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Ishrion
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Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 9:54 pm

Well... that's harsh.

The federal government is likely to facilitate the entry of a new carrier into the domestic market, rather than bail out Virgin Australia, should the struggling airline not survive the coronavirus cases
While the government would prefer that Virgin survived the economic crisis, it has no intention of acceding to the airline’s request for a $1.4 billion loan.


They do not plan to grant VA's loan because they don't want to be "saddled with an equity stake in a business that was already doing it tough before the virus crisis."

https://www.afr.com/politics/federal/vi ... 401-p54fv6
 
x1234
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 9:58 pm

I still remember the days that Australia-USA was CRAZY expensive with the Qantas/United monopoly on 744's. Now that the US3 + AU2 are in the market yields have tanked (I hear rumours UA's SFO-SYD is more profitable than their LAX-SYD due to less competition). I seriously hope Virgin Australia stays because there defiantly needs to be pricing pressure. In the QF/UA days LAX-SYD was AT MINIMUM $1500 USD round-trip. Now its $800-1100 USD round-trip.
 
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SCFlyer
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 10:01 pm

Administrators could establish a "mk 2" airline without the Virgin name, similar to what the AN administrators did by establishing "AN mk II" in their attempts to attract a buyer.

In other words the new carrier would take VAs place in the same way that DJ replaced AN decades ago.

IMO, the administrators should ensure the likes of EY, HNA, Nanshan and SQ do NOT get involved in the new entity should VA file voluntary administration. If SQ still considers the Australian market 'important', they could partner with the new carrier without taking a equity stake.

SQ had three goes at the Australian market through equity and failed dismally at all attempts. They're not the 'so called saviour' as some would think considering SQ's dismal investment record overall, and as previously posted by others, SQ are trying to survive financially themselves through the COVID-19 crisis with a $10B government bailout (+$5B loan).
 
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 10:39 pm

Ishrion wrote:

They do not plan to grant VA's loan because they don't want to be "saddled with an equity stake in a business that was already doing it tough before the virus crisis."



I definitely do want Virgin Australia to survive this downturn, not least for the sake of 10,000 employees, but the reality is that while everyone is suffering in the current environment it will be the business (be they airlines or in any other industry) that were already weak and struggling to turn a profit in a growing economy that will go under first. Virgin Australia have consistently struggled for a decade.

I hope I am wrong, but I think the likely outcome at this stage is that VA go into administration and a private equity fund with deep enough pockets purchases the assets they want for pennies on the dollar. Once things start to improve they relaunch the airline under a new brand with a simplified product. The airline that emerges will be much smaller, probably focussing on just the Golden Triangle and other key domestic routes with a simple brand proposition. The core domestic domestic is (was) very profitable, and there is definitely money to be made there once the economy starts to improve.

The airline I envisage emerging will be very much like the growth of Virgin Blue following the collapse of Ansett. What's old will be new again!
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KingB123
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 10:39 pm

Hopefully the UK follows the exact same route as the Ozzie's. Shame regarding the job losses for sure, but a real shame that the company did not bother to help its employees.
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MIflyer12
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 11:02 pm

RyanairGuru wrote:
Ishrion wrote:

They do not plan to grant VA's loan because they don't want to be "saddled with an equity stake in a business that was already doing it tough before the virus crisis."



I definitely do want Virgin Australia to survive this downturn, not least for the sake of 10,000 employees, but the reality is that while everyone is suffering in the current environment it will be the business (be they airlines or in any other industry) that were already weak and struggling to turn a profit in a growing economy that will go under first. Virgin Australia have consistently struggled for a decade.


Going into administration means stiffing the shareholders and unsecured creditors. Starting a new carrier means whatever VA employees get rehired go to Year 1 pay scales. You lose the marketing identity of VA (whatever that may be worth). That's a brutal way to do it - but it's fair to ask if you want to use government funds to bail out shareholders and creditors.
 
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AVENSAB727
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 11:05 pm

Could this be return of "Ansett"?
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aemoreira1981
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 11:11 pm

Could this be a case where their regional airlines are rescued to create a new airline out of the ashes of VA? VA was not on healthy financial footing even before this crisis hit.
 
aerokiwi
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 11:17 pm

Good luck with that, Australia. Because investors are just lining up to sink money into an airline. I guess Joyce poisoned the water just enough.
 
downdata
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 11:26 pm

Exactly, even QF’s survival is not guaranteed.
 
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a36001
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 11:31 pm

AVENSAB727 wrote:
Could this be return of "Ansett"?


Interesting if that happend. Who owns the Ansett name now?
 
Byrdluvs747
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 11:47 pm

It looks like Tigerair is done.

https://simpleflying.com/virgin-austral ... ir-pilots/

SCFlyer wrote:

SQ had three goes at the Australian market through equity and failed dismally at all attempts. They're not the 'so called saviour' as some would think considering SQ's dismal investment record overall, and as previously posted by others, SQ are trying to survive financially themselves through the COVID-19 crisis with a $10B government bailout (+$5B loan).


The same could be said of Etihad. VA will be their fourth equity airline failure (AB, AZ, 9W, VA)
Last edited by Byrdluvs747 on Thu Apr 02, 2020 12:01 am, edited 1 time in total.
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 11:51 pm

a36001 wrote:
AVENSAB727 wrote:
Could this be return of "Ansett"?


Interesting if that happend. Who owns the Ansett name now?


It looks like Air New Zealand still owns the brand.
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chunhimlai
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Wed Apr 01, 2020 11:52 pm

Time to merge VA and VS?
 
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 12:12 am

If VA was to go, and there was demand still in the Australian month in say 6 months time. We could see NZ jump into full the gap, they have an large amount of fleet currently doing nothing.
 
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SCFlyer
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 12:16 am

zkncj wrote:
If VA was to go, and there was demand still in the Australian month in say 6 months time. We could see NZ jump into full the gap, they have an large amount of fleet currently doing nothing.


Don't think any airline (if any) worldwide would have the financial resources to fund an overseas carrier when the pandemic subsides in 6-9 months time, plus NZ management would be too shy at jumping into the Australian market again after their first two attempts ended in failure (the AN 'takeover' led by the ego-driven Selwyn 'Borghetti' Cushing, and their recent failed VA attempt after the 'clash of the egos' between Chris Luxon and John Borghetti).
 
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 12:25 am

Do I as a tax payer want the Government to bail out Virgin Australia ? The answer is no .
While i feel for the 10.000 employees and the hardship this will create.
Why should they be bailed out, they are essentially an airline controlled by 3 overseas companies , SQ Ethiad and the HNA group (who may not be around much longer) with the sole purpose of feeding there route network, and have put in as much money as needed to keep it afloat . It has not made a decent profit if any for the last decade, and would love to know the taxes paid. Yet still pays SRB a premium to use the name.
Talk of another airline coming in and taking the key assets, landing slots etc , may not be a bad idea. Ryanair was mentioned on Sky News this morning. Would that be a bad thing for the market? I think not , let somebody come in with a decent model that is not trying to be a QF mk2 .
So if it goes under so be it, but the ACC & Government need to ensure post Virgin that SQ Ethiad and HNA group , are not allowed to be involved in any new venture, all have failed in the case of VA. And are really in no position to help VA.
It may take some time, but market recovery will not go from current levels to levels post Corona Virus for a while , so having 2 airlines battling it out to make money , may not be a good option either.

My 2 cents worth
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Aither
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 12:29 am

So maybe in the end Qantas should keep their A380s....
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MIflyer12
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 12:35 am

Aither wrote:
So maybe in the end Qantas should keep their A380s....


QF won't increase capacity. It will just charge monopoly fares on every route it can.
 
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 12:42 am

AVENSAB727 wrote:
Could this be return of "Ansett"?


