Virgin Australia has announced a major corporate restructure involving a massive injection of fresh equity, some job losses and a reduction in aircraft types in the fleet.
The carrier has asked shareholders to inject another AUD 852 million and most have agreed, with Etihad Airways still deciding. The new Virgin Australia fleet will see the Embraer 190 departing and will have fewer ATR aircraft.
Virgin Australia chief executive John Borghetti said the renewed capital structure would “strengthen our balance sheet, provide additional liquidity and help fund initiatives to improve earnings and cash flow.
“Additionally, the new program of operational and capital efficiency initiatives will further deepen our focus on having a low, sustainable cost base. Going forward, we will continue to stay focused on delivering an excellent customer experience to travellers in Australia and around the world.”
Borghetti told ABC News there was no target for job losses in the restructure, as the focus was on a realignment of existing jobs.
“There will be some positions that will become redundant as job descriptions change and structures change, so yes [there will be job losses],” Borghetti told a media conference.
He said the changes represented “an evolution, not a slash and burn” and reiterated that the simpler the fleet became, the more the airline could cut its costs.
Key Virgin Australia shareholders Singapore Airlines, Air New Zealand and the new arrivals, the Chinese companies HNA and the Nathan Group, have agreed to commit the capital.
The AUD 852 million capital raising will be a fully underwritten, 1 for 1 non-renounceable pro-rata offer.
A spokesman for 24% shareholder Etihad Airways said Etihad was “a long-term strategic investor and partner to Virgin Australia. We are fully committed to this partnership and to remaining as a shareholder.
“Our comprehensive 10-year commercial agreement is further evidence of our confidence in and support for Virgin Australia, and our commitment to the airline and Australia,” the Etihad spokesman said.
“We will continue to review our option to take up the pro-rata entitlement, and will announce our decision at the appropriate time.”
Virgin Australia said: “The Virgin Australia Group will also implement a program of new operational and capital efficiency initiatives to enhance the cash flow and capital position of the Group.
“This program, which includes a reduction in ATR aircraft and the removal of all E190 aircraft from the fleet over the next three years, will assist the Group in simplifying its business and becoming more scalable and productive.
“Through the successful implementation of the program, the Group is targeting net free cash flow savings increasing to AUD 300 million per annum (annualised run rate) by the end of the 2019 financial year.”
Chairman of the Virgin Australia Group Elizabeth Bryan said: “As a result of the upcoming equity raising, the Group will have a capital structure that is appropriate for its position as a mature, diversified airline group and will be in a stronger position to deliver sustainable growth.
“We are pleased that Singapore Airlines, HNA Innovation, Virgin Group, Nanshan Group and Air New Zealand will support the Group through their participation in the equity raising.”
Written by Peter Needham