SYDNEY (Reuters) - Virgin Australia Holdings Ltd plans to cut a third of its workforce as part of an overhaul to focus on being a domestic and short-haul international Boeing Co 737 operator under prospective new owner Bain Capital.
Virgin Chief Executive Paul Scurrah said on Wednesday the airline was renegotiating costs with lessors and suppliers as it targets the value-for-money market for business and leisure travellers.
“We have the opportunity to reset some of the onerous costs we had on us which gives us the opportunity to immediately lower that cost base without bringing the product downmarket,” Scurrah said, referring to the airline’s current status in voluntary administration.
Virgin’s board selected Bain as the winning bidder in late June of an auction that followed the airline’s entry into voluntary administration in April.
Creditors, who are owed nearly A$7 billion ($5 billion), are due to vote on the sale on Sept. 4. Support from employee creditors and the administrator’s deciding vote in the event of a deadlock are expected to overcome some objections from bondholders.
The coronavirus pandemic was the final straw for Australia’s second biggest airline, which had been unprofitable for seven consecutive years. The airline expects a three-year recovery to return domestic and short-haul international demand to last year’s levels.
Larger rival Qantas Airways Ltd has also announced plans to cut at least 20% of its workforce due to the decline in demand caused by the pandemic and associated travel restrictions.
Scurrah said under Bain’s ownership Virgin would have a strong balance sheet worthy of an investment-grade rating, which it had lacked before entering administration.
The 3,000 jobs would go as the carrier offloads its fleets of Boeing 777s, Airbus SE A330s and ATR turboprops, as well as low-cost brand Tigerair Australia and its A320s.
Virgin will look to re-launch long-haul international flights to Los Angeles and Tokyo when demand returns and will keep some of the partnerships and joint ventures it had with foreign carriers before it entered administration, Scurrah said.
The Bain deal needs the approval of at least 50% of creditors by both value and number. Employees rank as the largest creditors by number at around 9,000, followed by around 6,000 bondholders.
Unsecured bondholders have said they will propose an alternative debt-to-equity swap, but administrator Vaughan Strawbridge of Deloitte told reporters that option will not be put to a vote at the meeting because of the structure of the agreements with Bain.
Bain said it was backing Scurrah to remain in his role in the future.
($1 = 1.3963 Australian dollars)
Reporting by Jamie Freed; additional reporting by Paulina Duran Editing by Muralikumar Anantharaman and Jane Wardell
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