My God, I would love Ansett to return!
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Sydscott
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 1:01 am

A few points on this:

1. Should the Australian Government bail out Virgin and Rex? The answer to that is unequivocally no. Australia has a process for Insolvent Companies to go through and yes it will mean that a whole range of people will take haircuts in that deal. But if it allows both to survive and emerge with clean Balance Sheets then it's worthwhile doing.

2. We basically have a QF monopoly in the air right now. Do we need more than that right now? No. When the crisis has abated will we need competition then? Absolutely we will. That competition doesn't have to come from existing carriers. It can come from a new entrant or a re-capitalised one.

3. I hate to say it, but the law needs to be changed in relation to our Domestic Carriers so all have the same playing field as QF. Never again should Foreign Government Enterprises be able to own a majority in Australian Domestic Airlines. There is plenty of cash sitting in Australia's Superannuation System to allow for capitalisation of a new airline and that's where it should come from.

4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not.

5. Australia has a [email protected]*t as it's Deputy Prime Minister but if even he's not going to rescue Airlines then that's telling you something about the Governments view of VA and REX.

In my opinion this was always going to happen and the sooner VA can sever its ties to the leach that Richard Branson is, go through an Administration process and emerge as a leaner, nimbler, foused competitor with new owners the better!
 
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SCFlyer
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 1:09 am

Sydscott wrote:
4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not. !


JB had a huge role to play, but in my opinion, I'd say EY and SQ also shares a huge part of their responsibility in getting VA into the hole they are today.
EY and SQ were willing to spend plenty of CapEx and it only ended up as huge losses for them.

NZ realised the irresponsible CapEx spending and decided to sell out, after CL tried (but wasn't able) to oust JB from the CEO role.
Egos between the former NZ/VA ceos aside, I agree that CL had valid concerns, but he was outnumbered by the EY and SQ reps in addition to not having the support of the dysfunctional VA board overall.
 
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 1:16 am

Sydscott wrote:
A few points on this:

1. Should the Australian Government bail out Virgin and Rex? The answer to that is unequivocally no. Australia has a process for Insolvent Companies to go through and yes it will mean that a whole range of people will take haircuts in that deal. But if it allows both to survive and emerge with clean Balance Sheets then it's worthwhile doing.

2. We basically have a QF monopoly in the air right now. Do we need more than that right now? No. When the crisis has abated will we need competition then? Absolutely we will. That competition doesn't have to come from existing carriers. It can come from a new entrant or a re-capitalised one.

3. I hate to say it, but the law needs to be changed in relation to our Domestic Carriers so all have the same playing field as QF. Never again should Foreign Government Enterprises be able to own a majority in Australian Domestic Airlines. There is plenty of cash sitting in Australia's Superannuation System to allow for capitalisation of a new airline and that's where it should come from.

4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not.

5. Australia has a [email protected]*t as it's Deputy Prime Minister but if even he's not going to rescue Airlines then that's telling you something about the Governments view of VA and REX.

In my opinion this was always going to happen and the sooner VA can sever its ties to the leach that Richard Branson is, go through an Administration process and emerge as a leaner, nimbler, foused competitor with new owners the better!


For competition, just allow foreign airlines totally unlimited entry into Australia and to fly domestic routes. I'm pretty sure if I propose that to our government, they'll accept the idea and you know they will too. :stirthepot:
 
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SCFlyer
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 1:19 am

cpd wrote:
Sydscott wrote:
A few points on this:

1. Should the Australian Government bail out Virgin and Rex? The answer to that is unequivocally no. Australia has a process for Insolvent Companies to go through and yes it will mean that a whole range of people will take haircuts in that deal. But if it allows both to survive and emerge with clean Balance Sheets then it's worthwhile doing.

2. We basically have a QF monopoly in the air right now. Do we need more than that right now? No. When the crisis has abated will we need competition then? Absolutely we will. That competition doesn't have to come from existing carriers. It can come from a new entrant or a re-capitalised one.

3. I hate to say it, but the law needs to be changed in relation to our Domestic Carriers so all have the same playing field as QF. Never again should Foreign Government Enterprises be able to own a majority in Australian Domestic Airlines. There is plenty of cash sitting in Australia's Superannuation System to allow for capitalisation of a new airline and that's where it should come from.

4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not.

5. Australia has a [email protected]*t as it's Deputy Prime Minister but if even he's not going to rescue Airlines then that's telling you something about the Governments view of VA and REX.

In my opinion this was always going to happen and the sooner VA can sever its ties to the leach that Richard Branson is, go through an Administration process and emerge as a leaner, nimbler, foused competitor with new owners the better!


For competition, just allow foreign airlines totally unlimited entry into Australia and to fly domestic routes. I'm pretty sure if I propose that to our government, they'll accept the idea and you know they will too. :stirthepot:


Foreign Airlines already can apply to set up an airline in Australia. They just have to apply for an Australian AOC like everyone else.

They can even use their existing brands too under a franchise-like agreement. Similar to Air Asia Japan, Air Asia Thailand, British Airways South Africa (operated by Comair), and so forth.

Nothings stopping the likes of say ANA or Emirates from setting up a "Emirates Australia" if they wanted to, not that it's going to happen anytime soon under the current pandemic climate.
 
cpd
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 2:35 am

SCFlyer wrote:
cpd wrote:
Sydscott wrote:
A few points on this:

1. Should the Australian Government bail out Virgin and Rex? The answer to that is unequivocally no. Australia has a process for Insolvent Companies to go through and yes it will mean that a whole range of people will take haircuts in that deal. But if it allows both to survive and emerge with clean Balance Sheets then it's worthwhile doing.

2. We basically have a QF monopoly in the air right now. Do we need more than that right now? No. When the crisis has abated will we need competition then? Absolutely we will. That competition doesn't have to come from existing carriers. It can come from a new entrant or a re-capitalised one.

3. I hate to say it, but the law needs to be changed in relation to our Domestic Carriers so all have the same playing field as QF. Never again should Foreign Government Enterprises be able to own a majority in Australian Domestic Airlines. There is plenty of cash sitting in Australia's Superannuation System to allow for capitalisation of a new airline and that's where it should come from.

4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not.

5. Australia has a [email protected]*t as it's Deputy Prime Minister but if even he's not going to rescue Airlines then that's telling you something about the Governments view of VA and REX.

In my opinion this was always going to happen and the sooner VA can sever its ties to the leach that Richard Branson is, go through an Administration process and emerge as a leaner, nimbler, foused competitor with new owners the better!


For competition, just allow foreign airlines totally unlimited entry into Australia and to fly domestic routes. I'm pretty sure if I propose that to our government, they'll accept the idea and you know they will too. :stirthepot:


Foreign Airlines already can apply to set up an airline in Australia. They just have to apply for an Australian AOC like everyone else.

They can even use their existing brands too under a franchise-like agreement. Similar to Air Asia Japan, Air Asia Thailand, British Airways South Africa (operated by Comair), and so forth.

Nothings stopping the likes of say ANA or Emirates from setting up a "Emirates Australia" if they wanted to, not that it's going to happen anytime soon under the current pandemic climate.


I meant just flying in, without even setting up any special arrangements or applications.
 
aerokiwi
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 3:31 am

Sydscott wrote:
A few points on this:

1. Should the Australian Government bail out Virgin and Rex? The answer to that is unequivocally no. Australia has a process for Insolvent Companies to go through and yes it will mean that a whole range of people will take haircuts in that deal. But if it allows both to survive and emerge with clean Balance Sheets then it's worthwhile doing.

2. We basically have a QF monopoly in the air right now. Do we need more than that right now? No. When the crisis has abated will we need competition then? Absolutely we will. That competition doesn't have to come from existing carriers. It can come from a new entrant or a re-capitalised one.

