About 16,000 jobs with the company hang in the balance. Photo / 123RF
About 16,000 jobs with the company hang in the balance. Photo / 123RF
Virgin Australia boss Paul Scurrah has described how the airline's board made the "courageous decision" to enter voluntary administration but vowed it would return.
The airline announced today accounting firm Deloitte had been appointed as administrators to help the troubled carrier restructure amid a debt pile of A$5 billion ($5.2b) and a collapsed cash flow due to the coronavirus crisis.
About 16,000 jobs with the company hang in the balance.
"The events of the past 24 hours have been incredibly challenging for the wonderful people of the Virgin Australia Group," Scurrah said at a press conference today.
"It has been a necessary decision made by our board, brought on by an unprecedented global pandemic, Covid-19. This is not just something that is hurting Virgin Australia. We know it's hurting the industry globally and is the worst aviation crisis we've ever seen in our history. We're not immune to that.
"Our board made a very courageous decision last night to put the company into voluntary administration and do so quickly, with the intent of working with our administrator, Deloitte, to come through and be as strong as we possibly can on the other side of this crisis."
He said board's quick decision to enter administration would help ensure its return.
"We'll come back leaner, stronger and fitter, and play our role in making sure that the economy of Australia – which is currently devastated by the impact of Covid-19 – recovers as quickly as it possibly can for all Australians," he said.
"We're very focused on making sure we preserve as many jobs as we can to provide as many jobs for the existing Virgin Australia Group workforce.
"They are the best in the business. And they're the best at what they do and they deserve to have a very bright future and that's my intention – to make sure we create that."
The move to place the company into voluntary administration comes after the Federal Government rejected a A$1.4b bailout to keep the airline afloat.
Velocity Frequent Flyer is a separate company under the Virgin Group and is not in administration.
Virgin Australia chief executive Paul Scurrah. Photo / Supplied
Virgin Australia is 90 per cent owned by foreign shareholders: Etihad and Singapore Airlines, Chinese conglomerates HNA and Nanshan Group, and the Virgin Group.
Meanwhile, the Federal Government has defended its decision to not bail out Virgin Australia.
Speaking in Canberra this morning, Federal Treasurer Josh Frydenberg said the administration process was "not the end of the airline" and would give it the opportunity to recapitalise and "come stronger on the other side" of the Covid-19 crisis.
"Virgin Australia is a very good airline performing a very important role and this is a difficult day for its staff, for its suppliers and for the aviation sector more broadly," Frydenberg said.
"But the government was not going to bail out five large foreign shareholders with deep pockets who, together, own 90 per cent of this airline."
He said the federal JobKeeper package would continue to be available to Virgin workers.
"The government's objective is to see two commercially viable airlines operating domestically in Australia," Frydenberg said.
"This will be good for jobs, it will be good for competition, it will be good for lower prices and it will be good for the Australian economy more broadly."
Deputy Prime Minister Michael McCormack noted the Federal Government had committed millions of dollars to the aviation sector, including a A$715 million relief package and the waiving of a range of fees.
Virgin enters administration
In a statement to the ASX this morning, Virgin Australia said the decision was made to "recapitalise the business and help ensure it emerges in a stronger financial position on the other side of the Covid-19 crisis".
"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 it is yet to secure the required support," the statement said.
"Virgin Australia will continue to operate its scheduled international and domestic flights which are helping to transport essential workers, maintain important freight corridors, and return Australians home."
Administrators Vaughan Strawbridge, John Greig, Sal Algeri and Richard Hughes of Deloitte will work as voluntary administrators supported by Virgin Australia's management team, lead by chief executive Paul Scurrah.
Scurrah said the airline would continue to operate in administration and was "not collapsing".
"This is a tough day for our airline … (but) we're certainly not collapsing," he told reporters.
In a statement to the ASX, Scurrah said: "In 20 years, the Virgin Australia Group has earned its place as part of the fabric of Australia's tourism industry.
