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Virgin headed for another disaster, says REX chairman

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Virgin headed for another disaster, says REX chairman

Old 7th May 2020, 04:14
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Virgin headed for another disaster, says REX chairman

I agree largely with most of it. The earnings claims are beyond laughable.

They were fairly direct in that they were not cutting staff, so if they are not planning to cut the fleet, the risk is high. The revenue numbers they are giving to potential buyers would indicate a fleet fairly close to what it is today.

The ACCC canít do squat about the guys over the fence filling its aircraft to Ďcostí. They are just trying to reduce the cash burn. They also canít do anything in regards to the competitor returning its full pre virus network very fast, they are simply reinstating what they had. The ACCC wonít save Virgin in any circumstances.

They need to rip cost out otherwise they are about to have their balls ripped off when they kickstart. If they choose to think ops normal, then they deserve anything that comes their way.

Mr Lim says Virgin's administrator, Vaughan Strawbridge from Deloitte, must rewrite the EBAs, restructure the aircraft leases, cancel an order for Boeing 737 MAX aircraft and convert all debt into equity while the company is insolvent.
REX executive chairman Lim Kim Hai has slammed Virgin's board as dysfunctional.

"Originally when it was first announced that Virgin was going into administration we were quite interested because we thought the period of administration would be a wonderful opportunity to really, in fact, make really deep-seated changes to Virgin," Mr Lim said in an interview with The Australian Financial Review.

"But when the administrator from Deloitte started making his public comments I very quickly realised that the administrator has no intention at all of really effecting any fundamental changes.

"It would appear from his timeline that he just wants a quick sale and he actually leaves the problems to the buyer to solve."

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Mr Strawbridge this week distributed an information memorandum and business plan and asked for indicative bids by May 15. The memorandum forecast about $1.2 billion in earnings before interest, tax, depreciation and amortisation in the year to June 2022.

The earnings forecast, which was revealed byStreet Talk on Monday night, said Virgin expected to record about $5 billion revenue in 2022, back to 2015 levels and about 15 per cent less than last year.

Virgin can earn $1.2b a year in 2022: management's pitch to buyers

Mr Lim said his own experience buying Hazelton Airlines and Kendell Airlines out of the Ansett receivership 18 years ago was a model for how Virgin should be restructured using the powers of an administrator.

"Virgin has a chance, but without fixing its chronic problems, whoever is the buyer, no matter how financially sound they are, they would just continue down the path of losing money every year," he said.

"Unfortunately, I have come to the conclusion that the way its headed, even if there is a buyer, we are just looking at another disaster down the road."

EBAs prove costly

Mr Lim said Virgin's EBAs had lumbered the airline with high fixed costs and they needed to be fixed while Mr Strawbridge had the powers of an administrator and before the release of a deed of company arrangement.
"It is well known that in the last 10 years Virgin's management has been extremely lax and extremely non-courageous in their negotiations over EBAs," Mr Lim said.

"It ended up with EBAs that are even more costly than what Jetstar has. This is another reason why Virgin is never going to make money. Part of the profitability depends on the cost of pilots and so on.

"And the EBAs are really too restrictive and punitive. So this is another opportunity to reset it and get it down to the right level."

Mr Lim said the politics of the Virgin administration meant Mr Strawbridge could not make changes to the EBAs.

"Given how the unions are getting in and how they are lobbying behind the scenes and given how there is KordaMentha, who is also putting up his hand to be administrator, I don't think the administrator would touch the EBAs at all," he said.
It ended up with EBAs that are even more costly than what Jetstar has. This is another reason why Virgin is never going to make money.

ó Lim Kim Hai, REX chairman
"That would be the reason for the administrator to get sacked. It's not going to happen."

Mr Lim was critical of Virgin's board of directors, which he described as "dysfunctional".

"Obviously, the writing has been on the wall for Virgin for quite a while," he said.

"It's just unbelievable how in Australia one could tolerate a board that for 10 years constantly lose money.

"They have lost $2 billion in the last 10 years. I don't know how anybody would tolerate such a board.

"The second thing that's amazing is how five shareholders, four of them very big airlines, could actually get themselves in a position where they are just bystanders when they are holding 90 per cent of the company.

"They just got completely outfoxed by management. The management came to a board meeting and said: "Guess what, we have no money and you guys will have to cough up $200 million in two weeks or we are going into insolvency.

"There's such disdain of the board and that's because they have been outfoxed and the five airlines with their representatives are a minority in the board. The other independent board members, they are beholden to certain parties."

Investors' nightmare

Mr Lim said the aviation sector was "one of the worst, if not the worst industrial sector", to invest in across the world.

