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SeaEagle8
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 8:59 am

CraigAnderson wrote:
ben175 wrote:
Can somebody please make a list of the airlines currently still operating scheduled bookable international services into Australia besides QR? I was surprised to see Citilink operating DPS-PER the other morning.


Try this list: https://www.executivetraveller.com/news ... -australia


That list is very wrong. Wouldn’t even know where to start. The reality is much different. Just use FR24 and you can see what is actually happening.
NSW based avgeek
 
Aviator34ID
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 9:09 am

Looking at FR24 today I'll bet a lot of those freighter crews have smiles on their faces. From being considered by some to be the ugly ducklings they are now Kings of the airways!
 
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eta unknown
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 9:15 am

ben175 wrote:
Can somebody please make a list of the airlines currently still operating scheduled bookable international services into Australia besides QR? I was surprised to see Citilink operating DPS-PER the other morning.

The problem with such a list is although some flights are bookable, many are restricted to nationals/permanent residents of that airline's home country (Singapore, Brunei). Then there are additional transit restrictions: some countries transit OK for all (Japan, Qatar), others Australians and New Zealanders only (NZ).
 
TasFlyer
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 9:59 am

Domestic passenger figures for February have been released by BITRE: https://www.bitre.gov.au/publications/ongoing/domestic_airline_activity-monthly_publications

Big decreases across the board, CNS in particular, except for some intra-WA routes. When analysing these figures, remember that February had 29 days this year, so a three percent increase is par for the course. Furthermore, view these figures through the lens that the Federal Government didn't activate the Emergency Plan until February 29.

Of course, March will be worse, and I doubt BITRE will publish figures for April.
 
anstar
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 10:20 am

TasFlyer wrote:
Domestic passenger figures for February have been released by BITRE: https://www.bitre.gov.au/publications/ongoing/domestic_airline_activity-monthly_publications

Big decreases across the board, CNS in particular, except for some intra-WA routes. When analysing these figures, remember that February had 29 days this year, so a three percent increase is par for the course. Furthermore, view these figures through the lens that the Federal Government didn't activate the Emergency Plan until February 29.

Of course, March will be worse, and I doubt BITRE will publish figures for April.


Maybe CNS is a result of the ban on Chinese tourists? ie its a predominantly foreign tourism destination?
 
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 10:38 am

CNS in an international gateway to the great barrier reef, but CNS tourism has suffered in the last few years- lost of international routes have been cut (even the seasonal charters). One feedback domestic visitors often give and Tourism QLD has acknowledged is the hotel prices are way over-priced as is the cost of meals in restaurants.
 
timtam
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 10:42 am

So here is a hypothetical of the VA situation:

VA in its current form is finished. It has called in the restructuring experts and is now in a desperate fight against time to restructure and survive.

It has to fight a battle on multiple fronts at the same time in order to pull off the deal for the new VA.

Battle 1: Equity
Existing shareholders have been wiped out and will get cents in the dollar in the new VA if it gets up.
Existing shareholders have made it clear they will not provide any new equity so they have effectively ended any prospect of saving the old VA.
The restructuring experts need to find new equity. They will have opened a data room and will be searching all avenues to find equity for the new VA.
Midnight oil is burning in the upper floors of many investment banks as they work furiously to pull together a deal.

Battle 2: Debt
Debt is worth less than 100c in the dollar with some debt trading at 40c in the dollar. The restructuring experts will be telling the lenders - either you take a haircut on your debt or we tip VA in administration and your going to have to lose even further cents in the dollar in a fire sale scenario. This is the most difficult battle because there will be many lenders and it can be like herding cats.
The posturing in the media about going into administration is the restructuring experts putting pressure on the lenders. The restructuring experts will actively use the media to get their message across to the lenders. For the lenders, they know they will have to take a haircut but they will want to minimise it and they will play hard ball. The debt will have moved from their "corporate banking department" into their "restructuring department" and they are not nice people to deal with and are experts at playing hard ball. There will be some minority lenders that will be particularly difficult to deal with. But thats why you bring in the restructuring experts and use every tool you have available, including the media, to pressure the lenders.

Battle 3: Government Support
Obtaining government support is the cream on the top of the deal for the restructuring experts. The deal will hinge on getting Equity and Debt over the line and any deal with the Government will sweeten the overall outcome. They may need the government to put some pressure on the lenders to get them over the line.

Battle 4: Making the Numbers Work
The numbers have to work - to get equity and debt over the line on the deal. Aside from all of the above, other key questions will be around what to do about the unsecured parties? Do they wipe out the unsecured parties (eg velocity points, voucher holders etc) by moving the business into a new entity, removing that liability but at the same time kicking the customers that support its business? Do they keep the unsecured parties whole in the interest of protecting the reputation of the business in the eyes of its customers? There are financial implications for both scenarios - which produces the better outcome for the new VA? There are also deal approval implications for both scenarios. What other "magic" can be performed to make the numbers work. What does the financial future of the new VA really look like? What are reasonable assumptions to make in the modelling that will be accepted by both equity and debt?

Its a race against time with lots of moving parts.

The restructuring experts will be working on almost no sleep for days to pull this off with the payoff being a massive deal bonus.
 
