Virgin Australia Becomes Short-haul Carrier

 - August 5, 2020, 12:06 PM

Virgin Australia is set to become a mainly domestic and short-haul international airline operating an all-Boeing 737 mainline fleet as part of its restructuring under new owner Bain Capital. The overhaul, announced on Wednesday, will result in the loss of 3,000 jobs, about a third of its workforce, and the suspension of its low-cost brand Tigerair Australia.

“Our aviation and tourism sectors face continued uncertainty in the face of Covid-19 with many Australian airports recording passenger numbers less than three percent of last year and ongoing changes to government travel restrictions,” commented Virgin Australia Group CEO Paul Scurrah.

Burdened with long-term debt of more than A$5 billion ($3.6 billion), the company entered voluntary administration in April. It was bought by the U.S. private equity firm in June after failing to secure a loan from Australia's government. “Virgin Australia has been a challenger in the Australian market for 20 years, and as a result of this plan and the investment of Bain Capital we are going to be in  a much stronger  position to continue that legacy,” Scurrah said.

The reset of Virgin Australia as an “iconic Australian airline” will initially focus on its core domestic and short-haul networks. Long-haul international flights remain suspended until the global travel market recovers and its six Airbus A330-200s and five Boeing 777-300ERs will be removed from the fleet. Also, its 14 ATR72s and Tigerair’s 13 Airbus A320s will cease operations.

The group’s regional and charter fleet will remain, while the company reviews options at Virgin Australia Regional Airlines (VARA), including different operating models to support continued regional and charter flying. Virgin Australia said the Tigerair Australia brand will be discontinued because “there is not sufficient customer demand to support two brands at this time,” though the LCC’s air operator certificate and the resources necessary to support the AOC will be retained to support “optionality” to operate an ultra-low-cost carrier in the future when the domestic market can support it. The halting of Tigerair means that Jetstar, operated by rival airline Qantas, now remains the only low-cost carrier operating out of Australia.

While Virgin Australia’s restructuring is underway, the future of Virgin Atlantic Airways is less secure as it still needs approval from creditors for its £1.2 billion ($1.6 billion) refinancing package, arranged in July, and cash reserves are quickly dissipating. On August, 4, the UK-based long-haul airline filed Chapter 15 bankruptcy proceedings in New York to seek protection from creditors in the U.S.

The U.S. filing is tied to a separate action filed in the UK High Court on Tuesday and is part of the legal processes Virgin Atlantic has to go through to be recognized as “a solvent restructuring” of an English company, a Virgin Atlantic spokeswoman told AIN. The “solvent recapitalization process is proceeding with the support of the majority of our creditors,” she stressed.

The U.S. Chapter 15 case was opened after the airline obtained an order from the UK court to convene meetings of affected creditors to vote on the restructuring plan on August 25.  “With support already secured from the majority of stakeholders, it’s expected that the restructuring plan and recapitalization will come into effect in September. We remain confident in the plan,” the Virgin Atlantic spokeswoman said.  At Tuesday’s court hearings Virgin Atlantic stated it could run out of money in the second half of September if the restructuring deal is not approved, Bloomberg reported.