3. I hate to say it, but the law needs to be changed in relation to our Domestic Carriers so all have the same playing field as QF. Never again should Foreign Government Enterprises be able to own a majority in Australian Domestic Airlines. There is plenty of cash sitting in Australia's Superannuation System to allow for capitalisation of a new airline and that's where it should come from.

4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not.

5. Australia has a [email protected]*t as it's Deputy Prime Minister but if even he's not going to rescue Airlines then that's telling you something about the Governments view of VA and REX.

In my opinion this was always going to happen and the sooner VA can sever its ties to the leach that Richard Branson is, go through an Administration process and emerge as a leaner, nimbler, foused competitor with new owners the better!



1. It's not unequivocal. If it is unequivocal, there would be no discussion or debate. Clean balance sheets? This isn't a case of a swish of a pen and a new airline suddenly emerges from any VA ashes. T/he only reason VA exists was because it was an already-established carrier when Ansett went under. Remember the attempt at AN2? Notice how no one went ahead with that - you don't simply transfer asset and staff unencumbered by debt and obligations from one corporate entity to another and hey presto, it's all clean and dandy and ready to go.

2. Your assumptions on the resumption of competitive air services are base entirely on a pre-COVID world. The airline sector is a notoriously awful one for investors. After this phase of the crisis has passed? Even more dire. Airlines globally are going to be retrenching and defending their home turfs and operations just for survival, so that wipes out that investor category, probably the only one left that would make sense. So if we absolutely need competition in Australia after this crisis, you have to maintain that competition now.

3. Huh? What has foreign ownership got to do with this? Except to feed the xenophobic arguments against supporting foreign owned companies, noting also that Qantas' ownership regularly breaches the local ownership requirements, according to a previous poster. Though I agree restrictions on Qantas' ownership should be removed - they're unnecessary and apparently unenforced anyway. And presumably if foreign ownership was tilting things to VA's advantage, VA would have romped home against Qantas. So... what has foreign ownership got to do with this? Super funds are extremely risk-averse. That's why their aviation interests extend to airport infrastructure, not the airlines themselves.

4. It does seem a lot of mismanagement can be slotted into the Borghetti era. A lot of mistakes from Godfrey too, though, including a lot of deadweight at management level that should have been eliminated. I actually think Borghetti's overall strategy was sound - implementation was just a mess, combined with an inability to address historical muckups. The fundamental issue appears to be that corporate overheads have never properly been addressed, when on an operational basis, domestic and LAX flights are profitable. I'd also hold the Chair responsible for this era too.

5. I mean, this has hardly been a government of clarity and consistency, so their performance is not surprising, albeit this is a pretty extraordinary time. Canberra has been an odious black hole of miserableness for over ten years now. Frankly, I don't know enough about the Deputy PM to comment on his performance.

The animosity towards Branson is unusual too. Heroes of yesteryear become today's baddies. But why? He gave Australia the second carrier it needed after Ansett. Like BA in the UK, he goes up against established, monopsonistic carriers with entrenched interests, interests that usually don't align with those of the broader public. He charges a licencing fee for his brand - not unusual and not at gunpoint. I find Joyce far more odious, but I guess he gets to skate through because he's attached to a perceived Australian icon.
 
tullamarine
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 3:55 am

Whilst it is likely that VA will not return in its previous form, it will probably re-emerge from an administration process (the closest we have to US Chapter 11) a very different beast. Hopefully most of the existing jobs can be retained in one form or another though sadly it is more likely 1/3 of the jobs will go in the short term. The advantage of administration would be the new airline be it Virgin or with a new name would be almost debt-free with existing shareholders wiped out and major borrowers forced to take equity in place of their existing debt. Some of these would look to exit in the medium term via a trade sale or listing, the former probably more likely given how attractive a low-geared piece of the highly profitable Australian domestic duopoly can be.

This all assumes a few things, the main being the domestic market can recover. Covid-19 is so shocking to the nation and world that how we behave in future is likely to be very different. Discretionary travel will be curtailed for a few years. Likewise business travel is also likely to stay shrunken over the medium term. Companies are currently experiencing how new technologies can replace travel and face-to-face meetings. Some of these new learnings will gain a foothold that airlines won't be able to roll back. Already the company I work for which spends about $3M globally on travel each year is planning how the learnings of this experience can be used to cut our ongoing travel spend by 33% on the other side of the crisis; I'm sure we're not alone.

Whilst VA and its staff look like going through significant trauma over the coming months, QF is not immune. It is far more exposed to international travel and it is international travel that will take longest to recover. It will be surprising if QF can exit the crisis with more than 3/4 of its pre-crisis international schedule intact. In effect, it will spend the next 5 years getting back to its 2019 volumes. The government seem firm that they want 2 domestic airlines so will not under any circumstances allow QF/JQ acquire any terminal space, gates or landing slots that may come free in the short term. Obviously QF would have loved to have been able to achieve a long-term monompoly position; I don't think such an outcome will be cointenanced by the government.
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 4:30 am

zkncj wrote:
If VA was to go, and there was demand still in the Australian month in say 6 months time. We could see NZ jump into full the gap, they have an large amount of fleet currently doing nothing.


Oh please no not again! Air New Zealand will be in no financial state to even think about setting up domestic ops in Australia for the medium to long term, and to be honest I don't think Australia will be to welcome to it at the moment anyway, New Zealand won no friends in Canberra or parts of the media with the whole Kirribilli House situation, wrongly or rightly.
Last edited by a36001 on Thu Apr 02, 2020 4:44 am, edited 2 times in total.
 
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usdcaguy
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 4:38 am

What I don’t understand is why the UK and the Australian governments would necessarily get any stock in VS or VA, respectively, if they offered a bailout. The US just extended billions to their carriers in the form of a payroll grant/loan, and the idea of the government getting stock in return was never a question. The loans will ostensibly keep thousands of employees on the payroll, and the carriers will eventually pay them back. In that case, there’s no need to worry about an “investment” that the US cares nothing about having and managing. VS and VA need to be nurtured, in my view. They offer healthy competition in the countries in which they’re based, and they even provide a counterweight to foreign carriers in terms of pricing.
 
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 4:54 am

An767 wrote:
Talk of another airline coming in and taking the key assets, landing slots etc , may not be a bad idea. Ryanair was mentioned on Sky News this morning.


Does anybody actually believe that this will happen?

aerokiwi wrote:
2. Your assumptions on the resumption of competitive air services are base entirely on a pre-COVID world. The airline sector is a notoriously awful one for investors. After this phase of the crisis has passed? Even more dire. Airlines globally are going to be retrenching and defending their home turfs and operations just for survival, so that wipes out that investor category, probably the only one left that would make sense. So if we absolutely need competition in Australia after this crisis, you have to maintain that competition now.

:checkmark: If VA falls over, there isn't going to be a knight in shining armour coming in and sinking billions of dollars into replacing them. I doubt any hedge funds are even interested.

aerokiwi wrote:
That's why their aviation interests extend to airport infrastructure, not the airlines themselves.

:checkmark:

aerokiwi wrote:
The animosity towards Branson is unusual too. Heroes of yesteryear become today's baddies. But why? He gave Australia the second carrier it needed after Ansett. Like BA in the UK, he goes up against established, monopsonistic carriers with entrenched interests, interests that usually don't align with those of the broader public. He charges a licencing fee for his brand - not unusual and not at gunpoint.


Indeed - I never understand why people who support established interests see him as the bad guy. I'm on the #TeamQantas side of the fence but I appreciate how important it is for a player like VA to provide competition.

And who's to say that he won't wave the licence fee as part of the support package?

a36001 wrote:
, and to be honest I don't think Australia will be to welcome to it at the moment anyway, New Zealand won no friends in Canberra or parts of the media with the whole Kirribilli House situation, wrongly or rightly.