"We employ more than 10,000 people and a further 6000 indirectly, fly to 41 destinations including major cities and regional communities, have more than 10 million members of our Velocity loyalty program, and contribute around A$11b to the Australian economy every year.
"Australia needs a second airline and we are determined to keep flying.
"Virgin Australia will play a vital role in getting the Australian economy back on its feet after the Covid-19 pandemic by ensuring the country has access to competitive and high-quality air travel."
Virgin Group founder Sir Richard Branson addressed the decision on Twitter and in a video message on this Instagram page.
"I am so proud of you and everything we have achieved together," he said.
"This is not the end of Virgin Australia, but I believe a new beginning. I promise that we will work day and night to turn this into reality."
In Australia, Virgin employs about 10,000 people directly and supports another 6000 jobs indirectly. About 80 per cent of its direct workforce has already been stood down.
Abu Dhabi's Etihad owns 21 per cent of the company, while Singapore Airlines and Chinese firms HNA and Nanshan Group each hold 20 per cent. The Virgin Group has a 10 per cent stake.
Virgin Australia suspended its international operations due to the Covid-19 crisis and currently flies only one domestic service between Sydney and Melbourne.
Its subsidiary Tigerair Australia has stopped flying during the pandemic.
The Queensland and NSW governments had been in talks about possible bailout packages, with the NSW deal contingent on whether the Brisbane-based airline would relocate its headquarters.
In a joint statement, NSW Treasurer Dominic Perrottet and Minister for Jobs, Investment and Tourism, Stuart Ayres, said the state and nation were "best served by having a competitive aviation sector".
"We have been in discussions with Virgin, as have other States, about their future. We will continue these discussions with the Administrators and the Federal Government.
"We will always act in the best interests of the people of NSW. Any measures the NSW Government takes are aimed at keeping businesses in business and people in jobs."
The Opposition and unions have slammed the Federal Government for failing to step in and save Virgin Australia at a press conference at Sydney Airport this morning.
"Scott Morrison and the government will be on the wrong side of history if they do not step up right now and do what they should have done weeks ago, and that is take an equity stake in Virgin Airlines," Transport Workers' Union national secretary Michael Caine said.
"Today, we make an appeal to Scott Morrison: It's time to sit down with workers and workers' representatives and figure out the pathway forward for Virgin. It's time to send a clear market signal that the government will step up. And take an equity stake in Virgin that will give confidence to the administrator, it will give confidence to the market, it will bring Australia in line with the rest of the world that supports aviation – governments with direct stakes in aviation."
Opposition Leader Anthony Albanese said Labor supported a viable two-airline system in Australia.
"We regard it as absolutely essential to Australia's future economy," Albanese said.
"We rely upon domestic aviation to get around the country, whether it's for work or for recreation, and Australian jobs depend on it.
"It's about not just the 15,000 people who depend directly on Virgin Australia for their jobs, it's about the hundreds of thousands of Australians who depend upon tourism for their jobs. It's about the millions of Australians who depend upon a two-airline system in order to be able to afford to get around this country."
Gutted Virgin Australia staff described their love for their jobs as they begged the federal government to step in and save them.
"We wake up because we love our job," crew member Flynn said at the press conference.
"Our job is our life. You have your jobs at home. This is our job. If we don't have Virgin Australia, we are nothing.
"I see it as Virgin Australia is something like my other mother. I love it like another mother. It is family to me. Each and every person behind me, and plus another 16,000 more across the globe."
A ground worker named Paul said he had been with Virgin Australia for almost 17 years and previously worked for Ansett.
"These people behind me, not only my mates, they're my brothers and sisters," he said, before directing a message at Prime Minister Scott Morrison.
"Sir, I could not do your job and I don't envy you, but please let me do mine. Don't clip our wings."
'Terrifying moment' for workers
Earlier today, Finance Minister Mathias Cormann rejected calls for the Federal Government to buy a stake in Virgin Australia but said it wanted two airlines to remain in Australia.
