Transpacificflyer

The administration process is going to take time, and during that time, the company may be further financially impaired. A company can fail during a state of administration. Australian insolvency law is different than US Chapter 11. Please refer to https://asic.gov.au/regulatory-resou...ditors/#effect

In the case of Virgin, it went into voluntary administration because it is insolvent. Voluntary administration was initiated by the board; not by the creditors. Although the goal of a voluntary administration is to keep the company operating, to save the company, this does not necessarily mean that the company can or will be saved. There seems to be a belief circulating here that administration allows a company to shed its contractual obligations and to start fresh. It doesn't work that way. The declaration of voluntary administration does not give the administrators the unilateral power to cancel, void or otherwise clear debt. Creditors are only prevented from enforcing the contractual obligation of Virgin to service debt during the administration period.

Keep in mind that in Australia, Administrators are legally liable for the debt during administration. This is why the administrators went to court to be relieved of their legal obligation for the debt. The administrators are there to;

1. Initiate a financial review and to identify the assets, debt and other contractual obligations. This includes identification of legal actions pending or expected, and identification of all operating entities (sub and sister companies) implicated. My understanding is that there are 38 companies involved, which means 38 different insolvency administration committees (unless the court grants an omnibus arrangement, it will be a mess to sort out). Valuation of assets can be initiated if the valuations on hand are unreliable. (This may be required as aviation assets have devalued significantly.)

2. Report back to the board on what the administrators found, along with their recommendations. They will outline three options and what they believe should be done;
i. Sale of the assets or operation
ii. Close down/windup of operations
iii. Restructuring including renegotiation of debt

The board will then decide on which option to follow. If the report says that there is a possibility of restructuring debt, then the negotiations with the multiple creditors and lenders will formally start. There will be an additional process that requires final valuation of assets and the debt itself. While this is occurring, the company will still be incurring financial losses and continue to be impaired.

Sorry to say, the longer this drags out, the longer it will be until the issue reaches its conclusion which is the airline's demise or a much scaled down regional type of operation. Australia cannot support two "international" carriers at this point. Market conditions do not allow for it. That is the grim reality. When the administration report is released, we can come back to my comments and see whether or not the administrators came to the same conclusion. I hope I am wrong because I too want to see the airline continue, but sometimes when a critter is suffering and death is inevitable, it is best to put it out of its misery.

shuuy

Correct me if I'm wrong, but one of Scurrah's first moves was $700m of cash to buy out Velocity. Obviously the business case didn't weight shocks to the macroeconomic environment.

Not sure if that $700m would have changed the outcome that VA finds itself in.

mikalee

Yes and Velocity is not in Administration....yet. I doubt Scurrah, Joyce, Screw Turner or any other CEO of a listed ASX company had in their risk register what would be the outcomes of a decline in revenue to less than 5% of current levels for many many months.

That said the reason VAH is in Administration is because of the debt levels and the lack of revenue and profits. Companies with less debt and the same lack of revenues and profits are not there....yet. Others will join VAH the longer this goes on.

CPMaverick

Isn't Velocity in administration with their parent company VA? Serious question, I don't know how this works. I just assumed that Velocity could be liquidated as a wholly-owned asset of VA if VA is in administration.

perthite

Velocity, while a wholly owned subsidiary, is not in administration.
I assume the reason for that may become clearer in due course.

serfty

I would posit that currently and for at least the next 12 months, Australia cannot support even one "international" carrier.

bensyd

The equity is worthless the current owners will own nothing if it is bought out of admin and creditors get "cents in the dollar".