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Virgin Australia: Trading suspended for a week

Virgin Australia: Trading suspended for a week

Looks like a refinancing deal, or a load deal with the Australian government was a tad more difficult than they expected.

As previously reported, Virgin Australia Holdings have been in a trading halt on the Australian Securities Exchange since Tuesday. This morning they asked the ASX to suspend their shares for seven days or until they have made an announcement about their financial survival plans.

Various news outlets have reported that the Australian Governement is not head-over-heels in love with the idea of providing a loan, as they don’t want to be seen as ‘picking winners’. They are happy to provide industry wide support. The problem with that is that Qantas doesn’t need it at the moment, but Virgin Australia apparently does.

It’s also thought that Virgin’s current shareholder, mostly airlines are not thrilled at the possiblity of providing more financial support, given that they have their own difficulties.

Possiblities

The worst outcome is that the airline would head to administration – although, maybe someone would come in and rescue it for a distressed sale price. Secondly, the government could offer it some kind or support – defining something that would apply across the industry, but would only be taken up by Virgin at the moment. Thirdly, maybe some combination of government support, and shareholder support compromise.

We will know in seven days.


Previously . . .

This morning saw an announcement from the Australian Securities Exchange that Virgin Australia Holdings Ltd, the company behind Virgin Australia had requested a trading halt.

The halt will run until there is an announcment to the market or the commencement of trading on Thursday 16 April 2020 – whichever is the sooner.

The company issued statement in part states:

‘Virgin Australia has requested a trading halt as it continues to consider ongoing issues with respect to financial assistance and restructuring alternatives.

‘This has arisen due to the unprecedented COVID-19 crisis which has particularly impacted the aviation sector.’

While Virgin has been calling on the Australian Government for a loan to the tune of AU$1.4 billion, it hasn’t put all its eggs in one basket. Apparently it has appointed Houlihan Lokey, an American investment bank to devise a restructure for its approx. AU$5 billion debt load.

Virgin Australia has some options:

  • Offer debt for equity swap to creditors, although with its market value being only AU$726 – that would tend to knock off the stake its current shareholders have
  • Request more capital from its current shareholders which include Singapore Airlines, Etihad Airways, conglomerates HNA and Nanshan, and the Virgin Group
  • Other options completely in the realm of the arcane refinancing arts

With only about AU$900 in the bank, and essentially no income (they are only running one aircraft at the moment), their piggy bank will be empty in under six months, and that could be well before travel restrictions are removed.

2PAXfly Takeout

No one except Qantas wants Virgin Australia to fail. If they do, Alan Joyce the Qantas CEO will figuratively be rubbing his hands at the prospects of mega earnings as a monopoly domestic airline post-COVID-19 travel restrictions. So between the government and the finance industry, they should be able to come up with a plan. What it exactly will be, remains to be seen. Roll on Thursday 16 April.

If they don’t, we the traveling public will be paying for it through humungous airfares.

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