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 11:22 am

I'd add a few more battles - particularly if you assume that VA will likely want to be a bit smaller if it re-emerges

Aircraft Lessors
Negotiation on lease price on some aircraft, ability to return others without penalty

Secured Aircraft Debt
As above

Airports
Same on gate space, lounges etc

Employees
Redundancy packages likely to be large

All the above take a big hit if VA goes under - the aircraft can't be placed easily in the forward environment. The gates will go empty, and employees will be reliant on government packages.


All of which is far easier under a US style Chapter 11 process - much more difficult in Australia unless everyone agrees

And then of course, QF will no doubt be asking for similar from many of the same entities
 
eamondzhang
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 12:11 pm

Was trying to quote CraigAnderson's post when it disappeared, it's about Virgin threatening to call in administrators

Personally IMHO they've made so much noise I'm willing to see if they really can and will call in administrators. Australia had been through that before and will probably go through that some time in the future as well. I'm getting sick of so much distress calls from VA in one way. A mismanaged company is probably worth more in parts like an older a/c.

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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 12:43 pm

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QF945
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 1:43 pm

Domestic aviation rescue talks stall - The Australian

Deputy Prime Minister ­Michael McCormack has been trying to secure an agreement from the airlines to operate a ­minimum number of flights ­between major centres to maintain freight connections and carry Australians to their home town or city after ­enforced quarantine.

But a planned announcement on Tuesday was progressively pushed back as Virgin Australia sought assurances it would not be left out of pocket as a result of the flights. It is understood the airline has been unhappy with relief measures announced by the government to date.

https://www.theaustralian.com.au/busine ... e0440471ef



Putting this minimum domestic at risk I don't think will win Virgin any favours. If anything delaying the government announcement will just push this more and more onto Qantas. Sure it may not have stopped what is coming for Virgin, but it was a step forward than no support at all.
 
melpax
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 1:51 pm

eamondzhang wrote:
A mismanaged company is probably worth more in parts like an older a/c.


Wouldn't suprise me if the likes of Delta will wait until any potential liquidation to cherry pick parts of the operation that they're interested in, this could also mean that they would re-employ staff under a new company under more favorable terms for the employer, instead of having to abide by an EBA that was agreed to in better days..

Also heard today the Victorian chief health officer saying that some of the restrictions might be slowly eased in the coming weeks if the infection rate in Victoria continues to decrease. If this includes the easing of non-essential travel restrictions, might be some potential for Qantas or Virgin (if they're still operating.....) to run some MEL-MQL 737 flights over the winter - might be the only opportunity this winter for those in Melbourne to get some escape from winter, with QLD, SA & WA out of bounds, and NSW copping it the worst.
Essendon - Whatever it takes......
 
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eta unknown
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 2:16 pm

melpax wrote:
Wouldn't suprise me if the likes of Delta will wait until any potential liquidation to cherry pick parts of the operation that they're interested in, this could also mean that they would re-employ staff under a new company under more favorable terms for the employer, instead of having to abide by an EBA that was agreed to in better days..


DL is not interested in VA. Rinse. Repeat. The DL saviour comes up more times here than anywhere else. It is not going to happen. If DL was really more interested in the VA partnership the current agreement would see DL doing far more than sending a daily 777 LAX-SYD. As stated so many times before, VA needs DL more than DL needs VA. Of course, the situation is even more dire now as DL has limited funds to bail anyone out.
 
timtam
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 2:45 pm

moa999 wrote:
I'd add a few more battles - particularly if you assume that VA will likely want to be a bit smaller if it re-emerges

Aircraft Lessors
Negotiation on lease price on some aircraft, ability to return others without penalty

Secured Aircraft Debt
As above

Airports
Same on gate space, lounges etc

Employees
Redundancy packages likely to be large

All the above take a big hit if VA goes under - the aircraft can't be placed easily in the forward environment. The gates will go empty, and employees will be reliant on government packages.


All of which is far easier under a US style Chapter 11 process - much more difficult in Australia unless everyone agrees

And then of course, QF will no doubt be asking for similar from many of the same entities


Aircraft Lessors and Secured Aircraft Debt all fall under the debt battle. It is a large group with all having different levels of security and facing different cents in the dollar scenarios. This makes it a complex task. But also makes its difficult for all the debt holders to present a united front against the restructure so the restructuring experts might be able to focus on the key debt holders and leave behind those that wont play nice (take you aircraft - we dont need it).

Airports are a monopoly making them difficult to negotiate better rates. However VA may have some onerous lease obligations that they can walk away from or have some fixed leases they can avoid paying through the restructuring. This is part of the magic of Making the Numbers Work - what costs can they slash - rows in a spreadsheet.

Unlikely there will be any negotiation with employees as there is not enough time. They will be another cost line in the spreadsheet and part of Making the Numbers Work. The restructuring experts will tell the Federal Government how much they are up for to meet the minimum redundancy obligations if VA walks away from the staff. They will be arguing that the Federal Government is better putting in that amount of support into the new VA so that it continues to employ those staff rather than leave them behind in the old VA for the Federal Government to pick up the tab.

They will be working long days and nights in Chifley Tower to pull this one off.
 
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 5:32 pm

moa999 wrote:

Airports
Same on gate space, lounges etc


Outside of MEL and PER domestic, don’t think there are any other airports that VA has an exclusive use of gates/terminals?

The likes of SYD is an multi user terminal, they have some gates that are mainly used by VA.

With PER it would probably be there Dream come true, they could force Qantas out of T3/4 and move them into the new VA pier.
 
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 6:53 pm

timtam wrote:
moa999 wrote:
I'd add a few more battles - particularly if you assume that VA will likely want to be a bit smaller if it re-emerges

Aircraft Lessors
Negotiation on lease price on some aircraft, ability to return others without penalty

Secured Aircraft Debt
As above

Airports
Same on gate space, lounges etc

Employees
Redundancy packages likely to be large

All the above take a big hit if VA goes under - the aircraft can't be placed easily in the forward environment. The gates will go empty, and employees will be reliant on government packages.


All of which is far easier under a US style Chapter 11 process - much more difficult in Australia unless everyone agrees

And then of course, QF will no doubt be asking for similar from many of the same entities


Aircraft Lessors and Secured Aircraft Debt all fall under the debt battle. It is a large group with all having different levels of security and facing different cents in the dollar scenarios. This makes it a complex task. But also makes its difficult for all the debt holders to present a united front against the restructure so the restructuring experts might be able to focus on the key debt holders and leave behind those that wont play nice (take you aircraft - we dont need it).

Airports are a monopoly making them difficult to negotiate better rates. However VA may have some onerous lease obligations that they can walk away from or have some fixed leases they can avoid paying through the restructuring. This is part of the magic of Making the Numbers Work - what costs can they slash - rows in a spreadsheet.

Unlikely there will be any negotiation with employees as there is not enough time. They will be another cost line in the spreadsheet and part of Making the Numbers Work. The restructuring experts will tell the Federal Government how much they are up for to meet the minimum redundancy obligations if VA walks away from the staff. They will be arguing that the Federal Government is better putting in that amount of support into the new VA so that it continues to employ those staff rather than leave them behind in the old VA for the Federal Government to pick up the tab.

They will be working long days and nights in Chifley Tower to pull this one off.


VA recently spent $700 million to take full ownership of their Velocity Rewards customer loyalty program. In essence they reduced their liquidity, when they had low equity and an inability to raise new debt.

The $700 million outlay essentially changed the risk and debt profile of the business.

There are some management rules 101 that weren’t followed here.

If I was an airport, aircraft lessor, bond holder or an employee, I wouldn’t be too happy. Over a very short period of time new bonds were issued, large CAPEX transactions occurred and when an event happened, within a month they are asking the government for a bail out. Where was the corporate oversight or governance of this business prior to Coronavirus?

I’d suggest this is simply a function of the current Virgin Australia ownership structure. Asking the Australian government for a corporate welfare handout will not cure VA’s fundamental business woes (it could just add to them).

As such, if I was one of VA’s creditors being asked to swap debt for equity, I would be asking VA what management changes will they be making to ensure stronger governance and corporate oversight. Internally, I would be asking if adding more major shareholders to the ownership register is just going to create more disfunction to a poorly performing business.

In effect, I would be linking any debt for equity transaction with a significant reduction in the shareholding’s of the current owners.
 
zkncj
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 7:22 pm

Could an Qantas / Virgin merger be on the cards? If it was the last option?

Majority of VA’s $3billion assets are sold off, QF then obtains the remainder of the company with government funding.

Surely it would be in the Australian governments favour to reduce job losses in the airline industry in Australia.

Does seem werid that the Australian government is unwilling to help Qantas or Virgin at this time, most offer counties have no offered there airlines some sort of support. The current offer from the Australian Government is unless, as it only relates to fees while flying which doesn’t help grounded airlines.

I don’t see what the Australian Govt couldn’t take over VA, then sell them off after 5-10 years at profit.
 
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RyanairGuru
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 8:17 pm

travelhound wrote:
timtam wrote:
moa999 wrote:
I'd add a few more battles - particularly if you assume that VA will likely want to be a bit smaller if it re-emerges

Aircraft Lessors
Negotiation on lease price on some aircraft, ability to return others without penalty

Secured Aircraft Debt
As above

Airports
Same on gate space, lounges etc

Employees
Redundancy packages likely to be large

All the above take a big hit if VA goes under - the aircraft can't be placed easily in the forward environment. The gates will go empty, and employees will be reliant on government packages.


All of which is far easier under a US style Chapter 11 process - much more difficult in Australia unless everyone agrees

And then of course, QF will no doubt be asking for similar from many of the same entities


Aircraft Lessors and Secured Aircraft Debt all fall under the debt battle. It is a large group with all having different levels of security and facing different cents in the dollar scenarios. This makes it a complex task. But also makes its difficult for all the debt holders to present a united front against the restructure so the restructuring experts might be able to focus on the key debt holders and leave behind those that wont play nice (take you aircraft - we dont need it).

Airports are a monopoly making them difficult to negotiate better rates. However VA may have some onerous lease obligations that they can walk away from or have some fixed leases they can avoid paying through the restructuring. This is part of the magic of Making the Numbers Work - what costs can they slash - rows in a spreadsheet.

Unlikely there will be any negotiation with employees as there is not enough time. They will be another cost line in the spreadsheet and part of Making the Numbers Work. The restructuring experts will tell the Federal Government how much they are up for to meet the minimum redundancy obligations if VA walks away from the staff. They will be arguing that the Federal Government is better putting in that amount of support into the new VA so that it continues to employ those staff rather than leave them behind in the old VA for the Federal Government to pick up the tab.

They will be working long days and nights in Chifley Tower to pull this one off.


VA recently spent $700 million to take full ownership of their Velocity Rewards customer loyalty program. In essence they reduced their liquidity, when they had low equity and an inability to raise new debt.

The $700 million outlay essentially changed the risk and debt profile of the business.

There are some management rules 101 that weren’t followed here.

If I was an airport, aircraft lessor, bond holder or an employee, I wouldn’t be too happy. Over a very short period of time new bonds were issued, large CAPEX transactions occurred and when an event happened, within a month they are asking the government for a bail out. Where was the corporate oversight or governance of this business prior to Coronavirus?

I’d suggest this is simply a function of the current Virgin Australia ownership structure. Asking the Australian government for a corporate welfare handout will not cure VA’s fundamental business woes (it could just add to them).

As such, if I was one of VA’s creditors being asked to swap debt for equity, I would be asking VA what management changes will they be making to ensure stronger governance and corporate oversight. Internally, I would be asking if adding more major shareholders to the ownership register is just going to create more disfunction to a poorly performing business.

In effect, I would be linking any debt for equity transaction with a significant reduction in the shareholding’s of the current owners.


I read yesterday that the bonds issued to underwrite the Velocity acquisition had an interested rate of 8%. That blew my mind. I know that VAH had a poor credit rating, but I am astounded that they issued high interest "junk bonds" to acquire a non-core asset, exposing the already cash-dtrapped business to an unnecessary level of debt. This seems highly irresponsible to me.

Source: https://www.theguardian.com/business/20 ... ent-rescue
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DavidByrne
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 9:38 pm

Excellent analysis here from timtam. The one thing that appears to be missing from this discussion though is whether any "Vv2" would actually be a viable business in the long term, let alone the medium term. If the future prospects of global aviation are as bleak as many (including IATA) are now suggesting, then I can't imagine it will be an attractive proposition for very many.

Put it this way: If you were asked to invest a significant chunk of your own personal wealth into a hugely diluted VA shareholding base, would you jump at the chance? Sad as it might be, I think that the winds of change are blowing so strongly that you would run the risk of being in the same situation again in six or twelve months time. Your own investment might also be toast. I truly think that VA is already a lost cause, alas.
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DavidByrne
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 9:42 pm

zkncj wrote:
Could an Qantas / Virgin merger be on the cards? If it was the last option?

. . .

Surely it would be in the Australian governments favour to reduce job losses in the airline industry in Australia.

How does a merger help either carrier? Yes, you could saddle QF-VA with the debts of both airlines, but then you'd surely end up with a very large, very weak carrier that would still be grappling with a very small market.
This is not my beautiful house . . . This is not my beautiful wife
 
cam747
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 10:15 pm

RyanairGuru wrote:
I read yesterday that the bonds issued to underwrite the Velocity acquisition had an interested rate of 8%. That blew my mind. I know that VAH had a poor credit rating, but I am astounded that they issued high interest "junk bonds" to acquire a non-core asset, exposing the already cash-dtrapped business to an unnecessary level of debt. This seems highly irresponsible to me.

Source: https://www.theguardian.com/business/20 ... ent-rescue


In hindsight it was the wrong decision. However the Velocity business is (was) highly profitable and clearly the ROI was expected to be more than the 8% interest they have to pay on the bonds - they wouldn't have done it otherwise. Calling it irresponsible with the benefit of hindsight is a very easy thing to do.
 
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 10:36 pm

The VA question is basically a game of chicken between debt holders and the government. The debt holders have the choice of diluting their debt in exchange for equity or risk a wipe-out given their debt is argely subordinated and will always come behind the signifcant redundancy payment that would be owed to staff. The government risks creating a further mess in the domestic travel industry which will already be on it knees following the fires and this crisis. Existing shareholders have no real call in the current situation.

A QF monopoly will do no one any favours. QF would not be trusted to operate in the national interest so would need to be regulated significantly. A denial of funding for VA will also mean the government is locking itself out of funding QF down the track so should QF ultimately need funding it would have to be on different terms, most probably the forced divestment of Jetstar which may also partly overcome the monopoly issue.
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 10:52 pm

zkncj wrote:
Could an Qantas / Virgin merger be on the cards? If it was the last option?


ACCC would win every court case in the country it brought to stop this.
 
waoz1
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 11:08 pm

SAA will stop receiving government funding
Could be first casualty... maybe we wont be seeing them back in PER
 
smi0006
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 11:09 pm

zkncj wrote:
moa999 wrote:

Airports
Same on gate space, lounges etc


Outside of MEL and PER domestic, don’t think there are any other airports that VA has an exclusive use of gates/terminals?

The likes of SYD is an multi user terminal, they have some gates that are mainly used by VA.

With PER it would probably be there Dream come true, they could force Qantas out of T3/4 and move them into the new VA pier.


