Simplifying Virgin’s fleet to reduce costs was a core part of chief executive Paul Scurrah’s turnaround plan for the airline prior to it entering administration.
The Age and The Sydney Morning Herald previously revealed the business plan, detailed in a memorandum distributed to key bidders, involves maintaining an international network, which was under a cloud because it was a source of heavy financial losses.
Those details come amid growing frustration from potential bidders that Virgin’s administrator, Deloitte, led by Vaughan Strawbridge, is asking them to buy a business largely as it was before it collapsed and before the COVID-19 pandemic brought the global aviation industry to a standstill.
Airlines around the world have been devastated by the pandemic and major industry players expect it to take two to five years for passenger demand to recover. Deloitte hopes to secure a new owner for Virgin by mid-August.
More than half a dozen people close to potential bidders or working in senior aviation industry roles expressed concern and disbelief Deloitte was not using its administration powers to more aggressively restructure the airline by reducing its aircraft fleet and considering employee redundancies in recognition that a relaunched Virgin will operate in a significantly smaller aviation market.
“There’s no recognition that the market has fundamentally changed,” said one source, adding administrators were setting up the winning bidder as the “bad guy” who would have to cut its fleet and workforce after they take ownership.
“They are setting themselves up for the most catastrophic failure – some of the consortiums are close to saying ‘ok, fine we’ll see you in the liquidation’.”
“This is the time to fix it,” another source close to one bidder said of the loss-making company. A third said the administration appeared to be controlled by Virgin management, with Deloitte adopting its long-term plan for the airline.
Mr Strawbridge said the criticism was unfounded and parties were able to bid for the airline in any form they wanted. However, he said major restructuring, including around Virgin’s fleet and staff headcount, could only be done once the winning bidder was decided.
“Our preference is to sell as much of the airline as possible but everything is on the table, we’re not ruling out anything,” he said.
Intelligence firm CAPA – Centre for Aviation this week projected that Australia’s domestic airline capacity will be at only 49 per cent of last year’s levels by October and at 60 per cent by December. International flights will be at just 15 per cent of 2019 capacity by the end of the year.
Deloitte has told potential buyers Virgin could triple its earnings to $1.2 billion in the 2022 financial year, which would be a drastic change in fortunes after being unprofitable for the past seven years and racking up combined losses of $1.9 billion.
Mr Strawbridge has said he does not plan to make any workers redundant. Virgin employed around 9300 people prior to administration, most of whom have been stood down from work during the pandemic. Virgin made 1000 workers redundant in March as the pandemic started to bite.
COVID-19 has devastated airlines around the world. British Airways is making up to 12,000 staff redundant, while US carriers have signalled significant layoffs. Air New Zealand has said it will lay off about a third of its workforce, or around 3500 employees in the coming months.
Ed Bastian, chief executive of Delta Air Lines, which is the world’s largest carrier, said last month that a full industry recovery would take two to three years, while jet maker Airbus has said it could take up to five years before passengers travel is at pre-pandemic levels again.
Groups known to be considering a bid for Virgin include US private equity firm Bain Capital, local private equity group BGH Capital and Canadian asset manager Brookfield. The Queensland government on Wednesday announced its intention to bid for the airline, while co-founder Richard Branson is said to be waiting in the wings to join a leading consortium.
Business reporter at The Age and Sydney Morning Herald.
Sarah Danckert is a business reporter.