Virgin Australia has been making a lot of headlines recently… But not for the right reasons. Virgin Australia has been one of the first major travel companies to fall after the travel industry continues to suffer.
On the 21st of April 2020, Virgin Australia went into voluntary administration after being crushed by debts – owing nearly $7 Billion to over 12,000 creditors.
What exactly is voluntary administration? Well, it is against the law for a company to trade when they know they can’t meet their debts. When a company realises they are at risk of going broke, they can appoint an administrator – someone who steps in for the directors and has additional powers such as disclaiming contractor or property that’s costing money.
Since stepping in as administrators for Virgin Australia, Deloitte Australia has disclosed some of Virgin’s Debts including:
- 26 secured lenders are owed about $2.3 billion.
- Unsecured bondholders are owed about $2 billion.
- 50 aircraft lessors are owed about $1.9 Billion.
- More than 9,000 employees are owed about $451 Million.
- More than 1,000 trade creditors are owed about $161 Million.
- 81 Landlords are owed about $71 Million.
Deloitte’s role with Virgin Australia will be to restructure and sell the airline. There has been widespread speculation about new potential owners including superannuation funds, retail conglomerates, international airline investors and sovereign wealth funds.
A Government Investment
One potential buyer for Virgin Australia has been confirmed as the Queensland Government. But it’s not a simple task.
The Queensland Government wants to try and save the local workforce of some 5,000 employees and keep Virgin Australia’s headquarters in Brisbane. The Queensland Investment Corporation (QIC), which is a state-owned investment company, has been tasked to see if a $200 Million investment would stack up. The QIC overseas over $80 Billion of investment funds. The investment could see the Queensland Government buy a stake in Virgin Australia, provide a loan or give it some tax breaks.
If the QIC were to invest in Virgin Australia, the $200 million will likely come from a mix of taxpayer funds and other financiers/investors. There would also be some conditions according to the treasurer Mr Cameron Dick, that would include keeping jobs, routes and the local headquarters.
The QIC will be the ones to make the final call about a Queensland Government investment into the airline. The QIC will have to be satisfied that the investment makes commercial sense.
Bids for stakes in the Airline have now closed and it is expected that a shortlist of potential buyers will be revealed shortly.