Technically MEL is also common use, it just makes sense for VA to have exclusive use. But I know longer term T1/T2/T3 we’re being looked at fur multipurpose mixed use.
 
cam747
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 11:09 pm

tullamarine wrote:
A denial of funding for VA will also mean the government is locking itself out of funding QF down the track so should QF ultimately need funding it would have to be on different terms, most probably the forced divestment of Jetstar which may also partly overcome the monopoly issue.


Thats a good point, I hadn't thought of that aspect. However I'm sure if the Govt doesn't support VA now & it goes under, and 6-9 months down the track QF needs Govt support - they would still mount the argument that its supporting 'a great Australian' no foreign owners etc, required as a vital service yada yada. They will still be accused of picking winners & distorting the market which I'm sure is an accusation they're trying to avoid.
 
81819
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Re: Australian Aviation Thread - April 2020

Tue Apr 14, 2020 11:30 pm

cam747 wrote:
RyanairGuru wrote:
I read yesterday that the bonds issued to underwrite the Velocity acquisition had an interested rate of 8%. That blew my mind. I know that VAH had a poor credit rating, but I am astounded that they issued high interest "junk bonds" to acquire a non-core asset, exposing the already cash-dtrapped business to an unnecessary level of debt. This seems highly irresponsible to me.

Source: https://www.theguardian.com/business/20 ... ent-rescue


In hindsight it was the wrong decision. However the Velocity business is (was) highly profitable and clearly the ROI was expected to be more than the 8% interest they have to pay on the bonds - they wouldn't have done it otherwise. Calling it irresponsible with the benefit of hindsight is a very easy thing to do.


The first objective of the VA board is to ensure strong business fundamentals.

To put this into perspective the airline has / had a very low level of capitalisation. As such, it’s priority should have always been to bring its gearing down and it’s equity up. Purchasing Velocity (from debt), even though the transaction was earnings positive had an instant affect on capitalisation and liquidity.

From a risk perspective they were biting off more than they could chew........or they had so much debt that if an event (of any type occurred) they didn’t have the liquidity to mitigate the cash flow risks.

For VA, history should have been a strong reference for this Purchase decision. The world is littered with the remnants of defunct airlines that had low liquidity. You only have to watch the tv to see how these epic management failures become legends of the post modern business world.
 
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Chipmunk1973
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 12:15 am

VA shares still in a trading halt this morning at the opening of the ASX.
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Aviator34ID
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 12:40 am

At the start of this thing we had one well capitalised, well run airline and one lame duck (in a financial sense, not knocking the operational people) whose shareholders even then didn't have either the capacity or the confidence to put more in. Are we flogging a dead horse here?

These sorts of events often lead to a cleaning of the slate and renewal. Post the virus there WILL eventually be a second airline in Australia, but it will be one unencumbered with all the baggage dragging down VA. We may have to have a monopoly for a while. To avoid price gouging during this period the government could perhaps make air fares a regulated commodity.
 
smi0006
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 1:06 am

Pre-Covid I’ve often heard QF wanted VA to survive as QF controller the market - VA were small enough there was no real threat, and much better to have a competitor you can control and manage than a much better run and funded competitor who presents a real risk.

Now it’s a fight for survival and QF doesn’t want any competition - But that will change in 2-3years, QF won’t crush any new competition, they will simply limit their growth to a point where they can coexist, and then two will stop any new entrants.
 
AVB
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 2:00 am

smi0006 wrote:
Pre-Covid I’ve often heard QF wanted VA to survive as QF controller the market - VA were small enough there was no real threat, and much better to have a competitor you can control and manage than a much better run and funded competitor who presents a real risk.

Now it’s a fight for survival and QF doesn’t want any competition - But that will change in 2-3years, QF won’t crush any new competition, they will simply limit their growth to a point where they can coexist, and then two will stop any new entrants.


Correct and top marks to you mate.

No competition means QF bounces back quicker. The billions to save VA will be better spent on creating the conditions and incentives for another startup. How that plays out and when is anyone’s guess.
 
tullamarine
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 2:20 am

smi0006 wrote:
Pre-Covid I’ve often heard QF wanted VA to survive as QF controller the market - VA were small enough there was no real threat, and much better to have a competitor you can control and manage than a much better run and funded competitor who presents a real risk.

Now it’s a fight for survival and QF doesn’t want any competition - But that will change in 2-3years, QF won’t crush any new competition, they will simply limit their growth to a point where they can coexist, and then two will stop any new entrants.


I can't believe QF will not, at some point, stick out its hand for some government assistance. Of course, at the moment it is saying it isn't but that it is because that suits its current circumstances. It is widely felt BA are playing the same game in the UK; saying VS doesn't deserve assistance but ready to demand help itself as soon as VS is out of the way.

Personally, I can't see the government being able to tolerate a monopoly particularly as I don't think the government trusts QF to operate in the national interest and without legislative force, why would it? If VA were to fold, I would expect significant pressure to come onto QF to divest Jetstar.

Having said that, I still think it is more likely that VA will enter into a scheme of arrangement, with or without government help. This will wipe out existing shareholders and also impose significant pain on current unsecured creditors including bondholders but it will also maximise the return for unsecured creditors. In a liquidation, the unsecured creditors would receive nothing.

