Written on the 29 July 2016 by James Perkins


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.


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