Airways = ~21% stake
- Singapore Airlines = ~20% stake
- HNA Group = ~20% stake
Thus, the optics aren’t particularly great when you’re asking Australian taxpayers to bail out an airline that are majority foreign owned.
In addition, Qantas, the largest airline in Australia, requested the federal government to reject a financial bailout for its rival which may seem innocent but would also give Qantas a monopoly on the domestic aviation market.
This is unfortunate (but expected) news as up to 10,000 directly employed jobs are at risk, and a further 6,000 jobs supported by Virgin Australia could also be in jeopardy if the airline stops flying.
Administrators from Deloitte have been appointed to oversee the process and, although it’s still early, they have said there has been at least 10 buyers lining up to submit bids.
I’m hoping for the best outcome for the airline but I trust this isn’t the last airline we’ll hear about entering administration.