How does a New Zealand Sports Team posing for photos with the Australian Prime Minister at Kirribilli House reflect badly on Air New Zealand to the be Australian public? Sure it might have been out of touch on the Australian PM's part, but I'm not seeing the link here.
First to fly the 787-9
 
Sydscott
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 5:31 am

aerokiwi wrote:
Sydscott wrote:
A few points on this:

1. Should the Australian Government bail out Virgin and Rex? The answer to that is unequivocally no. Australia has a process for Insolvent Companies to go through and yes it will mean that a whole range of people will take haircuts in that deal. But if it allows both to survive and emerge with clean Balance Sheets then it's worthwhile doing.

2. We basically have a QF monopoly in the air right now. Do we need more than that right now? No. When the crisis has abated will we need competition then? Absolutely we will. That competition doesn't have to come from existing carriers. It can come from a new entrant or a re-capitalised one.

3. I hate to say it, but the law needs to be changed in relation to our Domestic Carriers so all have the same playing field as QF. Never again should Foreign Government Enterprises be able to own a majority in Australian Domestic Airlines. There is plenty of cash sitting in Australia's Superannuation System to allow for capitalisation of a new airline and that's where it should come from.

4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not.

5. Australia has a [email protected]*t as it's Deputy Prime Minister but if even he's not going to rescue Airlines then that's telling you something about the Governments view of VA and REX.

In my opinion this was always going to happen and the sooner VA can sever its ties to the leach that Richard Branson is, go through an Administration process and emerge as a leaner, nimbler, foused competitor with new owners the better!



1. It's not unequivocal. If it is unequivocal, there would be no discussion or debate. Clean balance sheets? This isn't a case of a swish of a pen and a new airline suddenly emerges from any VA ashes. T/he only reason VA exists was because it was an already-established carrier when Ansett went under. Remember the attempt at AN2? Notice how no one went ahead with that - you don't simply transfer asset and staff unencumbered by debt and obligations from one corporate entity to another and hey presto, it's all clean and dandy and ready to go.

2. Your assumptions on the resumption of competitive air services are base entirely on a pre-COVID world. The airline sector is a notoriously awful one for investors. After this phase of the crisis has passed? Even more dire. Airlines globally are going to be retrenching and defending their home turfs and operations just for survival, so that wipes out that investor category, probably the only one left that would make sense. So if we absolutely need competition in Australia after this crisis, you have to maintain that competition now.

3. Huh? What has foreign ownership got to do with this? Except to feed the xenophobic arguments against supporting foreign owned companies, noting also that Qantas' ownership regularly breaches the local ownership requirements, according to a previous poster. Though I agree restrictions on Qantas' ownership should be removed - they're unnecessary and apparently unenforced anyway. And presumably if foreign ownership was tilting things to VA's advantage, VA would have romped home against Qantas. So... what has foreign ownership got to do with this? Super funds are extremely risk-averse. That's why their aviation interests extend to airport infrastructure, not the airlines themselves.

4. It does seem a lot of mismanagement can be slotted into the Borghetti era. A lot of mistakes from Godfrey too, though, including a lot of deadweight at management level that should have been eliminated. I actually think Borghetti's overall strategy was sound - implementation was just a mess, combined with an inability to address historical muckups. The fundamental issue appears to be that corporate overheads have never properly been addressed, when on an operational basis, domestic and LAX flights are profitable. I'd also hold the Chair responsible for this era too.

5. I mean, this has hardly been a government of clarity and consistency, so their performance is not surprising, albeit this is a pretty extraordinary time. Canberra has been an odious black hole of miserableness for over ten years now. Frankly, I don't know enough about the Deputy PM to comment on his performance.

The animosity towards Branson is unusual too. Heroes of yesteryear become today's baddies. But why? He gave Australia the second carrier it needed after Ansett. Like BA in the UK, he goes up against established, monopsonistic carriers with entrenched interests, interests that usually don't align with those of the broader public. He charges a licencing fee for his brand - not unusual and not at gunpoint. I find Joyce far more odious, but I guess he gets to skate through because he's attached to a perceived Australian icon.


In return:

1. The answer on a Bailout is an Unequivocal no. There shouldn't be a debate on that. Virgin was not well run by successive Management and Governments should not bail them out. Australia has various ways, via Insolvency Laws, for an Administrator to be able to re-package Virgin while shedding debt by swapping it for Equity. They'd massively dilute shareholders in the process and would effectively hand a new Virgin to majority creditor control but that is a far more preferable approach to leaving the current state of affairs in place. A totally different scenario to AN2 which had massive structural and cost issues that AN2 still had which made them unviable.

2. I don't assume anything on a pre-Covid World. The assumption I make is that Australia's borders will be effectively closed for 12 to 18 months and that at some point within that timeframe Australia will become Covid-19 free. That will mean a return to domestic travel which, in turn, means that a re-packaged Virgin that has gone through an insolvency process and emerged "refreshed" will be in a position to re-build its business. That's what we need. We don't need to maintain the current status quo, we need a new status quo to meet a new competitive landscape.

3. Virgin is majority Foreign Owned and its the responsibility of its owners to support it during these times if they want to preserve the business that they have. The Government has no business preserving it for them with preferential treatment. Moreso, as the collapse of Ansett which was foreign owned and a probable insolvency of Virgin and Rex which are also foreign owned, goes to prove in Aviation at least that Foreign Ownership of Australia's domestic airlines has not worked as intended. The idea behind it was to create a more competitive landscape and that part has largely worked but the problem with that is that in times like this, the GFC etc Foreign Capital dries up and if you don't have Australian Institutional Investors committed your business can't raise Capital. So I'm saying that that part of our Aviation Policy has not worked as intended so it should be over-hauled so it does.

4. Godfrey might have left behind a bit of a top heavy structure but what he did have was a pretty good idea of what Virgin was, and what it wasn't. More to the point Godfrey left a profitable operation. So while naturally mistakes were made, Godfrey didn't burn through billions of dollars of capital. That was Borghetti.

5. Fair enough.

I don't find Richard Branson a hero of yesteryear. I find Richard Branson a classic whinger and rent seeker in the Airline Space constantly begging for attention and preferential treatment while at the same time wanting handouts due to his own strategic and commercial failures. The prime example of this is Heathrow where Branson has constantly and consistently complained about a competitive landscape tilted towards BA while not being able to complete any meaningful slot transactions which would have given Virgin significantly more clout. BMI was the tip of the iceberg illustrating Virgins fundamental failure at its key hub especially when you consider the number of slots transactions that occurred to give the likes of Delta, United, Emirates, Etihad, Qatar, Cathay etc more slots while Virgin seemingly was unable to do deals to do the same. Failure followed by whinging followed by failure. That is the history of Virgin Atlantic at LHR. Thank goodness Delta bought them and has given them some sense of strategy and strategic purpose. So I'm all for a competitive and level playing field but don't cry like a spoiled brat when thngs don't go your way after you've squandered opportunities.
 
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 5:39 am

SCFlyer wrote:
Sydscott wrote:
4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not. !


JB had a huge role to play, but in my opinion, I'd say EY and SQ also shares a huge part of their responsibility in getting VA into the hole they are today.
EY and SQ were willing to spend plenty of CapEx and it only ended up as huge losses for them.

NZ realised the irresponsible CapEx spending and decided to sell out, after CL tried (but wasn't able) to oust JB from the CEO role.
Egos between the former NZ/VA ceos aside, I agree that CL had valid concerns, but he was outnumbered by the EY and SQ reps in addition to not having the support of the dysfunctional VA board overall.


Separately to my post above, I would actually love to see Singapore Airlines take 100% ownership of Virgin and have Australian Institutions take control of Virgins International 51% while SQ owns 49%. THe one thing that SQ has never had is a clear shot and total control of a carrier in Australia. They had to compete with NZ at Ansett and then had to sit there with a cast of Thousands in the current form of Virgin Australia. I'd love to see the takeover because that gives:

1. Virgin Australia a strategic purpose. Feed Singapore Airlines and Star Alliance flights.

2. It gives Australia's de-facto second national airline a huge leg up in competing with Qantas and matches the Qantas Frequent Flyer Program with SQ's great offering.

