More red ink than passengers? Virgin Australia (VAH) yesterday confirmed that it will report a massive loss for the year to June 30 thanks to its current restructuring program which will cost as much as $450 million.
Australia’s number two airline was always expected to report a loss associated with its operating revamp and fund raising, but the estimate of a top figure of $450 million in losses is quite a shock.
The airline also reaffirmed its guidance for pre-tax underlying profit of $30 million to $60 million for the year to June which implies a small second half loss after earning an underlying profit of $45 million in the six months to December.
But the bottom line will be hit by costs and write downs of between $410 million and $450 million.
That includes $100 million of fourth-quarter restructuring costs and $155 million to $175 million of non-cash impairments associated with a three-year cost-cutting program announced by the carrier last month.
The rest of the costs and write downs include the $59.4 million already announced in the group’s interim results, plus an additional $100 million to $115 million related to an overhaul of its fleet.
Virgin reported a loss of $93.8 million in 2014-15. The bulk of the restructuring and other costs will be taken in the June quarter of 2016.
Virgin revealed the estimated cost of the restructuring plan as it launched a $852 million capital raising, the proceeds of which will be used to pay down debt and improve operations.
The 21 cents a share entitlement offer comes on top of a $159 million share placement to Chinese group HNA that will see Virgin Australia raise a total of $1.11 billion in new capital. Virgin Australia will spend around half of that $1.01 billion in repaying a shareholder loan from Air New Zealand, Etihad Airways, Singapore Airlines and Virgin Group. The remaining capital will be used to pay down debt and improve its operations.
Singapore Airlines, HNA Group, Richard Branson’s Virgin Group, Nanshan Group and Air New Zealand have agreed to take up their entitlements. Etihad, which has not yet stated its intentions, is not expected to take up its entitlements. Nanshan bought some of Air NZ’s shareholding.
Virgin shares rose 3% to 20.7 cents. In fact the airline’s share price is useless as an indicator because the share register is dominated by the above shareholders, meaning there is only a small float of non-associated shareholders.