Advertisement"Aviation has all its inherent problems, which are relatively high capital costs, very heavily regulated and very much national politics involved," he said.

"So, it already has a heavy set of problems that most other sectors may not have. It would have four or five different unions. And that's, again, something could be the downfall of a particular carrier.

"But what makes it even tougher is the fact that most of the people who end up being in aviation are people who are extremely passionate. You know, that's one thing that defines aviation, that people Ė both management and most of the staff Ė have kerosene in their blood.

"The problem with aviation is that there's too much passion, not enough common sense. And the second big problem is that there's too much ego.

"Too often you'll find people have a bit extra cash and they like the glamour of being involved in aviation. So they will start an airline.

"Then very soon they find it's not what they thought. So there's a lot of ego involved and that makes it different from most other big business, where you are really driven by discipline and driven about professionalism."

Last edited by wheels_down; 7th May 2020 at 04:25.
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Old 7th May 2020, 04:52
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Yet another thread about Virgin's downfall and problems. It couldnt have been added to one of the other existing threads??

I honestly believe some of you have serious mental problems. Cannot help yourself and cannot hide the enthusiasm of watching Virgin fail, with 10,000+ people losing their livelihood, houses and possibly life. Enjoy yours why you can........
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Old 7th May 2020, 05:35
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He is just reporting on a relevant media matter from a highly successful Singaporean business guy who has had success in
Australian Aviation

Perhaps this Singaporean guy is worth listening too ?

Can't see any glee in his post. There are a million plus Australians who have lost their jobs , why does the fact that someone is
employed by an airline make them more important or more "special" more worthy of a pat on the back.

Like he said the company lost money every year , so it was going to fail

There are many way worse off than Virgin employees & didn't have the benefit of salubrious contracts for years to secure their financial future

Do the Virgin 737 pilots think it was fair & reasonable that they got paid overtime after 60 hours per month ? Aside from QF are there any other airlines with anything like that in 2019 ?

Last edited by Telfer86; 7th May 2020 at 05:48.
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Old 7th May 2020, 05:42
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It's becoming annoying how many posters here are being accused of having "enthusiasm" for watching an airline fall or people losing their jobs. This is a pilot forum, for pilots who are employed in Australia. The fate of VA is entirely relevant to all of us, those starting out in their flying journey who want to know what the industry is like, those who are working their way up in different jobs and those who are employed within it. It affects everyone and it's important. While I sympathise with everyone's potential personal situation, you aren't entitled to a protected internet shield to defend you from people trying to better understand what's happening and how our entire industry is going to be impacted.

Stop taking discussion about something that is entirely relevant as a personal attack on either individuals or an employee group; it isn't. If you can't bare to read relevant postings on an INDUSTRY sub forum, don't look.
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Old 7th May 2020, 05:43
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Totally agree Telfer86, quite an informative and relevant perspective.
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Old 7th May 2020, 06:23
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Originally Posted by Servo View Post
Yet another thread about Virgin's downfall and problems. It couldnt have been added to one of the other existing threads??

I honestly believe some of you have serious mental problems. Cannot help yourself and cannot hide the enthusiasm of watching Virgin fail, with 10,000+ people losing their livelihood, houses and possibly life. Enjoy yours why you can........

Sadly, heís just telling it like it is, from a successful business perspective. Good airline it may be. Great staff and work ethic, perhaps. But from a business point of view a very lousy, badly run operation that has destroyed over $2B in capital and loses money every year.

Further, Union interference and bloody mindedness, if not careful, could be the death of Virgin.
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Old 7th May 2020, 06:23
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Originally Posted by myturn View Post
Totally agree Telfer86, quite an informative and relevant perspective.
Well not really....

Virgin pilots earn OT at 69 hours a roster. And at 69 hours a roster - thatís 790 hours a year. Yes sim, etc counts towards that. But try doing 70-80 hours a month for 12 months....

No one is calling out whatís actually in the article. Our Singaporean friend identifies 3 key issues that he says isnít being dealt with (the debt, the leases, and employee wage costs). The administration process will deal with a fairly large chunk of the debt - so he is wrong on that front. The administrator is currently talking to lessors and renegotiating leases for a new owner will definitely form part of the DOCA - so he is wrong on that front too. And thirdly - the administrator has said he wonít be making anyone redundant (the administrator doesnít need to - most people are stood down and then redundancy payments become an issue if he decides to sack a couple 1000 people). The business is being sold as a going concern - so thatís all the employees. If a new owner decided to shrink the business, they can do that. A new owner may also enter into negotiations with unions as well - there might be some pretty big trading going on to secure jobs. So he is arguably wrong on that front too.

