More Airlines Going Under?

Many are wringing their hands and predicting that Virgin Atlantic and Virgin Australia are on ventilators and on the verge of dying.  Actually, both are either likely to go through a restructuring or receive some sort of financing to continue.  However, I think we can expect to see many more undercapitalized regional, niche or national airlines disappear over the coming months.

Let’s face it, many of these airlines have been limping along for years and, in the case of many national airlines, exist only because of pride.  I get that, but is there a real business reason to exist?

     Read related:  RIP South African Airways 

Virgin Atlantic faces a thorny situation because Richard Branson owns 51% and Delta owns 49% which explains the code sharing and related alliances between Virgin Atlantic and Delta/KLM/Air France.  The UK government is demanding that Branson exhaust all options (private equity financing, selling) before the British government will provide a loan to bail out the airline.

Branson is going through the process of eliminating all the options so that he can get a government bailout which, while not guaranteed, seems likely.  Because the airline is registered in the UK, he can’t sell any part of it to new owners in another country… he’s already hit the limit.  I’m guessing this dance will continue for a bit longer before he finally gets a government loan.

Virgin Australia has an even more complicated situation because Branson owns part of the airline and the Aussie taxpayer is likely to take a dim view of bailing out a British billionaire.  Additionally, three foreign companies own a majority stake in the airline (Etihad Airways owns approximately 21%, Singapore Airlines owns about 20% and HNA Group owns in the neighborhood of 20%).

The airline has entered voluntary administration, which is similar to Chapter 11 bankruptcy in the U.S., so they are working on a reorganization and debt restructuring solution.

Adding a bit of drama to the situation, One of Virgin Australia’s debtors is Perth Airport where they reportedly owe about $16 million AUD in fees (about $10.3 million USD).  Perth Airport has made it clear that they mean to be paid by putting liens on four Virgin Australia aircraft and even went so far as to park construction equipment in front of one to prevent a tow bar from being attached.

Delta has a codeshare partnership with Virgin Australia as well, much like American’s partnership with Qantas.

While Delta has an interest in a good outcome for both airlines, they don’t have the cash to help out even though they may be in the strongest financial position of the United States’ big three, not to mention the fact that it would be in extremely bad taste to take the CARES Act bailout money and then shore up a foreign airline.

Update:  Avianca Airlines announced May 10 that they have filed for chapter 11 bankruptcy (reorganization) but will continue flying.  It was well known that the Columbian airline was in trouble so the fact that they filed for reorganization instead of going belly-up is actually good news.

They are a member of the Star Alliance program, which is the largest of the three airline programs allowing you to book on one airline using the points of another.  I have used Avianca miles to book trips on COPA and Lufthansa; it’s a good program and miles are easy to acquire through their credit card sign-up bonus through Banco Popular in Puerto Rico.

Brian

As an avid traveler, Brian has explored and enjoyed cultural encounters in over 40 countries while spending many years refining The Points Game — using credit card sign-up bonuses and other tricks to get nearly free travel.  Getting the most out of every trip is an art and Brian launched My Travel Traxx to help others enjoy the art of travel.