3. It gives SQ de-facto access to Australia - US and Australia - South America routes via the International Arm of Virgin. Two things they have stated publicly they would like but cannot have due to bilateral treaties.

So in summary I'd love to see Singapore Airlines take complete control of Virgin and give them a clear shot at being our second national carrier. Nothing would make me happier and SQ has waited 25 years or more to get it. I say give it to them.
 
AVB
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 5:53 am

If VA does shut up shop and I sincerely hope it doesn’t, we won’t see another domestic carrier for a long time. The aviation industry will recede , amalgamate and reduce substantially. The economy as we know it and know it cannot function in that way anymore. Debt will now be a major problem and will force airlines to merge, there’ll be less business and leisure travel and more point to point flying than ever before.

Airfares will go up but not because of less competition but because of debt and less travellers.

If VA remains it’ll be smaller than ever and if QF is the only national carrier it’ll also be smaller than ever.
 
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SCFlyer
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 5:53 am

Sydscott wrote:
SCFlyer wrote:
Sydscott wrote:
4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not. !


JB had a huge role to play, but in my opinion, I'd say EY and SQ also shares a huge part of their responsibility in getting VA into the hole they are today.
EY and SQ were willing to spend plenty of CapEx and it only ended up as huge losses for them.

NZ realised the irresponsible CapEx spending and decided to sell out, after CL tried (but wasn't able) to oust JB from the CEO role.
Egos between the former NZ/VA ceos aside, I agree that CL had valid concerns, but he was outnumbered by the EY and SQ reps in addition to not having the support of the dysfunctional VA board overall.


Separately to my post above, I would actually love to see Singapore Airlines take 100% ownership of Virgin and have Australian Institutions take control of Virgins International 51% while SQ owns 49%. THe one thing that SQ has never had is a clear shot and total control of a carrier in Australia. They had to compete with NZ at Ansett and then had to sit there with a cast of Thousands in the current form of Virgin Australia. I'd love to see the takeover because that gives:

1. Virgin Australia a strategic purpose. Feed Singapore Airlines and Star Alliance flights.

2. It gives Australia's de-facto second national airline a huge leg up in competing with Qantas and matches the Qantas Frequent Flyer Program with SQ's great offering.

3. It gives SQ de-facto access to Australia - US and Australia - South America routes via the International Arm of Virgin. Two things they have stated publicly they would like but cannot have due to bilateral treaties.

So in summary I'd love to see Singapore Airlines take complete control of Virgin and give them a clear shot at being our second national carrier. Nothing would make me happier and SQ has waited 25 years or more to get it. I say give it to them.


While the above scenario would be great for a number of fanboys/analysts/etc, however in the current environment however, pretty much no airline - let alone SQ/SIA - has the financial strength, to perform a take over. Taking into consideration the recent $5loan + $13b government raised bailout money SIA had just received to keep themselves afloat during the COVID-19 crisis.
Whether SIA has enough of their bailout money left when the crisis subsides is another question entirely.

SIA also had plenty of opportunities to "take over" VAH in the past, but they have either left it alone/'squandered' to other parties. Not to mention the numerous "SQ to the rescue" articles over the past 5 years which have all turned out to be 'fake news'.

There are also arguments why SQ shouldn't be touching an Australian airline again for other reasons, which includes their involvement in the NZ/Ansett fiasco, and the short-lived Tiger Airways Australia debacle. Also add to that SIA's 'epic fail' at their Virgin Atlantic investment decades ago.
 
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SCFlyer
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 6:20 am

DailyMail analyst suggests "Air New Zealand" could be a good choice to replace VA, should VA file administration.

IMO, find that scenario highly unlikely due to Air New Zealand's past experiences at the Australian market ending in grief.

https://www.dailymail.co.uk/news/articl ... -loan.html
 
tullamarine
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 6:32 am

SCFlyer wrote:
DailyMail analyst suggests "Air New Zealand" could be a good choice to replace VA, should VA file administration.

IMO, find that scenario highly unlikely due to Air New Zealand's past experiences at the Australian market ending in grief.

https://www.dailymail.co.uk/news/articl ... -loan.html

Highly unlikely as NZ is effectively broke once again and has just received major loan from the NZ Government. They have no money (or skill) to tackle the AU domestic market.
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strfyr51
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 6:35 am

MIflyer12 wrote:
RyanairGuru wrote:
Ishrion wrote:

They do not plan to grant VA's loan because they don't want to be "saddled with an equity stake in a business that was already doing it tough before the virus crisis."



I definitely do want Virgin Australia to survive this downturn, not least for the sake of 10,000 employees, but the reality is that while everyone is suffering in the current environment it will be the business (be they airlines or in any other industry) that were already weak and struggling to turn a profit in a growing economy that will go under first. Virgin Australia have consistently struggled for a decade.


Going into administration means stiffing the shareholders and unsecured creditors. Starting a new carrier means whatever VA employees get rehired go to Year 1 pay scales. You lose the marketing identity of VA (whatever that may be worth). That's a brutal way to do it - but it's fair to ask if you want to use government funds to bail out shareholders and creditors.

So? What is the VA name worth in marketing? Actually? Ansett was a good carrier as well and they failed. Qantas is the flag carrier of Australia, and what is Virgin Australia's value other than interloper?
 
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Chipmunk1973
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 6:54 am

Now is clearly not the time to be selling anything due to the overall downturn in worldwide aviation. However, hypothetically if VA could find a buyer for 10 737-800’s @ $15M each plus those two 737-700’s at something cheaper, would yield another $150M+ in cash.

Would that be enough to help sustain them a bit longer?

** I picked those fire sale prices out of thin air. I have no idea what aircraft resales values would be at this point in time **
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strfyr51
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 6:56 am

aerokiwi wrote:
Sydscott wrote:
A few points on this:

1. Should the Australian Government bail out Virgin and Rex? The answer to that is unequivocally no. Australia has a process for Insolvent Companies to go through and yes it will mean that a whole range of people will take haircuts in that deal. But if it allows both to survive and emerge with clean Balance Sheets then it's worthwhile doing.

2. We basically have a QF monopoly in the air right now. Do we need more than that right now? No. When the crisis has abated will we need competition then? Absolutely we will. That competition doesn't have to come from existing carriers. It can come from a new entrant or a re-capitalised one.

3. I hate to say it, but the law needs to be changed in relation to our Domestic Carriers so all have the same playing field as QF. Never again should Foreign Government Enterprises be able to own a majority in Australian Domestic Airlines. There is plenty of cash sitting in Australia's Superannuation System to allow for capitalisation of a new airline and that's where it should come from.

4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not.

5. Australia has a [email protected]*t as it's Deputy Prime Minister but if even he's not going to rescue Airlines then that's telling you something about the Governments view of VA and REX.

In my opinion this was always going to happen and the sooner VA can sever its ties to the leach that Richard Branson is, go through an Administration process and emerge as a leaner, nimbler, foused competitor with new owners the better!



1. It's not unequivocal. If it is unequivocal, there would be no discussion or debate. Clean balance sheets? This isn't a case of a swish of a pen and a new airline suddenly emerges from any VA ashes. T/he only reason VA exists was because it was an already-established carrier when Ansett went under. Remember the attempt at AN2? Notice how no one went ahead with that - you don't simply transfer asset and staff unencumbered by debt and obligations from one corporate entity to another and hey presto, it's all clean and dandy and ready to go.

