Credit rating agency Standard and Poor’s has downgraded Virgin Australia Group for the second time in a fortnight after its staff and capacity cuts.
S&P has lowered the airline from B- to CCC, which it blamed on “cash flow and liquidity pressures”. However, it maintained the business was “fundamentally well managed”.
On Wednesday, Virgin Australia announced it was standing down 80 per cent of its staff and would increase domestic capacity reductions from 50 to 90 per cent. The next day, it confirmed 1,000 of the 8,000 suspended employees would be made permanently redundant, including all 220 Tigerair pilots.
S&P said in a statement explaining its decision, “Virgin Australia’s previous $900 million unrestricted cash buffer is likely to materially reduce in the very near term.
“Virgin Australia is 90 per cent-owned by Etihad Airways, Singapore Airlines, Nanshan Group, HNA Group and Virgin Group. To varying extents, each shareholder is experiencing their own challenging industry conditions.
“We note that the government has taken steps to waive aviation fuel excise, air navigation charges and security fees. In addition, the government has made public statements signalling that it is carefully considering further support measures.”
Virgin Australia shares were performing surprisingly well on Friday, despite S&P’s move. At one point, stocks hit $0.095, almost double a recent low of $0.050 weeks ago.
When the business announced the capacity and staff cuts this week, chief executive Paul Scurrah said, “I am only too aware of how much our people are hurting at the moment and these very tough decisions have weighed heavily on me and my leadership team.
“We are talking to our teams and we are working hard to do what we can to protect jobs and extend payments for as long as possible.
“I know our people have been working tirelessly to help guests get home ahead of the various state travel restrictions and their efforts should be applauded as they adapt to a rapidly changing environment.
“We plan to return Tigerair Australia and Virgin Australia to the skies as soon as it’s viable to do so, however, I am mindful that how we operate today may look different when we get to the other side of this crisis.”