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Rex chairman claims Virgin Australia is headed for ‘another disaster’

written by Sandy Milne | May 7, 2020
A Virgin Australia Boeing-737-800 lands at Sydney Airport (Source: Australian Aviation archives)

Regional Express executive chairman Lim Kim Hai has claimed Virgin Australia is headed for yet another financial disaster under the current administrator. 

According to Lim, the restructuring provided a “wonderful opportunity” to make “deep-seated changes to Virgin”.

However, the Rex chairman has been scathing in his assessment of the Deloitte team headed up by Vaughan Strawbridge, stating that the administrator has no intention of making any structural changes to the business model. 

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“It would appear from his timeline that he [Strawbridge] just wants a quick sale and he actually leaves the problems to the buyer to solve,” Lim told The Australian Financial Review

Lim has put forward a number of changes he would make to the airline during this period, including:

  • Rewriting the enterprise bargaining agreements;
  • Restructuring the aircraft leases;
  • Cancelling outstanding orders for the Boeing 737 MAX; and
  • Converting all debt to equity.

The Singaporean entrepreneur obtained a 32 per cent stake in Ansett Australia’s two regional airlines – Kendell Airlines and Hazelton Airlines – after the airline entered administration in 2001, before merging them to form Regional Express.

Other analysts have predicted that under new management, Virgin will likely need to undergo significant changes in terms of its day-to-day operations. 

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Neil Hansford, chairman of Australian airline consultancy group Strategic Aviation Solutions, said that potential buyers would likely look to extensive redundancies as a means to cut costs. Hansford also suggested that a new owner would have to “slash long haul international routes” and transform the airline into an ultra-low-cost carrier.

Deloitte administrators and Virgin executives reportedly pitched the business to bidders this week based on an earnings before interest, taxes, depreciation, and amortization (EBITDA) figure of $1.2 billion per year by 2022.

If true, the 2022 EBITDA forecast would amount to nearly 350 per cent of figures recorded for the 2019 financial year. 

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14 Comments

  • BRIAN BEBAN

    says:

    Administrators and Receivers are only in it for themselves. Their fees are extraordinary and they are not airline specialists. They usually only want to consolidate the problems before flicking on the business to the highest bidder. To expect them to tidy up the business, especially when the debt levels are so high, is asking the impossible as they are not especially interested in problems when they don’t have skin in the game.

  • Paul

    says:

    The Rex chairman is correct in his assessment. Unfortunately not too many administrators in Australia understand the airline industry.

  • Simon G

    says:

    Of all the people to be commenting on the prospects of another airline… The Executive Chairman of REX must surely be facing his own uncertain future and should perhaps concentrate on that.
    His airline managed to gain a temporary reprieve using some questionable tactics, but that won’t solve their long-term issues.
    REX has an ageing fleet and no real ability to upgrade it, and after the COVID-19 crisis passes, he’ll be left with the same woes he was facing before.
    Virgin meanwhile has a real opportunity to emerge from this as a stronger and more efficient carrier.

  • Michael Andrew

    says:

    Ansett’s demise came about simply by entering the overseas travel market and not replacing ageing equipment, buying new equipment and new business venture very costly. Whereas Qantas was given TAA’s already established domestic market with good equipment, very little if any outlay required to start making money for Qantas. The Federal Government was happy to see both Qantas and TAA go, now they only had to reap in the GST without any Public Service outlay or input. The sale/lease of Australian airports were done to achieve the same result and it has, look at Mac Bank reaping in the money!

    Virgin Australia got caught in the same trap, major start-up costs in overseas markets and playing in an uneven playground, equipment ageing and non replacement is a good indicator of how airline businesses are travelling.

  • Bris

    says:

    Oh another “expert” opinion. Just what the staff need right now. Pure speculation yet again. Here’s hoping in a new look Virgin we continue working for a boss we have 100% respect for like Scurrah. Something these guys could never understand and will see the result of when we all get back to work.