2. Your assumptions on the resumption of competitive air services are base entirely on a pre-COVID world. The airline sector is a notoriously awful one for investors. After this phase of the crisis has passed? Even more dire. Airlines globally are going to be retrenching and defending their home turfs and operations just for survival, so that wipes out that investor category, probably the only one left that would make sense. So if we absolutely need competition in Australia after this crisis, you have to maintain that competition now.

3. Huh? What has foreign ownership got to do with this? Except to feed the xenophobic arguments against supporting foreign owned companies, noting also that Qantas' ownership regularly breaches the local ownership requirements, according to a previous poster. Though I agree restrictions on Qantas' ownership should be removed - they're unnecessary and apparently unenforced anyway. And presumably if foreign ownership was tilting things to VA's advantage, VA would have romped home against Qantas. So... what has foreign ownership got to do with this? Super funds are extremely risk-averse. That's why their aviation interests extend to airport infrastructure, not the airlines themselves.

4. It does seem a lot of mismanagement can be slotted into the Borghetti era. A lot of mistakes from Godfrey too, though, including a lot of deadweight at management level that should have been eliminated. I actually think Borghetti's overall strategy was sound - implementation was just a mess, combined with an inability to address historical muckups. The fundamental issue appears to be that corporate overheads have never properly been addressed, when on an operational basis, domestic and LAX flights are profitable. I'd also hold the Chair responsible for this era too.

5. I mean, this has hardly been a government of clarity and consistency, so their performance is not surprising, albeit this is a pretty extraordinary time. Canberra has been an odious black hole of miserableness for over ten years now. Frankly, I don't know enough about the Deputy PM to comment on his performance.

The animosity towards Branson is unusual too. Heroes of yesteryear become today's baddies. But why? He gave Australia the second carrier it needed after Ansett. Like BA in the UK, he goes up against established, monopsonistic carriers with entrenched interests, interests that usually don't align with those of the broader public. He charges a licencing fee for his brand - not unusual and not at gunpoint. I find Joyce far more odious, but I guess he gets to skate through because he's attached to a perceived Australian icon.

while foreign ownership should really NOT be the focus here? then any airline that's NOT majority owned by Australians? Probably should NOT have access to Taxpayer funds either. The US has rules that stipulate any airline in the USA be owned by a US Citizen group. Nobody said jack when Virgin America was founded by Branson Until it came time to Run it. Then? they had to find US investors to OWN the airline. Which I think eventually led to them being bought by Alaska Airlines. As the owners were "Straw men" who wanted their investment returned. Rich Branson even went to rail before congress and you see where that got him, Nowhere!
 
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 7:00 am

tullamarine wrote:
SCFlyer wrote:
DailyMail analyst suggests "Air New Zealand" could be a good choice to replace VA, should VA file administration.

IMO, find that scenario highly unlikely due to Air New Zealand's past experiences at the Australian market ending in grief.

https://www.dailymail.co.uk/news/articl ... -loan.html

Highly unlikely as NZ is effectively broke once again and has just received major loan from the NZ Government. They have no money (or skill) to tackle the AU domestic market.


I wouldn’t think NZ would be at all interested. There are bigger fish to fry or things to get right including survival , they have the skill not sure what you mean there, they are to smart to give Australia domestic another go. Why would they anyway? They did a deal with QF.
 
Flyingsottsman
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 10:59 am

If Virgin does go which I hope they don't, what will happen to Sky West in WA, they survived Ansett, will they go back to being Sky West should Virgin fail?
 
moa999
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 11:43 am

No-one is buying aircraft.
QFs recent transaction of securitising a bunch of aircraft at a low LTV is best bet.

As a comparator, Carnival Cruise Lines just raised US$4bn in debt at 12% - versus a $6bn MCap.
 
MIflyer12
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 11:45 am

aerokiwi wrote:
Like BA in the UK, he goes up against established, monopsonistic carriers with entrenched interests, interests that usually don't align with those of the broader public.


Economics lesson of the day:

Monopoly = one seller

Monopsony = one buyer (think of the operator of a grain elevator in a small, remote town)

That is all.
 
getluv
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 12:18 pm

It is impossible for QF to breach the 49% foreign owned cap rule. By law it will start selling the foreign held shares on a LIFO basis.

tullamarine wrote:
Whilst it is likely that VA will not return in its previous form, it will probably re-emerge from an administration process (the closest we have to US Chapter 11) a very different beast. Hopefully most of the existing jobs can be retained in one form or another though sadly it is more likely 1/3 of the jobs will go in the short term. The advantage of administration would be the new airline be it Virgin or with a new name would be almost debt-free with existing shareholders wiped out and major borrowers forced to take equity in place of their existing debt. Some of these would look to exit in the medium term via a trade sale or listing, the former probably more likely given how attractive a low-geared piece of the highly profitable Australian domestic duopoly can be.

This all assumes a few things, the main being the domestic market can recover. Covid-19 is so shocking to the nation and world that how we behave in future is likely to be very different. Discretionary travel will be curtailed for a few years. Likewise business travel is also likely to stay shrunken over the medium term. Companies are currently experiencing how new technologies can replace travel and face-to-face meetings. Some of these new learnings will gain a foothold that airlines won't be able to roll back. Already the company I work for which spends about $3M globally on travel each year is planning how the learnings of this experience can be used to cut our ongoing travel spend by 33% on the other side of the crisis; I'm sure we're not alone.

Whilst VA and its staff look like going through significant trauma over the coming months, QF is not immune. It is far more exposed to international travel and it is international travel that will take longest to recover. It will be surprising if QF can exit the crisis with more than 3/4 of its pre-crisis international schedule intact. In effect, it will spend the next 5 years getting back to its 2019 volumes. The government seem firm that they want 2 domestic airlines so will not under any circumstances allow QF/JQ acquire any terminal space, gates or landing slots that may come free in the short term. Obviously QF would have loved to have been able to achieve a long-term monompoly position; I don't think such an outcome will be cointenanced by the government.


QF is not immune to the external environment but it “owns” most of their aircraft, and can offset them if they need additional capital. Half of VA’s aircraft are leased. Meaning, VA have fixed costs that they can’t get out of.

You say it will take 5 years for QF to get it international schedule back, how long do you think it will take their peers. At least QF had the benefit of domestic.
I'm that bad type.
 
aerokiwi
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 1:14 pm

Sydscott wrote:
aerokiwi wrote:
Sydscott wrote:
A few points on this:

1. Should the Australian Government bail out Virgin and Rex? The answer to that is unequivocally no. Australia has a process for Insolvent Companies to go through and yes it will mean that a whole range of people will take haircuts in that deal. But if it allows both to survive and emerge with clean Balance Sheets then it's worthwhile doing.

2. We basically have a QF monopoly in the air right now. Do we need more than that right now? No. When the crisis has abated will we need competition then? Absolutely we will. That competition doesn't have to come from existing carriers. It can come from a new entrant or a re-capitalised one.

3. I hate to say it, but the law needs to be changed in relation to our Domestic Carriers so all have the same playing field as QF. Never again should Foreign Government Enterprises be able to own a majority in Australian Domestic Airlines. There is plenty of cash sitting in Australia's Superannuation System to allow for capitalisation of a new airline and that's where it should come from.

4. This failure, if it comes to that, really is down to John Borghetti. He was the one who burned through billions of dollars of capital trying to make a then profitable Virgin into something that it was not.

5. Australia has a [email protected]*t as it's Deputy Prime Minister but if even he's not going to rescue Airlines then that's telling you something about the Governments view of VA and REX.

In my opinion this was always going to happen and the sooner VA can sever its ties to the leach that Richard Branson is, go through an Administration process and emerge as a leaner, nimbler, foused competitor with new owners the better!



1. It's not unequivocal. If it is unequivocal, there would be no discussion or debate. Clean balance sheets? This isn't a case of a swish of a pen and a new airline suddenly emerges from any VA ashes. T/he only reason VA exists was because it was an already-established carrier when Ansett went under. Remember the attempt at AN2? Notice how no one went ahead with that - you don't simply transfer asset and staff unencumbered by debt and obligations from one corporate entity to another and hey presto, it's all clean and dandy and ready to go.