And whilst he may be a successful businessman - he operates a lot of monopoly routes, and also quite a lot of government regulated (and subsidised) routes. And they have just got an absolute bucketload of cash to continue operating those routes (disproportionately large when compared to what QF and VA got relative to total revenues - I suppose having a former National Party politician on your Board doesnít hurt). And he has never addressed the elephant in the room - fleet replacement.

I am not necessarily convinced people here are taking joy out of whatís happening to VA (although comments insinuating VA pilots are overpaid suggest some people are), but there are a lot of people rehashing the same nonsense over and over again. Every time a journalist puts out a piece of Ďexpert aviation commentaryĎ, there are plenty of people on here who attack minute details. When an article is published highlighting the demise of Virgin, there are plenty of people on here who take every word as gospel without checking any of the facts, or applying some common sense.

Last edited by Colonel_Klink; 7th May 2020 at 06:33.
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Old 7th May 2020, 06:29
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Well I was told it was 60 hours - but that could be incorrect

69 certainly sounds like an unusual number

My understanding was that the latest 737 eba took absolutely forever to negotiate as the Virgin guys were
demanding QF SH rates & pretty much got them didn't they ? Something mad like 35 meetings the virgin pilots voting it down a few times & asking
for more & more

or 95% of them , Virgin management having to say time & time again " we don't pay qantas rates"

Maybe not such a great idea in hindsight

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Old 7th May 2020, 06:36
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if the following doesn't happen .............. quote from above

must rewrite the EBAs, restructure the aircraft leases, cancel an order for Boeing 737 MAX aircraft and convert all debt into equity while the company is insolvent.

who would buy into Virgin ?

Staff will have to earn less & probably do more. Leased aircraft will have to be well below what Virgin had been paying for 738s (A330s & 1 x B777 - again much less, but surely a domestic only model with single fleet would be optimal to start with ? )

Think anyone who was employed at VA & thinks they are going to get paid the same by new virgin is dillusional. There will also be far fewer staff.
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Old 7th May 2020, 06:37
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Originally Posted by Servo View Post
Yet another thread about Virgin's downfall and problems. It couldnt have been added to one of the other existing threads??
It was, linked in another VA thread.
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Old 7th May 2020, 06:41
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Maybe not such a great idea in hindsight
Well it certainly was not crew wages that drove them into administration.


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Old 7th May 2020, 06:51
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Staff will have to earn less & probably do more. Leased aircraft will have to be well below what Virgin had been paying for 738s (A330s & 1 x B777 - again much less, but surely a domestic only model with single fleet would be optimal to start with ? ) Think anyone who was employed at VA & thinks they are going to get paid the same by new virgin is dillusional. There will also be far fewer staff.
That's just all bravado as of last year there were pilots bouncing off the total flight time limitations. Certain east coast bases would be pretty much 800 hours a year guaranteed. So you are not going to get much more productivity there. You might be able to get a pay cut, but how much difference will it really make?

Let's not forget too that Rex has collected a nice little handout from the Australian government and does contribute money to the Nationals, and that neither QF or VA has gotten much help from the government. Without the government help where would Rex be?
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Old 7th May 2020, 06:54
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Originally Posted by Telfer86 View Post
He is just reporting on a relevant media matter from a highly successful Singaporean business guy who has had success in
Australian Aviation

Perhaps this Singaporean guy is worth listening too ?

Can't see any glee in his post. There are a million plus Australians who have lost their jobs , why does the fact that someone is
employed by an airline make them more important or more "special" more worthy of a pat on the back.

Like he said the company lost money every year , so it was going to fail

There are many way worse off than Virgin employees & didn't have the benefit of salubrious contracts for years to secure their financial future

Do the Virgin 737 pilots think it was fair & reasonable that they got paid overtime after 60 hours per month ? Aside from QF are there any other airlines with anything like that in 2019 ?

well said, some are just angry little control freaks!
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Old 7th May 2020, 07:06
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Originally Posted by Icarus2001 View Post
Well it certainly was not crew wages that drove them into administration.

& how do you arrive at that idea ?

50% of the workforce at 75% of VA pay would make a huge difference(that's 37.5% of current staff costs), especially now fuel is so cheap, especially if any fuel hedging at low prices can be achieved.

With the new worldwide glut of aircraft, any sort of decent negotiator would be able to get a massive discount on aircraft leasing costs.

Airport handling would also be negotiated downwards.
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Old 7th May 2020, 07:54
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FFS. He just wants lower wages so he can pay REX crew maccas wages. What a numty.
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Old 7th May 2020, 07:54
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50% of the workforce at 75% of VA pay would make a huge difference
Crew costs, crew. Flight crew and cabin crew.
Do they make up 50% of the VA (previous) workforce?
Is a 50% pay cut realistic? