Australia's Second-Largest Airline Enters Administration... The 'Virgin Kingdom' Shaken by COVID-19

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The 'Virgin Kingdom' founded by the eccentric British CEO Richard Branson is collapsing. Due to the lockdown measures caused by the COVID-19 pandemic, the aviation industry is facing a crisis, and Virgin Australia, Australia's second-largest airline, has entered into voluntary administration. To save Virgin Australia, Branson even offered his privately owned island in the Caribbean as collateral, but ultimately could not avoid the impact of COVID-19.

According to Bloomberg and other sources on the 21st (local time), Virgin Australia Holdings announced in a statement that it is entering voluntary administration to restructure its capital. Four employees from the accounting firm Deloitte will act as administrators, seeking new investors to inject capital and conducting loan restructuring. Deloitte stated, "We have begun to check if there are participants interested in capital restructuring and the company's future," adding, "There are already parties showing interest." Virgin Australia said, "This will allow us to restructure capital and create a stronger financial position," and "Scheduled flights will continue as planned."

However, the Guardian newspaper described Virgin Australia's voluntary administration as the largest airline collapse since Ansett Airlines went bankrupt in 2002.

Virgin Australia was one of the subsidiaries that Branson took an interest in. Starting as a low-cost carrier named Virgin Blue in August 2000, Virgin Australia quickly grew, changing its name to the current one in 2012 and providing comprehensive services, becoming Australia's second-largest airline. Its revenue steadily increased thereafter.

However, fierce competition among Australian airlines significantly increased costs, resulting in losses for seven consecutive years. Especially with the spread of COVID-19 halting travel, all services were suspended, and securing cash became difficult. The company faced pressure from debts amounting to 5 billion Australian dollars (about 3.9 trillion KRW as of the end of last year). The company requested a loan support of about 1.4 billion Australian dollars from the Australian government but ultimately did not receive support.

The downfall of Virgin Australia has also tarnished Branson's reputation. Since founding Virgin Records, a mail-order record company, in London in the 1970s, Branson expanded the company into a giant group covering aviation, media, and space tourism businesses. As the stock price soared, he was ranked 212th on Forbes' billionaire list in 2010. He has since fallen to 565th.

He has not abandoned his ambition to reclaim Virgin Australia. He has consistently emphasized that it is a competitor capable of challenging Qantas, Australia's largest airline. On this day, he stated that he would secure and invest as much funding as possible by using his privately owned Necker Island in the Caribbean as collateral to save Virgin Australia, adding, "If this company disappears, Qantas will monopolize the Australian skies."

Immediately after the announcement of the company's restructuring, Branson sent a letter to the Virgin Australia team, saying, "I am very proud of everything we have achieved together," and "Twenty years ago, we saw the need for competition in the Australian skies, and through this, we wanted to lower airfares, increase consumer choices, and create thousands of jobs. Don't give up. I want to tell everyone that Virgin Australia will return." He also pointed out that while other countries' governments supported the aviation industry, the Australian government did not.

Attention is also focused on whether the Australian government will step in to support the aviation industry. Virgin Australia currently employs 15,000 people, including full-time and contract workers. Moreover, Virgin Australia is the only airline capable of competing with Qantas, the number one airline, so support is expected to be inevitable to avoid a monopoly situation. Matthias Cormann, Australia's Minister for Finance, said on a radio broadcast that day, "If the government provides practical help, it will be difficult to find a sustainable solution centered on the private sector and the market," but added, "I hope both airlines continue in the future."

Virgin Australia has a unique shareholding structure with major shareholders being foreign airlines. Singapore Airlines, Etihad Airways from the United Arab Emirates (UAE), Hainan Airlines Group from China, and Nanshan Group from China each hold a 20% stake. The Australian government believes that their financial support should come first.

This content was produced with the assistance of AI translation services.