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Virgin Australia reportedly enters administration

Virgin Australia has buckled under the one-two punch of ballooning debt and coronavirus. Images: Getty

Virgin Australia (VAH.AX) has reportedly entered administration following failure to secure a financial lifeline to save the embattled airline. 

The company has been struggling beneath $4.8 billion in debt, and haemorrhaging cash as Australian travel has come to a standstill due to the coronavirus pandemic.

Big four accounting firm Deloitte will be appointed administrator, according to The Sydney Morning Herald, with Virgin’s board of directors to meet this evening. 

The coronavirus pandemic forced the airline to halt all international travel and the majority of domestic travel in late March and stand down 8,000 workers - around 80 per cent of its 10,000 strong workforce. Virgin Australia also indirectly supports 6,000 additional jobs.

The airline was unable to secure a requested $1.4 billion loan from the federal government, although Virgin was reportedly fielding offers from both NSW and Queensland state governments. However, NSW wanted the airline to move its headquarters to Sydney in exchange for the funds. 

So far, Australian airlines have been granted $715 million in aid from the federal government. 

‘Survival of the fittest’

Qantas is also in trouble. Image: Getty

Virgin Australia rival Qantas is currently being investigated by the consumer watchdog over allegations of anti-competitive behaviour after Qantas CEO Alan Joyce said the federal government shouldn’t “look after the badly managed companies which have been badly managed for 10 years”. 

Joyce has also said coronavirus has forced airlines into a “survival of the fittest”. 

"Australia went into this crisis with two full service airlines and it's really important that we come out the other end with two full service airlines," Australian Competition and Consumer Commission chair Rod Sims told AFP.

"We don't want to damage the structure of the economy, so that when the health crisis is over, we can rise up and be ready to go. So we don't want the sort of structural change that might be being suggested by Mr Joyce."

Ratings agency Fitch downgraded Virgin Australia to CCC- on Friday due to “liquidity issues”, naming increasing uncertainty around whether the airline would be able to secure the desired financing. 

“We believe that travel curbs… are increasingly straining its liquidity such that default is a real possibility,” Fitch said.

Qantas is also in dire straits, having grounded its international fleet, or around 150 aircraft, in March and standing down around 20,000 workers. 

Another Ansett?

The Centre for Aviation (CAPA) has warned most international airlines may be bankrupt by the end of May, due to coronavirus. 

“Cash reserves are running down quickly as fleets are grounded and what flights there are operate much less than half full,” CAPA said.

“Forward bookings are far outweighed by cancellations and each time there is a new government recommendation it is to discourage flying.”

The Australian pilots’ union, AFAP, has warned that Virgin Australia’s collapse would be a “disaster” not only for the airline, but for the travelling public.

“If there is something the Ansett collapse taught us, it is that the Government cannot wash its hands of responsibility at times like these,” said AFAP executive director Simon Lutton.

“We know from the Ansett experience that, if the business enters administration, it is unclear who will pick up the tab for the entitlements of 16,000 Virgin employees and others indirectly affected, which the ACTU has assessed at A$800 million.”

The AFAP said the government needs to act to save the airline and not let Virgin “be carved up”.

“This would lead to mass redundancies, loss of employee entitlements, and a greatly reduced select route network that would only fly between major capital cities at the detriment of regional markets.”

Virgin Australia resumed some domestic operations last Friday to bring stranded Australians home and transport coronavirus response workers. 

More to come. 

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