Administrators of Virgin Australia have revealed they were forced to take out loans to pay employees of the embattled airline because the business had run out of cash.
The airline slumped into voluntary administration on April 21, as it struggled with the coronavirus pandemic and $5billion in long-term debt.
Accounting firm Deloitte has now revealed in a letter to creditors that Virgin would have collapsed entirely if not for the government’s move to subsidise domestic flights.
The letter, seen by The Australian, was sent out before a meeting on Thursday in which Deloitte and 35 of the airline’s creditors and their representatives pour over the company’s books.
Deloitte said Virgin had been burning $200million a month and they had to negotiate with banks to get more cash so the business could stay afloat.
The firm said given the group’s ‘cash constraints’ it was ‘critical’ they ‘urgently sought a sale and/or recapitalisation’.
Administrators of Virgin Australia were forced to secure loans to pay employees of the embattled airline because the business had no money (pictured, staff at Sydney Airport)
‘Without the government-underwritten flights we would have been forced to cease trading the business due to the increased level of trading losses that would have been sustained,’ the letter reads.
American firm Bain Capital has offered to buy the airline with the Committee of Inspection meeting on Thursday giving the deal their approval.
But bondholders of the company, who are owed $2billion and which include 30 institutions and 6,000 private investors, believe they can derail the sale with a ‘superior’ deal they will reveal at next month’s creditors meeting.
The bondholders, including Singapore’s Broad Peak Investment Advisers and Hong Kong’s Tor Investment Management are challenging the sale in the Federal Court.
On Friday the court ruled they could not access confidential details of the sale agreement with Bain but could present a different offer to administrators.
American firm Bain Capital has offered to buy the airline with the Committee of Inspection meeting on Thursday giving the deal their approval (pictured, staff in Brisbane)
Delloite has already downplayed initial deals put forward by the bondholders saying Virgin needed ‘immediate funding’ which their plan could not guarantee.
‘We considered the proposal but could not take it forward due to its highly conditional nature, lack of certainty and no evidence of committed funding. The business does not have sufficient cash to continue trading without immediate funding,’ Thursday’s letter reads.
It is understood the bondholder’s plan has changed since the deal referred to in the letter.
Bain Capital’s offer includes paying $450million in employee entitlements, $604million in travel credits and $600million in fluid cash for the airline.