VIRGIN AUSTRALIA RESTRUCTURE CAUSES TURBULENCE AT AIRLINE

Written on the 29 July 2016 by James Perkins

VIRGIN AUSTRALIA RESTRUCTURE CAUSES TURBULENCE AT AIRLINE

THE restructure at Virgin Australia (ASX:VAH) will result in a full-year loss of $224.7 million.

This is despite the Brisbane-based business expecting to post an underlying EBIT profit of $210.6 million in FY16, an improvement of $144.7 million on the previous year, when it reports on August 5. Underlying profit before tax will be $41.0 million, an improvement of $90.1 million on FY15.

Following its aggressive five-year expansion that included a head-to-head battle with Qantas and purchase of Tigerair Australia, the airline is undertaking the restructure as it flies into what CEO John Borghetti calls a "challenging operating environment".

In its quarterly announcement today, the company said underlying loss for the fourth quarter of the year was $21.9 million, a $15 million improvement on the previous corresponding period, but the statutory loss of $228.4 million was much larger largely due to restructuring costs.

The airline is cutting capacity and reducing the number of ATR aircraft while retiring all of its E190 aircraft over the next three years.

The restructure includes finding back room operating efficiencies and streamlining its maintenance and engineering program and its procurement and supply chain.
These measures are expected to result in free cash flow savings of $300 million by the end of 2019.

After a reshuffle of major shareholders, the airline is now backed by HNA Innovation (13%) and Nanshan Group (19.9%), alongside Virgin Group (8%), Singapore Airlines (19.8%), Etihad (21%) and Air New Zealand (2.5%), which reduced its stake as Nanshan came on board.

The airline is raising $1.011 billion through a $159 placement to HNA Innovation alongside a $852 million capital raising venture from existing shareholders.

Air New Zealand completed the sale of a 19.98% stake in VAH to the Chinese conglomerate Nanshan Group for around $262 million, but retains 5.9% ownership of the airline. The sale gave Nanshan a seat on the Virgin board.

The sale allowed Nanshan to gain a stake in the business at a premium on what HNA paid. HNA Group operates more than 14 airlines with a fleet of almost 1150 aircraft, serving nearly 700 domestic and international routes to more than 200 cities.

VAH shares are trading at $0.22 today, up 2.33% since trade opened. The airline's market capitalisation has dropped by almost half since January 15, when it was trading at $0.50.

 


Author: James Perkins Connect via: Twitter LinkedIn

Latest News

SUNCORP BLOWS NATURAL DISASTERS BUDGET BY $40 MILLION

Suncorp Bank (ASX: SUN) has announced that its natural disasters claims costs have blown out by $40 million from its ...

HIGHER OIL PRICE BOOSTS SENEX REVENUE IN SECOND QUARTER

BRISBANE-based oil and gas producer and explorer Senex Energy (ASX: SXY) has increased sales revenue 28 per cent i...

STAFF CHURN BLAMED FOR MCGRATH EARNINGS DOWNGRADE

MCGRATH will fail to meet earnings forecasts after some of its star real estate agents defected to growing Perth firm...

MCBAIN RESIGNS AS BELLAMY'S DIRECTOR WHILE THIRD CLASS ACTION MOVES CLOSER TO SECURING FUNDING

LAURA McBain (pictured) has resigned as a director of Bellamy's Organic (ASX: BAL) today, effective immediatel...

Related News

CARSALES CEO RETIRES AS NEW COMPETITOR COX FINALISES MERGER

CARSALES will have a new CEO as it takes on a fresh challenger to its crown as the dominant online car sales portal i...

BUSINESS CONFIDENCE AT A SIX-YEAR HIGH

SMALL and medium businesses have entered 2017 with their confidence at a six-year high, building on strong gains m...

CONSUMERS PESSIMISTIC ENTERING 2017

CONSUMER confidence remains at its weakest point since April 2016, according to the latest Westpac Melbourne Institut...

RISE OF STARTUP SUPPORT PROGRAMS NOT AS ROSY AT IT SEEMS

ENTREPRENEURIAL cultivation companies in Australia are appearing quickly, but questions have been raised about whe...

Contact us

Email News Update Sign Up Contact Details
Subscriptions

PO Box 2087
Brisbane QLD 4001

LoginTell a FriendSign Up to Newsletter