    • Yorob Norob

      says:

      Good luck Bris, being a former VB/VA staff member and then being made redundant Ive seen at the top what happens. Scurrah is not the messiah.

    • I’m bris too

      says:

      Brush, I don’t know what Kool Aid are you drinking, maybe if you stop reading about puppies on workplace and Facebook in virgin, you’d understand that your beloved Scurrah fired 750 pilots and flight attendants overnight and they didn’t even get the thank you.
      CEO’s administrators …. they are here only to make money.
      Start looking for jobs in an airline that offers more job security and less dancing on the terminals.
      Be warned or be next.

  • Bris

    says:

    Oh another “expert” opinion. Just what the staff need right now. Pure speculation yet again. Here’s hoping in a new look Virgin we continue working for a boss we have 100% respect for like Scurrah. Something bosses like this could never understand and will see the result of when we all get back to work.

  • John Raby

    says:

    Simon G is spot on. The cosy relationship Rex has with the National Party has seen it benefit from very generous Australian Government support and arguably allowed it to avoid failure. They would be well advised to pocket the loot and keep their heads down.

    The suggestion that, in effect, the Virgin Australia administrators set about dismantling the airline’s proud record of developing strong employee loyalty by attempting to overturn EBA’s is no surprise coming from this source. Rex has the most appalling record of vexatious relations with in particular it’s pilots. On countless occasions this policy has landed them in court actions which in most if not all occasions they have lost. They loose because in a country like Australia respect for the rule of law and reasonable behaviour is generally rewarded.

    Stick to your knitting Mr. Lim.

    The reason the new owners of the Virgin operation may not heed all of the” Monday Quarter Back” advice is that the “long haul international routes” are not all loss makers. In fact the banner route to LAX from the east coast is one of the most profitable parts of the combined operations. Perfect equipment and crewing policy for the task.

    History has shown that many of the early decisions post Virgin Blue to have been seriously flawed. The attempt to split the airline into multiple entities with some seriously poor decisions on fleet and employment policy are prime examples. At the outset Virgin Blue bucked the trend to sideline the various unions and as a result were able to build employee relations whilst sensibly containing costs. The model has been the envy of the industry and will be a massive benefit to any buyer lucky enough to grab the airline. Empowering department managers to take and hold responsibility for recruitment and retention of staff was an early masterstroke.

    All the best wishes to the lucky new owners.

    • James

      says:

      Well said John.

      People, you’ve just heard a comment from someone who knows exactly what they’re talking about. Listen and read closely…

    • Bris

      says:

      Nicely said John. You were one of those that had great respect from the pilots, as does our current CEO, despite and because of some of the hard decisions he has had to make in very unknown territory and to try to make us survive. Can’t help but think either it’s complete speculation on old mates behalf in his opinions in this article or he was a contender for a piece of the Virgin pie and was excluded because of his ideology towards staff. Whatever comes out of Virgin at the end with be fiercely completive and the staff will be equally feicely loyal to the brand and our leader.

  • john

    says:

    I’d say the rex chairman is probably the best expert you can find.

    If what he suggests doesn’t happen, who would want to buy what’s left of Virgin ?

  • Dale M

    says:

    In 2002, Australian Aviation produced a great book titled ‘Ansett. The story of the rise and fall of Ansett 1936-2002’. I hope there is a plan to produce something similar on Virgin Australia (Mark I). From the outstanding success of Virgin Blue, then to fleet choices, onto Borghetti’s rivalry with Qantas. Not to mention the dynamics of the major shareholders. Detailed analysis of the balance sheets, and what exactly the hundreds of millions spent in ‘restructuring’ announced each year they made a loss. This is an intriguing tale that needs to be told!

  • Craigy

    says:

    A trading update by Singapore Airlines details the airline’s exposure to Virgin Australia. Makes interesting reading AA.

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