2. Your assumptions on the resumption of competitive air services are base entirely on a pre-COVID world. The airline sector is a notoriously awful one for investors. After this phase of the crisis has passed? Even more dire. Airlines globally are going to be retrenching and defending their home turfs and operations just for survival, so that wipes out that investor category, probably the only one left that would make sense. So if we absolutely need competition in Australia after this crisis, you have to maintain that competition now.

3. Huh? What has foreign ownership got to do with this? Except to feed the xenophobic arguments against supporting foreign owned companies, noting also that Qantas' ownership regularly breaches the local ownership requirements, according to a previous poster. Though I agree restrictions on Qantas' ownership should be removed - they're unnecessary and apparently unenforced anyway. And presumably if foreign ownership was tilting things to VA's advantage, VA would have romped home against Qantas. So... what has foreign ownership got to do with this? Super funds are extremely risk-averse. That's why their aviation interests extend to airport infrastructure, not the airlines themselves.

4. It does seem a lot of mismanagement can be slotted into the Borghetti era. A lot of mistakes from Godfrey too, though, including a lot of deadweight at management level that should have been eliminated. I actually think Borghetti's overall strategy was sound - implementation was just a mess, combined with an inability to address historical muckups. The fundamental issue appears to be that corporate overheads have never properly been addressed, when on an operational basis, domestic and LAX flights are profitable. I'd also hold the Chair responsible for this era too.

5. I mean, this has hardly been a government of clarity and consistency, so their performance is not surprising, albeit this is a pretty extraordinary time. Canberra has been an odious black hole of miserableness for over ten years now. Frankly, I don't know enough about the Deputy PM to comment on his performance.

The animosity towards Branson is unusual too. Heroes of yesteryear become today's baddies. But why? He gave Australia the second carrier it needed after Ansett. Like BA in the UK, he goes up against established, monopsonistic carriers with entrenched interests, interests that usually don't align with those of the broader public. He charges a licencing fee for his brand - not unusual and not at gunpoint. I find Joyce far more odious, but I guess he gets to skate through because he's attached to a perceived Australian icon.


In return:

1. The answer on a Bailout is an Unequivocal no. There shouldn't be a debate on that. Virgin was not well run by successive Management and Governments should not bail them out. Australia has various ways, via Insolvency Laws, for an Administrator to be able to re-package Virgin while shedding debt by swapping it for Equity. They'd massively dilute shareholders in the process and would effectively hand a new Virgin to majority creditor control but that is a far more preferable approach to leaving the current state of affairs in place. A totally different scenario to AN2 which had massive structural and cost issues that AN2 still had which made them unviable.

2. I don't assume anything on a pre-Covid World. The assumption I make is that Australia's borders will be effectively closed for 12 to 18 months and that at some point within that timeframe Australia will become Covid-19 free. That will mean a return to domestic travel which, in turn, means that a re-packaged Virgin that has gone through an insolvency process and emerged "refreshed" will be in a position to re-build its business. That's what we need. We don't need to maintain the current status quo, we need a new status quo to meet a new competitive landscape.

3. Virgin is majority Foreign Owned and its the responsibility of its owners to support it during these times if they want to preserve the business that they have. The Government has no business preserving it for them with preferential treatment. Moreso, as the collapse of Ansett which was foreign owned and a probable insolvency of Virgin and Rex which are also foreign owned, goes to prove in Aviation at least that Foreign Ownership of Australia's domestic airlines has not worked as intended. The idea behind it was to create a more competitive landscape and that part has largely worked but the problem with that is that in times like this, the GFC etc Foreign Capital dries up and if you don't have Australian Institutional Investors committed your business can't raise Capital. So I'm saying that that part of our Aviation Policy has not worked as intended so it should be over-hauled so it does.

4. Godfrey might have left behind a bit of a top heavy structure but what he did have was a pretty good idea of what Virgin was, and what it wasn't. More to the point Godfrey left a profitable operation. So while naturally mistakes were made, Godfrey didn't burn through billions of dollars of capital. That was Borghetti.

5. Fair enough.

I don't find Richard Branson a hero of yesteryear. I find Richard Branson a classic whinger and rent seeker in the Airline Space constantly begging for attention and preferential treatment while at the same time wanting handouts due to his own strategic and commercial failures. The prime example of this is Heathrow where Branson has constantly and consistently complained about a competitive landscape tilted towards BA while not being able to complete any meaningful slot transactions which would have given Virgin significantly more clout. BMI was the tip of the iceberg illustrating Virgins fundamental failure at its key hub especially when you consider the number of slots transactions that occurred to give the likes of Delta, United, Emirates, Etihad, Qatar, Cathay etc more slots while Virgin seemingly was unable to do deals to do the same. Failure followed by whinging followed by failure. That is the history of Virgin Atlantic at LHR. Thank goodness Delta bought them and has given them some sense of strategy and strategic purpose. So I'm all for a competitive and level playing field but don't cry like a spoiled brat when thngs don't go your way after you've squandered opportunities.


So the "unequivocal" part is you, not necessarily the rest of us, or the policy position, or economic argument. Just you. Got it. AN had atrocious management and was encumbered with a pile of lousy debt. It went through this magical administration process, arguably in better times than now. And it died. The only reason we had a second airline was because Virgin Blue was already underway. No such alternative exists today in a far far more hostile environment.

And yes, you're assuming a helluva lot for the post COVID world. So am I. See? Uncertainty. And you know what investors hate more than anything? Uncertainty.

Your argument about foreign investment in airlines is, well, I'm not sure how to describe it. It arguably did create a competitive landscape. But because an unprecedented event threatens a foreign owned airline, the ownership is the problem? And there are institutional investors just clamouring to get into a second airline for Australia? Virgin has a billion in cash reserves - not quite the fortress cash on hand as QF, but not bad, despite its foreign shareholding. They've also recapitalised the airline a couple of times. Except, as airlines themselves, they're all racing now to shore up their own precarious positions.

And as expected, the dislike of Branson is personality-based. Got it. Setting aside his UK dealings, what is that he's done in the Australian market that has proved so offensive? Is it that he dared to take on Qantas? Is it that, because of him, Australia has had a second airline for almost 20 years now?

getluv wrote:
It is impossible for QF to breach the 49% foreign owned cap rule. By law it will start selling the foreign held shares on a LIFO basis.


I understand that's how it is supposed to work in theory. A poster on last month's Australian thread asserted that not only is this level of foreign ownership breached regularly, but it is also self-reported. Is it true? Dunno. But wouldn't it be delicious if it were. All that hypocrisy. And is it as "impossible" as you say? Shareholders have 10 days after taking share ownership to notify Qantas that they are foreign. So it relies at least on the shareholder declaring this and the company self-reporting it. That alone is a weirdly soft structure for complying with the SOQA.

Don't get me wrong, the 49% cap is a stupid, misguided law, and if it does hold QF back then absolutely repeal it.

MIflyer12 wrote:
aerokiwi wrote:
Like BA in the UK, he goes up against established, monopsonistic carriers with entrenched interests, interests that usually don't align with those of the broader public.


Economics lesson of the day:

Monopoly = one seller

Monopsony = one buyer (think of the operator of a grain elevator in a small, remote town)

That is all.


Lesson learnt, apologies. And thanks. I was looking for the term whereby a single operator has such an outsized dominance in the market that it effectively acts as a monopoly. A near-monopoly?

strfyr51 wrote:
So? What is the VA name worth in marketing? Actually? Ansett was a good carrier as well and they failed. Qantas is the flag carrier of Australia, and what is Virgin Australia's value other than interloper?