"The Government is not in the business of owning an airline," Cormann told ABC News this morning.
"But we do want to see two airlines continue and we believe that the opportunities (are) there out of the administration process for that to happen."
Senator Cormann said putting the airline into administration could lead to a sustainable private-sector solution.
"It offers the opportunity for private sector interest to come forward and buy the business or assist with the recapitalisation of the business," he said.
"There's a lot of opportunity from here on in to ensure that there is a viable second airline in Australia moving forward."
He said the airline's major shareholders should be the first to step up.
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Shadow treasurer Jim Chalmers said having two airlines was crucial for the economy.
"The Government should stop leaving 15,000 Virgin workers hanging. They need to step in and step up on behalf of those workers," Chalmers said.
The Transport Workers' Union's Queensland state secretary Peter Biagini said today was a "terrifying moment" for Virgin Australia's workers.
"Being stood down was bad enough, but believing that there would be light at the end of the tunnel and being able to get back to work once the restrictions are lifted, and now that doesn't look likely," Biagini told the ABC.
Biagini refuted Federal Government suggestions a "stronger airline" could emerge from the administration process.
"I think that's fanciful," he said. "To think that another airline, given that it was different when Ansett collapsed — the economy was going all right, it was just badly managed, that business. This is different. This is all the airlines around the world who are struggling and getting bailouts.
"So to think that if Virgin was to fall over that another airline would just come in and fill the void — that will take years. And in the meanwhile, once we get over this virus, we need two good, strong airlines to be able to service our economy, our travellers and also our freight tasks.
"I've got to say, I'm really disappointed that the Federal Government hasn't stepped up. I know that the Queensland State Government did — they put A$200m in. They were the ones that in the beginning that set up Virgin's headquarters in Queensland, so a lot of money has been put into this already."
Aviation expert and editor-in-chief of Executive Traveller, David Flynn, said administration did not necessarily mean Virgin Australia will disappear.
"This is not a liquidation," he told ABC Breakfast.
"A liquidation is a wholesale fire sale of assets to pay down debt. This is an administration. That takes the form of being able to reduce the outstanding debt, but also look at restructuring the company. So, in a way, it's more of a restructure, a reset, and potentially a reboot of Virgin into a new airline that is smaller, leaner, and more sharply competitive than the Virgin that we have this morning."
Flynn said the administrator could make major changes to the airline that could keep it afloat, such as returning it to its budget origins.
"The administrator could, for example, cut the number of planes in the fleet. It could decide to make Virgin a much smaller, more boutique airline. It could go back to its low-cost origins of Virgin Blue.
"It could go into the middle of the market to compete against Qantas as a full-service airline and Jetstar as a low-cost airline. It could scrap all of its international flights.
"So, there are a lot of options to play with. But the end result will be to come up with a Virgin that is more efficient, more attractive. And it means that you don't have to be a big airline to still be competitive."
Today's announcement comes after Virgin's billionaire founder Sir Richard Branson released a heartfelt open letter demanding more support for the flailing airline.
"For 50 years I have been humbled by the incredible pride our people take in working for Virgin," Sir Richard wrote.
"It is the people across all our businesses, and the hundreds of thousands of people who have worked with us over the years, that make this company so special."
Sir Richard said over the five years he had been in business "this is the most challenging time we have ever faced".
"It is hard to find the words to convey what a devastating impact this pandemic continues to have on so many communities, businesses and people around the world," he said.
"From a business perspective, the damage to many is unprecedented and the length of the disruption remains worryingly unknown."
The billionaire businessman cleared up speculation about "me and our brand".
"I've seen lots of comments about my net worth – but that is calculated on the value of Virgin businesses around the world before this crisis, not sitting as cash in a bank account ready to withdraw," he said, claiming a large chunk of his personal wealth was being invested across Virgin companies with "a big part of that going to Virgin Atlantic".
"The challenge right now is that there is no money coming in and lots going out," he said.
