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Virgin Australia's rescue up in air with HNA debt woes, tighter scrutiny

04/23/2020| 2:48:43 PM|

Australian government has final say on Virgin’s revival plan after carrier went into administration proceedings.

A bailout of Virgin Australia, the first aviation casualty in the Asia-Pacific region from the global coronavirus pandemic, is under a cloud of uncertainty amid the financial troubles among its majority-owned Chinese investors, and tightening scrutiny on foreign investment by authorities.

The Brisbane-based airline last week went for voluntary administration under A$5 billion (US$3.15 billion) of debt burden, after failing to get a lifeline from shareholders and the Australian government. The procedure is akin to the US Chapter 11 bankruptcy protection filing, the first major victim in the region since the coronavirus outbreak.

China’s three largest carriers, namely Air China, China Southern Airlines, China Eastern Airlines were considering buying stakes in the troubled carrier, Australian media said earlier this month citing anonymous sources.

“It is hard for HNA Group to save itself now, its cash flow is insufficient to sustain its own livelihood, the chance for it to increase overseas investment is extremely low,” said Qi Qi, an associate professor at Guangzhou Civil Aviation College, shrugging off the likelihood of HNA ploughing more money into the stricken Australian carrier.

HNA Group effectively owned a 19.86 percent stake in Virgin Australia, based on its financial report as of September last year, while Shandong-based private investor Nanshan Capital held 20.01 percent. Etihad Airways and Singapore Airlines each owned about one-fifth share.

The Australian Treasurer will have the final say in Virgin Australia’s debt reorganization, according to Craig Parker, a senior director at S&P Global Ratings in Sydney. The firm on Tuesday cut Virgin Australia’s rating to CC from CCC with a negative outlook.

The government last month tightened restrictions on foreign investment by reviewing all positions amid the pandemic because “it is concerned that aviation assets are cheap given the equity markets and the economic dislocation,” Parker said in an interview.

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TAGS: Virgin Australia | HNA | bailout
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