Their value? They directly and indirectly employ tens of thousands of Australians to dlelver a genuinely competitive product against the dominant carrier, thereby promoting tourism, enabling more affordable travel and supporting competition in the logistics supply chain. How dare they?!

And... what flag carrier? No such thing exists

tullamarine wrote:
SCFlyer wrote:
Highly unlikely as NZ is effectively broke once again and has just received major loan from the NZ Government. They have no money (or skill) to tackle the AU domestic market.


Agreed. NZ will rightly be focusing on getting its own house in order over the next few years. And they're majority locally owned... majority government owned, and they still ran into trouble at the onset.
 
getluv
Posts: 594
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 1:48 pm

aerokiwi wrote:

getluv wrote:
It is impossible for QF to breach the 49% foreign owned cap rule. By law it will start selling the foreign held shares on a LIFO basis.


I understand that's how it is supposed to work in theory. A poster on last month's Australian thread asserted that not only is this level of foreign ownership breached regularly, but it is also self-reported. Is it true? Dunno. But wouldn't it be delicious if it were. All that hypocrisy. And is it as "impossible" as you say? Shareholders have 10 days after taking share ownership to notify Qantas that they are foreign. So it relies at least on the shareholder declaring this and the company self-reporting it. That alone is a weirdly soft structure for complying with the SOQA.

Don't get me wrong, the 49% cap is a stupid, misguided law, and if it does hold QF back then absolutely repeal it.


In practice, QF updates the market on a regular basis. It is self reported and QF reconciles it.

QF will alert the market as soon as 44% threshold is reached, and more frequently as the foreign holdings get closer to 49%. You can have your holdings domiciled in Australia and not have set foot in the country.

As of 3 September 2019, foreign shareholders only owned 35%. Link.

My understanding is that both sides of government would never touch the QSA.
I'm that bad type.
 
Breathe
Posts: 662
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 3:05 pm

Byrdluvs747 wrote:
It looks like Tigerair is done.

https://simpleflying.com/virgin-austral ... ir-pilots/

SCFlyer wrote:

SQ had three goes at the Australian market through equity and failed dismally at all attempts. They're not the 'so called saviour' as some would think considering SQ's dismal investment record overall, and as previously posted by others, SQ are trying to survive financially themselves through the COVID-19 crisis with a $10B government bailout (+$5B loan).


The same could be said of Etihad. VA will be their fourth equity airline failure (AB, AZ, 9W, VA)

Air Serbia and Air Seychelles must be wondering if the curse will hit them next!
 
Byrdluvs747
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Thu Apr 02, 2020 4:41 pm

Breathe wrote:
Air Serbia and Air Seychelles must be wondering if the curse will hit them next!


It probably would if JU & HM didn't have majority government ownership (JU 51%, HM 60%).
The 747: The hands who designed it were guided by god.
 
Sydscott
Posts: 3513
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Fri Apr 03, 2020 3:18 am

aerokiwi wrote:
So the "unequivocal" part is you, not necessarily the rest of us, or the policy position, or economic argument. Just you. Got it. AN had atrocious management and was encumbered with a pile of lousy debt. It went through this magical administration process, arguably in better times than now. And it died. The only reason we had a second airline was because Virgin Blue was already underway. No such alternative exists today in a far far more hostile environment.

And yes, you're assuming a helluva lot for the post COVID world. So am I. See? Uncertainty. And you know what investors hate more than anything? Uncertainty.

Your argument about foreign investment in airlines is, well, I'm not sure how to describe it. It arguably did create a competitive landscape. But because an unprecedented event threatens a foreign owned airline, the ownership is the problem? And there are institutional investors just clamouring to get into a second airline for Australia? Virgin has a billion in cash reserves - not quite the fortress cash on hand as QF, but not bad, despite its foreign shareholding. They've also recapitalised the airline a couple of times. Except, as airlines themselves, they're all racing now to shore up their own precarious positions.

And as expected, the dislike of Branson is personality-based. Got it. Setting aside his UK dealings, what is that he's done in the Australian market that has proved so offensive? Is it that he dared to take on Qantas? Is it that, because of him, Australia has had a second airline for almost 20 years now?


I don't see what is so hard to get for you Aerokiwi. It is unequivocal that Virgin should not be saved by a Government bailout.

AN had atrocious Management and was encumbered with a pile of lousy debt. Sounds a lot like Virgin. AN went into administration and was not saved by a Government bailout. If that's what Virgin needs to do then so be it and it also should not be saved by a Government bailout. The history of the Ansett Administration, Ansett Mark 2, the Tesla Syndicate which was going to buy it etc is a long and extensive story that is well written by others. But suffice to say that the Administration process for Ansett failed to find a buyer and so a Liquidation process commenced. If that's what needs to happen to Virgin then so be it. That's how the market in Australia operates and that's how our bankruptcy process works. More to the point, if the Government does this for Virgin it then sets a precedent for how it treats other businesses throughout the economy which are all in a state of paralysis and are all burning cash reserves, and tapping debt reserves, to survive. If the Government does it for one, they will have to do it for all.

And again, I'm not assuming anything for a post Covid-19 world. I'm simply letting our laws, and our bankruptcy process, run in the same way it has always run. It's brutal but it's efficient. You are the one who is making assumptions about a post Covid World and Virgins place in it. As are all others who are advocating for special treatment for it. I make no such assumptions because the world we emerge into is going to be significantly different to what we have left. And 25 years of business experience, the last 9 at Senior Executive level, has given me more than enough experience with Investors to know what is going on out there. Your thesis might not also realise, and I'm happy to let you in on some market intel, that Australian Private Equity Funds are currently sitting on a cumulative $9 billion in cash that was waiting to be deployed into investments. That's just private equity funds, that doesn't take into account other forms of investment funds, syndicates, family offices or any others that will be formed over the coming period. There is a surprisingly large amount of cash sitting outside of investment markets in Australia waiting for homes and let me tell you that coming out of this that money is going to be spent snapping up highly undervalued companies.

The foreign ownership has allowed Virgin access to funds in a way that has distorted the market because it has not had to generate a return on investment on them. If it had Virgin would be in a much stronger position than it is now. So yes Foreign Ownership has been a factor in getting Virgin to this point and it was something that was always going to happen to Virgin if there was a significant shock to the economy. I blame John Borghetti for that because he, and those that signed off on his plans, bear responsibility for this but it was also our regulatory regime which potentially allows another Ansett to happen 20 years after the first. So you have to review what happened at the airline but you also have to review the similarities in the cases and foreign majority ownership is common to both.

The dislike of Branon is business based, not personality based. You conveniently want to set aside his UK dealings because of why exactly? Because they point to a pattern of Corporate behaviour at Virgin Atlantic? Because they point to a pattern of someone being all about free markets but demanding preferences and special deals in order to operate? Let me say that there are many, many Titans of the Airline Industry at Executive Level that I have great respect for as business people and many for different reasons. But at the end of the day Virgin Group Airlines tend to lose money and be acquired and fixed up by someone else. That's what has happened with Virgin Atlantic. That's what happened with Virgin America and that's what's happened with Virgin Australia. So as a business person in the airline industry I don't believe Richard Branson comes anywhere near to the top of Airline Executives or visionaries.
 
737max8
Posts: 597
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Re: Australian Government Does Not Plan to Bailout Virgin Australia - Could Create New Airline

Fri Apr 03, 2020 3:52 am

Chipmunk1973 wrote:
Now is clearly not the time to be selling anything due to the overall downturn in worldwide aviation. However, hypothetically if VA could find a buyer for 10 737-800’s @ $15M each plus those two 737-700’s at something cheaper, would yield another $150M+ in cash.

Would that be enough to help sustain them a bit longer?

** I picked those fire sale prices out of thin air. I have no idea what aircraft resales values would be at this point in time **


LOL who needs airplanes right now?
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