Coming out of a scheme of arrangement would potentially create a fairly formidable competitor for QF albeit much more limited in breadth than the current VA. The new VA would have much lower debt and would be able to walk away or renegotiate a number of aircraft leases significantly lowering its cost base. I acknowledge the potential savings on gate leases etc upthread but these are quite complicated particularly as the ACCC will want to be involved here to ensure QF cannot scoop up gates limiting potential competition in the years ahead but equally the airports will want to be able to earn income on as many gates as possible and are probably even less likely to operate in the national interest than QF.
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SCFlyer
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 2:21 am

Only way I can see the government having (any) involvement in VA is if VA files administration and the government assists in starting a "VA mk II" successor made from the assets of "VA Mk I".

For example, if Administrators find that a "VA Mk II" is feasible to operate (as 'an ongoing concern') from say, 20-25 Aircraft from VA's owned 737 fleet. The administrators will do what they can to set that up (ala a 'AN Mk II') to attract a new buyer and whatever emerges from a VA administration (if any) with the 'new buyer' will likely be a LCC for the foreseeable future.

If something emerges from a VA administration, the rest of the owned aircraft (15-20x 737 aircraft, 4x 777-300ERs, the Fokkers) would sold off at a liquidation sale, and the leased aircraft returned to lessors ASAP.
 
tullamarine
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 2:26 am

AVB wrote:
smi0006 wrote:
Pre-Covid I’ve often heard QF wanted VA to survive as QF controller the market - VA were small enough there was no real threat, and much better to have a competitor you can control and manage than a much better run and funded competitor who presents a real risk.

Now it’s a fight for survival and QF doesn’t want any competition - But that will change in 2-3years, QF won’t crush any new competition, they will simply limit their growth to a point where they can coexist, and then two will stop any new entrants.


Correct and top marks to you mate.

No competition means QF bounces back quicker. The billions to save VA will be better spent on creating the conditions and incentives for another startup. How that plays out and when is anyone’s guess.

Relying on a competitor appearing in the short term would be a foolish act by the government. This situation is much more perilous for airlines than the 9/11 environment when AN went down and where DJ were already in existence. Were VA to disappear completely, the only potential competitor in the AU domestic market in the short to medium term would be a forced divestment of JQ.
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 2:32 am

From a AFR paywall article: Virgin Group/Branson has said "maybe" to a capital injection into VA (this will mean VA will be majority owned by Branson/Virgin Group) if what's said in the article eventuates

All other shareholders have already flat out stated no.

IMO, Going by RB's history and the Virgin America fiasco, I can't Branson tipping in. He seems to be more concentrated on saving VS if anything.

Source (AFR): https://www.afr.com/street-talk/virgin- ... 415-p54jwg

Virgin Australia's biggest shareholders have passed up a deal to tip in fresh funds and recapitalise the airline, opening up the equity search to outside investors.

It is understood Virgin started its equity search with the five shareholders, who together own more than 90 per cent of the airline's shares on issue.
 
aerokiwi
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 2:37 am

timtam wrote:
So here is a hypothetical of the VA situation:

VA in its current form is finished. It has called in the restructuring experts and is now in a desperate fight against time to restructure and survive.

It has to fight a battle on multiple fronts at the same time in order to pull off the deal for the new VA.

Battle 1: Equity
Existing shareholders have been wiped out and will get cents in the dollar in the new VA if it gets up.
Existing shareholders have made it clear they will not provide any new equity so they have effectively ended any prospect of saving the old VA.
The restructuring experts need to find new equity. They will have opened a data room and will be searching all avenues to find equity for the new VA.
Midnight oil is burning in the upper floors of many investment banks as they work furiously to pull together a deal.

Battle 2: Debt
Debt is worth less than 100c in the dollar with some debt trading at 40c in the dollar. The restructuring experts will be telling the lenders - either you take a haircut on your debt or we tip VA in administration and your going to have to lose even further cents in the dollar in a fire sale scenario. This is the most difficult battle because there will be many lenders and it can be like herding cats.
The posturing in the media about going into administration is the restructuring experts putting pressure on the lenders. The restructuring experts will actively use the media to get their message across to the lenders. For the lenders, they know they will have to take a haircut but they will want to minimise it and they will play hard ball. The debt will have moved from their "corporate banking department" into their "restructuring department" and they are not nice people to deal with and are experts at playing hard ball. There will be some minority lenders that will be particularly difficult to deal with. But thats why you bring in the restructuring experts and use every tool you have available, including the media, to pressure the lenders.

Battle 3: Government Support
Obtaining government support is the cream on the top of the deal for the restructuring experts. The deal will hinge on getting Equity and Debt over the line and any deal with the Government will sweeten the overall outcome. They may need the government to put some pressure on the lenders to get them over the line.

