Virgin Australia (ASX:VAH) has this morning confirmed reports it has called in administrators. But the airline says this is just a step to help its battle for survival rather than a concession that it has lost the fight.

The airline has sought $1.4bn in government assistance to continue operating. But the best it could cook up was offers from state governments insufficient to keep going.

Also, no individual deal would work in conjunction with others particularly because Virgin would have had to move its headquarters.

Last night the board handed control over to multinational auditor Deloitte. Partner Vaughan Strawbridge said this morning he and his colleagues would seek to restructure and refinance the business.

Their hope was Virgin would be out of administration as soon as possible. The administrators reported interest in independent parties seeking to participate.

Virgin Australia boss Paul Scurrah said this was not the end of the airline.

“Our decision today is about securing the future of the Virgin Australia Group and emerging on the other side of the COVID-19 crisis,” he said.

“Australia needs a second airline and we are determined to keep flying. Virgin Australia will play a vital role in getting the Australian economy back on its feet after the COVID-19 pandemic by ensuring the country has access to competitive and high-quality air travel.”

The airline is running limited domestic flights until June 7, 2020 underwritten by the government.

 

Time for stakeholders to panic?

Velocity Frequent Flyers and points collectors panicked on social media last night after hearing the news.

Additionally, the Velocity store website buckled under the pressure of high usage as people sought to use their points.

It is important to note administration does not mean liquidation. In this event ticket holders would be unsecured creditors, but far behind secured creditors such as the lessors of Virgin’s aircraft.

PointsHacks spokesperson Daniel Sciberras told Stockhead last Friday he believed points holders would be in a different boat no matter how things played out.

While Virgin had not gone into administration yet, rumours were circulating as the Morrison government continued to deny the airline money.

“I guess everyone has bad memories of Ansett Reward Points, but it was a long time ago. The structure is different, rather than it [Velocity] being a division, it is a separate business,” he said.

“There’s so many scenarios that could play out here. I think at the end of the day there is a push to ensure we have two carriers, it’s not a certainty but a number of things can happen now.

“You wouldn’t want to be panicking yet. There’s a risk Virgin gets through this and you’ve blown them [points] on something you don’t really want.”

Another industry expert, iFlyFlat founder Steve Hui, told Stockhead it was possible Velocity points could end up in the hands of a different company. He named one possibility as a replacement airline if Virgin completely went under.

NOW READ: Virgin Australia: What fate awaits and what will it mean for Velocity points holders & Australian aviation

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