Virgin Australia to go for voluntary administration

Virgin Australia aircraft grounded

Virgin Australia to go for voluntary administration. The airline is Australia’s second biggest airline after Qantas. It employs around 10,000 people. The airline has been affected by coronavirus which had resulted in the airline spending routes and grounding flights.

Virgin Australia operates a fleet of 130 aircraft comprising of B737, B777, A330 and ATR72 with an average fleet age of 9.8 years. The airline operates to 40 domestic destinations and 15 international destinations. It has been struggling financially with a debt of more than $4.8 billion.

Other than this it was recently in the news for operating one of its longest flight from Paris to Brisbane.

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Financial crisis

Virgin Australia is set to go for voluntary administration. The airline has a debt of $4.8 billion. It had requested a loan of $1.4 billion which had not been granted. The airline has been facing losses for the past several years prior to coronavirus halting the industry with already a loss of $88 million the last six months.

Virgin Australia aircraft grounded
Virgin Australia had grounded most of its fleet due to suspension of most of its routes.

The airline has 90% of its shares controlled by a group of investors in Singapore Airlines, Etihad, Virgin Group and a Chinese conglomerate HNA group.

The fate of its 10,000 employees remain at stake. In addition the fate of its 130 aircraft plus billions worth of advance air ticket bookings also remain in question.

To slow down the cash bleeding the airline had stood down around 8000 of its crew and reduced several routes. The airline was operating minimal routes with repatriation flights being operated to Hong Kong and Los Angeles.

Government Aid

The airline had requested the Australian government for an aid of $1.4 billion which was rejected. Fellow airline Qantas had stated it will also be entitled for cash injection of around $4 billion if the government sanctions the loan for Virgin Australia.

Qantas B737
Qantas had stated it will also require a funding of cash if the governments helps Virgin Australia. Photo: Aerowanderer

The Government has offered $700 million in reducing fees and charges but this will only be useful for Virgin Australia if it keeps flying. The Australian Government has also said it will underwrite $165 million for Qantas and Virgin Australia to operate minimum routes within Australia. The airline had also announced it will operate with a minimum schedule.

Even with these benefits the airline will not be able to survive unless billions are injected into the airline. Queensland has offered the airline $200 million if it keeps its headquarters at Brisbane with New South Wales also offering support if it shifts base to the new airport being built near Sydney.

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What’s next for Virgin Australia ?

What will happen in Administration ?

Administration is a process with with an independent unit asses the company. The process could enable them to find new owners, change the way the airline operates to minimise losses. It also assess the company if it should sell assets to repay its creditors.

With administration in place the company could close down its non profitable sections. This recovery process might help Virgin Australia come out of it a smaller airline with its Tiger Air branch closed down.

Future of Virgin Australia

Virgin Australia is the country’s second largest airline with a fleet of 130 aircraft and employs around 10,000 people. If Virgin Australia collapses it could lead to the monopoly of Qantas in Australian aviation.

The situation is similar to that of the collapse of Ansett Australia post the 2001 attacks. The circumstances are different as the resumption of flights on a normal schedule now are relatively unknown. Even if they airline operates on a normal scheduled basis, it is doubtful whether demand would pick up as fast as it dropped.

The fate of is fleet of 130 strong aircraft is also at stake. The airline is based in Queensland and contributes to the travel and aviation industry of the state.

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Conclusion

Virgin Australia is struggling to operate due to lack of funds. It has been in the Australian aviation industry since the start of this century. Demise of the airline could have a lot of implications on the travel and aviation industry. We shall see how things unfold at the Australian airline and hope it flies through this phase successfully.

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