Battle 4: Making the Numbers Work
The numbers have to work - to get equity and debt over the line on the deal. Aside from all of the above, other key questions will be around what to do about the unsecured parties? Do they wipe out the unsecured parties (eg velocity points, voucher holders etc) by moving the business into a new entity, removing that liability but at the same time kicking the customers that support its business? Do they keep the unsecured parties whole in the interest of protecting the reputation of the business in the eyes of its customers? There are financial implications for both scenarios - which produces the better outcome for the new VA? There are also deal approval implications for both scenarios. What other "magic" can be performed to make the numbers work. What does the financial future of the new VA really look like? What are reasonable assumptions to make in the modelling that will be accepted by both equity and debt?

Its a race against time with lots of moving parts.

The restructuring experts will be working on almost no sleep for days to pull this off with the payoff being a massive deal bonus.


Really good summary. The media battle is what most of us will be exposed to , which means comments on here will yo yo with every passing "story". We just don't know how much it is being used to manipulate the outcome. Well, the Qantas approach has been pretty obvious.
 
777LRF
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 3:31 am

VA 77W VH-VPD just completed CDG-BNE as a repatriation flight I'm pretty sure. Interestingly the callsign was the rego "VHVPD" Anyone know the reason behind that?
 
ZK-NBT
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 4:22 am

777LRF wrote:
VA 77W VH-VPD just completed CDG-BNE as a repatriation flight I'm pretty sure. Interestingly the callsign was the rego "VHVPD" Anyone know the reason behind that?


Pretty sure you will find that it was empty. It did BNE-AKL-HKG-CDG as a repatriation flight, I think the actual flight was from AKL with the aircraft positioning from BNE. Using the rego as the call sign should be a clue, no idea why it didn’t use a positioning flight number.
 
BNEFlyer
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 5:54 am

The flight number was VA9941 but looks like FR24 switched it to VHVPD around AUH. And it was empty.
 
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Chipmunk1973
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 6:51 am

I’ve been having a long and hard think about the situation with VA over the last few days, as I am sure many have been as well. And I am of the opinion that the federal government should effectively nationalise the carrier. This would go a long way to protecting important jobs, not just for the carrier, but for the domestic tourism industry as well.

1. It is not without precedence that a national government has done this. Air New Zealand readily comes to mind. Yes, the situation is quite different for many reasons, including just being the sole, major carrier for a nation.

2. Government owned entities have competed against independently managed on several occasions and across several sectors. For a period of time the CommBank was competing against the likes of ANZ, NAB, and Westpac before being sold off. Telstra competed against Optus before being sold off; NBN has competed against several telco’s before rollout and legislation demanded otherwise.

3. The federal government offered a city monopoly to SAC (Sydney Airports Corporation) with SWZ before undertaking the effort itself with the intention of making it public at an appropriate time.


And some additional points:

- By nationalising VA, the government could impose the same foreign ownerships caps as applied to QF when it comes time to sell, making the playing field level.
- Have the VA, Lazarus with a triple by-pass, overseen by an independent auditor to ensure the efforts to improve profitability, restructure and reduce debt is being maintained by management and the board.
- Impose a strict timeframe of involvement by stipulating that government ownership will reduce progressively from 100% to 0 over the course of 3-5 years. Without significant improvement, replace management and/or board as per the above point.
- Offer government secured bonds at RBA rates, currently at 0.25%, for up to AU$2B to other Australian carriers, with commesurate increases for amounts above, and also with similar terms to the Virgin rescue. I.E. Repayment of 50% within 3 years, full in 5 years, or additional interest must be forthcoming.

Given the substantial financial injection given by the Australian Government to the economy to date, I don’t personally believe that undertaking a measure to the tune of AU$5-10B across up to 5 or so years to be such a back breaker to the greater economy.

The government acted as a bank to “The Banks” during the GFC and would be, for all intents and purposes, doing the same to the airline industry. I am of the view that this will assist with recovery, when lock down/isolation begins to ease, for both the business and tourism sectors.

Thanks for your time.
Cheers,
C1973


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Boof
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 6:55 am

sierrakilo44 wrote:
Possibly QF getting in while the prices are low???:

https://www.flightglobal.com/air-transp ... 20.article


As great as it would be to have some good news for local aviation, this order has been announced as Delta taking over a commitment previously held by LATAM. While not AusAv related I thought it would be best to close out the earlier speculation.

Source: https://www.reuters.com/article/us-airb ... SKCN21W1PU
Bring back Virgin Blue!
 
JQ321
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 7:01 am

Chipmunk1973 wrote:
I’ve been having a long and hard think about the situation with VA over the last few days, as I am sure many have been as well. And I am of the opinion that the federal government should effectively nationalise the carrier. This would go a long way to protecting important jobs, not just for the carrier, but for the domestic tourism industry as well.

1. It is not without precedence that a national government has done this. Air New Zealand readily comes to mind. Yes, the situation is quite different for many reasons, including just being the sole, major carrier for a nation.

2. Government owned entities have competed against independently managed on several occasions and across several sectors. For a period of time the CommBank was competing against the likes of ANZ, NAB, and Westpac before being sold off. Telstra competed against Optus before being sold off; NBN has competed against several telco’s before rollout and legislation demanded otherwise.

3. The federal government offered a city monopoly to SAC (Sydney Airports Corporation) with SWZ before undertaking the effort itself with the intention of making it public at an appropriate time.


