As COVID-19 restricted air travel globally, Australia’s second largest airline, Virgin Australia, entered voluntary administration. Let’s dig in to try understand what this means…
Let’s start from the top
When a business, in this case Virgin, does not have enough money to pay its debts, it becomes what we call ‘insolvent’.
Some of Virgin’s debts were complex financing structures such as bank loans and aircraft leases, but something as simple as money owed to employees – like last month’s wages – is also classified as a debt.
So Virgin was likely to become insolvent…
Because Virgin was (or likely to become) insolvent, the company’s directors decided to enter into a process called voluntary administration.
During this process, an external administrator (almost like a temporary manager) takes control of the company and its assets, with the goal of ensuring that creditors (people who the company owes money to) get paid.
What does an administrator do?
During this process, the administrator must negotiate with creditors and make a range of decisions regarding the company’s assets, ultimately trying to save the company.
There’s a range of options that can be explored, such as selling certain assets, continuing to operate the business or suspending it entirely.
Some recent news…
More recently, it has come to light that the company is likely to be bought out by new owners. The new owners (Bain Capital) will have the goal of getting the airline profitably back on its feet (back in the sky). More to come on this as the story goes on, so stay tuned with mandy.