Ratings agencies have revised their views on Virgin Australia, expecting creditors to take a haircut on their debt after the airline entered voluntary administration. Virgin Australia, which has around A$5 billion ($3 billion) of net debt, appointed administrators on 21 April to try and restructure its finances so that it may emerge from the Covid-19 crisis. In response, S&P Global Ratings lowered its issuer credit rating on Virgin Australia from "CCC" to "CC" with a negative outlook. The related issuer ratings on the airline’s unsecured debt were lowered to from "CCC-" to "C". “We expect the proposed debt restructuring and recapitalisation process to constitute a default under our criteria because we expect that unsecured debt providers will be forced to accept less value for amounts owing under the terms of the existing secured debt facilities,” the ratings agency said in a report dated 21 April. It said the negative outlook on the company reflects its expectation that if the debt restructuring process is completed as anticipated, it will likely lower the issuer credit rating to "selective default" and the issue rating on the group’s unsecured debt to "default". On a positive note, it added: “However, we expect that a debt restructuring should facilitate a recapitalisation of the company, which should enable Virgin to emerge from the restructuring and continue as Australia’s second-largest domestic airline.” Virgin Australia and its administrator said on 21 April that they are hopeful the airline will emerge from the administration process in better shape, and Deloitte’s Vaughan Strawbridge stated that over 10 parties are interested in being a part of the restructuring. Moody’s, which had downgraded Virgin Australia’s corporate family rating from "B3" to "Caa1" on 17 April, said in a 21 April report that its ratings remain under review for further downgrade, pending the outcome of the voluntary administration process. The agency said in its latest report that Virgin Australia entering voluntary administration was in line with its base case assumption that any future steps taken to ensure the airline’s ongoing viability will result in economic loss to creditors and in particular to unsecured creditors. "The key issue for existing creditors will be the haircut they are requested to take in a restructure, relative to the risk of putting the company into liquidation with uncertain recovery prospects," it writes. In the 17 April report, Moody’s estimated that Virgin Australia had A$900 million of unrestricted cash but minimal availability under its credit facilities. Meanwhile, Fitch had downgraded the airline from "B-" to "CCC-" on 17 April due to the increasing uncertainty over whether the airline will be able to secure additional financing. The agency issued a further downgrade to "D" on 21 April, stating: "VAH's restructuring would need to result in the airline's profitability and cash generation improving in order to secure financing from a third party and enable the airline to continue as a going concern." It adds: "We believe that, in this case, the airline will focus on bringing back profitable routes and realigning its cost structure to its revenue base while in administration."

Source: Cirium

Scandinavian budget carrier Norwegian has confirmed that four subsidiaries which employ more than 4,000 pilots and cabin crew members in Denmark and Sweden have filed for bankruptcy. Norwegian's crew members in Scandinavia are employed by various subsidiaries of the company. Norway-based employees' salaries are covered by the country's government while they are furloughed, but the same is not true for crewmembers based in Denmark and Sweden, says the airline. As a result, it had "no choice but to apply for bankruptcy" for three subsidiaries in Denmark and one in Sweden. The move will affect 1,571 of Norwegian's pilots and 3,134 of its cabin crew. Some 700 pilots and 1,300 cabin crew based in Norway, France and Italy are unaffected, notes the airline. "We have done everything we can to avoid making this last-resort decision and we have asked for access to government support in both Sweden and Denmark," states Norwegian's chief executive Jacob Schram. He adds: "It is heartbreaking that our Swedish and Danish pilot and cabin crew subsidiaries now are forced to file for bankruptcy, and I'm truly sorry for the consequences this will have for our colleagues. We are working around the clock to get through this crisis and to return as a stronger Norwegian, with the goal of bringing as many colleagues back in the air as possible." Norwegian says the bankruptcy process for the four subsidiaries is being managed by the courts in their respective countries. The airline has also cancelled crew-provision agreements with subsidiaries employing crew based in the UK, Spain, Finland and the USA, prompting analysts to wonder whether it is retrenching to Norway. Credit Suisse writes that the airline's moves are "suggesting to us it may close its Gatwick/Spanish bases". Bernstein analyst Daniel Roeska described Norwegian on 14 April as being "at the end of the line" after it proposed converting debt to equity in order to qualify for state aid. He wrote that Oslo had an interest in keeping the airline alive to facilitate connectivity for its corporate sector, but asked whether the airline would "admit that the long-haul, low-cost experiment has failed and retreat back to its Nordic core".

Source: Cirium

Virgin Australia has entered voluntary administration as it seeks to recapitalise the business. "The decision comes as the group has continued to seek financial assistance from a number of parties, including state and federal governments, to help it through the unprecedented crisis, however is yet to secure the required support," it said in a stock-exchange statement today. Australia’s second-largest carrier, with over 10,000 employees, has posted losses in the last seven financial years. It sought a A$1.4 billion ($890 million) bailout from the federal government to get it through the coronavirus crisis, which has seen it ground its fleet and halt operations. The Australian government has provided several relief packages for its aviation industry as a whole, most recently agreeing to underwrite a minimum domestic network operated by Virgin Australia and larger rival Qantas, but never directly addressed Virgin Australia's request for specific assistance. Administrators from Deloitte will now attempt to put the business on a better footing. The airline’s frequent flyer scheme, Velocity Frequent Flyer, is a separate company and is not in administration. In Australia, voluntary administration is a process whereby an insolvent company gets time to work out an arrangement with its creditors. Administrator Vaughan Strawbridge said in the same statement, "Our intention is to undertake a process to restructure and re-finance the business and bring it out of administration as soon as possible." He added: “We have commenced a process of seeking interest from parties for participation in the recapitalisation of the business and its future, and there have been several expressions of interest so far.” Virgin Australia has suspended trading of its shares since 14 April while the company was in talks over its financial options and restructuring. At the end of the financial half-year ended 31 December 2019, it had adjusted net debt of A$5 billion. When the pandemic hit, it was already undertaking efforts to reduce its cost base, including simplifying the fleet, axing unprofitable routes and renegotiating supplier agreements. The airline's chief executive Paul Scurrah said in today's statement that the airline wants to come through the Covid-19 crisis and help the Australian economy get back on its feet. “Our decision today is about securing the future of the Virgin Australia Group and emerging on the other side of the Covid-19 crisis. Australia needs a second airline and we are determined to keep flying,” he stated. Founder and shareholder Richard Branson, who has come under fire for not doing more to provide both Virgin Australia and sister airline Virgin Atlantic with funds, said it is not the end for Virgin Australia. “This is not the end for Virgin Australia and its unique culture. Never one to give up, I want to assure all of you – and our competitor – that we are determined to see Virgin Australia back up and running soon,” he wrote in a letter to employees.

Source: Cirium