And some additional points:

- By nationalising VA, the government could impose the same foreign ownerships caps as applied to QF when it comes time to sell, making the playing field level.
- Have the VA, Lazarus with a triple by-pass, overseen by an independent auditor to ensure the efforts to improve profitability, restructure and reduce debt is being maintained by management and the board.
- Impose a strict timeframe of involvement by stipulating that government ownership will reduce progressively from 100% to 0 over the course of 3-5 years. Without significant improvement, replace management and/or board as per the above point.
- Offer government secured bonds at RBA rates, currently at 0.25%, for up to AU$2B to other Australian carriers, with commesurate increases for amounts above, and also with similar terms to the Virgin rescue. I.E. Repayment of 50% within 3 years, full in 5 years, or additional interest must be forthcoming.

Given the substantial financial injection given by the Australian Government to the economy to date, I don’t personally believe that undertaking a measure to the tune of AU$5-10B across up to 5 or so years to be such a back breaker to the greater economy.

The government acted as a bank to “The Banks” during the GFC and would be, for all intents and purposes, doing the same to the airline industry. I am of the view that this will assist with recovery, when lock down/isolation begins to ease, for both the business and tourism sectors.

Thanks for your time.

All of your examples aren't really relavent. They were were always nationalised until privatisation. What you're proposing would be like nationalising them now. There is not point. Australia only needs 1 and there is no point waisting money on a company which has never and most likely never will make a profit.
 
LHR2BNE
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 7:45 am

qf789 wrote:
ZNE is operating QF9 MEL-PER-LHR

https://www.flightradar24.com/QFA9/2459ad00


Heard from a friend that QF9 on 12/4 was cancelled at late notice for passengers and operated with freight only, supposedly due to a change in quarantine restrictions for crew. Anyone know any more details, and if it might cause problems for the scheduled QF9/QF10 flights between now and 6th May?
 
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eta unknown
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 8:45 am

DavidByrne wrote:
Put it this way: If you were asked to invest a significant chunk of your own personal wealth into a hugely diluted VA shareholding base, would you jump at the chance? Sad as it might be, I think that the winds of change are blowing so strongly that you would run the risk of being in the same situation again in six or twelve months time. Your own investment might also be toast. I truly think that VA is already a lost cause, alas.


And this is exactly what happened with Ansett 2 (Tesna): Solomon Lew & Lindsay Fox found themselves in a situation where they needed to invest their own money to keep AN alive. They were wanting the Govt. to do it for them. When reality hit, they baulked.
 
moa999
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 8:50 am

And the big issue is how long this lasts??

Without a vaccine this could continue to bounce around the world with various hotspots for years.
 
Aviator34ID
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 9:06 am

As I write there are 7 QF and VA aircraft in the air, including a VA FIFO and a freighter. There is no market for two airlines. There may not be for a very long time. When there is, lower the barriers to entry and someone else will come.

There are plenty of other things to spend the "small" sum of $8-10billion on Chippie.
 
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eta unknown
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 9:46 am

tullamarine wrote:
[
Relying on a competitor appearing in the short term would be a foolish act by the government. This situation is much more perilous for airlines than the 9/11 environment when AN went down and where DJ were already in existence. Were VA to disappear completely, the only potential competitor in the AU domestic market in the short to medium term would be a forced divestment of JQ.

There will be no JQ divestment- as mentioned in last month's thread, the ACCC has no power to do it and then you need to compensate the QF shareholders.

There are other operators who could launch scheduled services and already hold an Australian AOC: Alliance and Nauru Airlines. The fact they may choose not to is a statement of the prevailing market conditions.
 
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EK413
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 10:05 am

moa999 wrote:
And the big issue is how long this lasts??

Without a vaccine this could continue to bounce around the world with various hotspots for years.


Approximately 12-18 months until we have a vaccine...

https://www.google.com.au/amp/s/amp.the ... us-vaccine

Aviator34ID wrote:
As I write there are 7 QF and VA aircraft in the air, including a VA FIFO and a freighter. There is no market for two airlines. There may not be for a very long time. When there is, lower the barriers to entry and someone else will come.

There are plenty of other things to spend the "small" sum of $8-10billion on Chippie.


This demonstrates how much airlines rely on international transit traffic.

Demand will recover once border closures are eased but not to say it would happen overnight.


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SYDSpotter
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 10:51 am

travelhound wrote:
VA recently spent $700 million to take full ownership of their Velocity Rewards customer loyalty program. In essence they reduced their liquidity, when they had low equity and an inability to raise new debt.

The $700 million outlay essentially changed the risk and debt profile of the business.

There are some management rules 101 that weren’t followed here.


Sorry but no business plans for a scenario where 100% of their revenue gets wiped out in one go.

So to claim that "management rules 101" weren't followed is curious unless you were in those board meetings when those decisions were made...

Note it is widely suggested in the media that the acquisition was 100% debt funded. Assuming a 3% interest rate, that equates to a $21m interest bill per year. So that in itself hasn't really impacted VA's short term liquidity position.
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qf2220
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Re: Australian Aviation Thread - April 2020

Wed Apr 15, 2020 11:18 am

eta unknown wrote:
Alliance and Nauru Airlines. The fact they may choose not to is a statement of the prevailing market conditions.


Also possibly a statement on their financial abilities in the current environment.

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