Virgin Australia Enters Voluntary Administration

The airline's founder blames the Australian government for not bailing it out

Virgin Australia Enters Voluntary Administration
A Virgin Australia plane is seen at a gate at Gold Coast Airport on the Gold Coast, Australia, on July 9, 2015.(Cameron Spencer/Getty Images)
Caden Pearson
Virgin Australia announced Tuesday that it has gone into voluntary administration amid the CCP virus pandemic.

This comes after its international shareholders voted against rescuing the struggling airline on Monday after failing to get the Australian government to bail it out.

The airline has appointed Deloitte as voluntary administrators of the company and a number of its subsidiaries, Virgin announced in a media release.

“We have commenced a process of seeking interest from parties for participation in the recapitalisation of the business and its future, and there have been several expressions of interest so far,” said Vaughan Strawbridge, a Deloitte administrator.

The Australian government believes voluntary administration will provide an opportunity to find a private-sector solution, restructure the company's debt, and emerge with a new owner.

Doubling down on comments made by the treasurer yesterday, the finance minister today told ABC News Breakfast that the government is not in the business of owning an airline. "But we do want to see two airlines continue," said Senator Mathias Cormann.
"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.

Opposition Labor Perspective

Opposition Labor Leader Anthony Albanese said he doesn't agree with the federal government's decision to not intervene for Virgin's employees.

"This isn't a market failure," he told ABC radio this morning. "This is as a result of a government decision, the right decision, to shut down sections of the economy to deal with the health crisis."

Albanese wants the government to step in and save the airline, cutting through the complexities of a private-sector solution to protect Virgin's 15,000 direct and indirect employees.

He said the government's lack of intervention could pose a long term threat to the national economy as more people would become unemployed.

However, Virgin will continue to be eligible for the federal government's Jobkeeper payments during the period of administration. The Jobkeeper package provides $750 (US$360) per week to companies per employee to help with retaining staff until the pandemic is over.

Albanese posted a joint statement on Twitter with MP Catherine King calling on the federal government to buy a stake in the failing airline.

Founder Richard Branson Weighs In

Virgin founder Richard Branson wrote an open letter that he published on Twitter to console the airline's employees while taking a swipe at the Australian federal government for not bailing the company out.

He wrote: "I know how devastating the news today will be to you all, in most countries federal governments have stepped in, in this unprecedented crisis for aviation, to help their airlines. Sadly, that has not happened in Australia."

As the pandemic hit, Virgin already carried about $5 billion (US$3.16 billion) in debt. It employs about 10,000 people and supported another 5,000 indirect jobs.

In fact, the Australia government has offered support to the aviation industry as a whole amid the CCP virus crisis. It has provided over $700 million (US$442 million) in rebates, over a billion dollars worth of relief packages, and underwrote a limited schedule of flights serviced by Virgin, Qantas, and Qantas subsidiary Jetstar.

It has always been the government's position that Virgin should turn to its shareholders for a bailout. "Virgin has very substantial shareholders. Singapore Airlines and Etihad Airlines own 20 percent each. There is 40 percent or thereabouts that is owned by substantial Chinese investors," said the finance minister.

In the media release and in a post on Twitter, Virgin confirmed that it will continue to operate its scheduled international and domestic flights that are helping to transport essential workers, maintain important freight corridors, and bring Australians home.

Virgin's decision to enter voluntary administration comes a week after it suspended trading its shares.
It also follows weeks of turmoil in Australia's aviation sector, which has been devastated by lack of demand due to the domestic and international travel restrictions put in place by the federal government to slow the spread of the CCP (Chinese Communist Party) virus, commonly known as novel coronavirus.
Follow Caden on Twitter: @CadenPearson