Denied a bailout, Virgin Australia is a warning for other airlines

Sydney

THE collapse of Virgin Australia Holdings after the briefest of fights indicates that the world's weakest airlines have little time to secure funds before they succumb to the coronavirus.

The debt-laden carrier, which is 20 per cent-owned by Singapore Airlines (SIA), became the outbreak's biggest airline scalp when it handed control to administrators on Tuesday. A near-halt in passenger revenue overwhelmed the carrier in less than two months.

"We should get used to news of this kind," said Volodymyr Bilotkach, a lecturer in air-transport management at the Singapore Institute of Technology. "We will see more airlines go under."

The speed of Virgin Australia's unravelling suggests industry groups haven't been exaggerating in raising the alarm with increasing frequency.

The International Air Transport Association (Iata), which represents nearly 300 airlines, has said half face bankruptcy in two to three months without government help.

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Many carriers have furloughed staff and grounded entire fleets. Iata has warned that 25 million jobs in aviation and related sectors are at risk.

In Australia, the government rejected Virgin Australia's initial plea for a A$1.4 billion (S$1.3 billion) loan. Several other proposals for state aid met the same response, according to chief executive officer Paul Scurrah, until a final request for just A$200 million was rebuffed on Monday.

Other carriers struggling to tap rescue funds are also teetering.

Virgin Atlantic Airways is battling to convince a sceptical UK government to step in to provide backing, with billionaire founder and 51 per cent owner Richard Branson insisting that the carrier will not survive without outside help.

South African Airways, which last made a profit in 2011, plans to lay off its entire workforce after failing to persuade the government to provide more financial aid. The coronavirus may prove too much for the 86-year-old airline, which was reducing routes and considering job cuts even before the outbreak.

With more than A$5 billion in debt and a run of seven consecutive annual losses, Virgin Australia was already financially frail. Mr Scurrah, who took the helm in 2019, was in the middle of a turnaround plan to reduce debt and costs when the virus emerged. Ultimately the airline's balance sheet denied him time to negotiate the funding needed.

The administrators at Deloitte who control Virgin Australia now aim to restructure the business and find a buyer within two to three months. More than 10 parties have already expressed an interest, according to Vaughan Strawbridge, one of the four administrators.

Virgin Australia joins FlyBe Group, which was the UK's biggest domestic airline before it collapsed last month, as early corporate casualties stemming from the virus.

Pummelled by domestic and international travel bans, airlines may lose out on US$314 billion in ticket sales this year, according to Iata.

The Sydney-based Capa Centre for Aviation predicted in March most airlines would go bankrupt by the end of May unless governments and the industry take coordinated steps to avoid such a situation.

As for Virgin Australia, its failure also exposes the perils of running a company by committee. The carrier had one of the most unusual ownership structures in the industry, with four foreign aviation groups - SIA, Etihad Airways, HNA Group and Nanshan Group - each holding stakes of about 20 per cent. Mr Branson's Virgin Group owns about 10 per cent.

None of those major investors had ultimate control of an airline that habitually lost money. Shareholders now rank below Virgin Australia's creditors as Deloitte attempts to save the business. Even employees owed wages sit above the company's owners in the event of a liquidation. BLOOMBERG