Virgin Australia’s debt mounts, to seek aircraft lease waivers

Virgin Australia Holdings owes A$6.9 billion ($4.39 billion) to more than 10,000 creditors based on an initial review and will seek a three-month payment waiver from aircraft lessors, its administrator said on Friday.

Virgin said this week it succumbed to third-party led restructuring that could lead to a sale, turning Australia’s second-biggest airline into the Asia-Pacific’s biggest victim of the coronavirus crisis.

The figure owed to creditors includes about A$2.3 billion of secured debt, A$2 billion of unsecured bonds, A$1.9 billion of aircraft leases, A$450 million owed to employees, A$167 million to trade creditors and A$71 million to landlords, according to an affidavit from administrator Vaughan Strawbridge.

The bankrupt airline’s administrators are liable to pay leases on its aircraft starting April 28, because they will not inform lessors whether they would renege on leases within five business days, as required by law, the documents, posted on the website of Strawbridge’s firm Deloitte, showed.

The Deloitte administrators are seeking court orders for an extension of up to four weeks from their appointment to decide if leased planes were required for continuing operations of the business, they said in a letter to lessors on the website.

“Next week we will be wanting to engage with you to firm up on interim arrangements with the administrators to support the process being followed to achieve a recapitalisation and sale, which will include a request for a three-month waiver of rent and other financial payment obligations,” they said.

A document released by the Federal Court of Australia showed law firm King & Woods Malleson (KWM) said it was representing 17 aircraft lessors and financiers.

These include Aercap Holdings, Bank of China, SMBC Aviation Capital, ORIX Aviation, GECAS, Dubai Aerospace Enterprise, Bank of America Corp and BNP Paribas.

The lessors with the biggest financial exposure to Virgin include Goshawk, Avation, Aercap, ORIX and SMBC, each with estimated monthly income of at least $1 million from the airline, aviation data provider Cirium says.

In a letter on Friday, KWM said its clients wanted to work constructively with the administrators, but required them to pay for regular maintenance and insurance for the planes and report weekly on the use of aircraft.

For now, Virgin is flying a skeleton schedule under its regular management team as administrators seek a buyer for the entire operation.

Private equity and distressed situation specialists Apollo Global Management, Oaktree Capital Management and BGH Capital are among more than 10 firms to express interest in the restructuring, Reuters has reported, citing five sources.

Private equity and distressed situation specialists Apollo Global Management, Oaktree Capital Management and BGH Capital are among those that have expressed interest in restructuring Virgin Australia Holdings, five sources said.

Virgin on Tuesday entered voluntary administration in an attempt to restructure its crippling A$5 billion ($3.2 billion) debt load as it struggles with a lack of demand due to the coronavirus pandemic, making it the Asia-Pacific region’s biggest victim of the crisis gripping the airline industry.

The company’s administrators said they would hold a first meeting of creditors on April 30 and have retained Houlihan Lokey to advise them on restructuring the airline.

More than 10 parties have already expressed interest in restructuring the country’s second-biggest airline, Vaughan Strawbridge, one of the four partners from Deloitte who were appointed as administrators, said on Tuesday.

The three private investment groups are interested because they are experienced airline investors, said one of the sources, who has direct knowledge of the situation. The five sources declined to be named because they were not authorised to speak with media.

BGH and Oaktree declined to comment. Apollo did not return requests for comment.

The administrators are looking to execute a binding deal with a buyer by the end of June, The Australian Financial Review reported, citing a confidential flyer sent to interested parties.

The flyer said an information memorandum would be available to potential buyers by the end of April, there would be an updated management plan ready in early May, non-binding indicative offers would be due in mid-May and binding bids would be due in mid-June, the newspaper reported.

Reuters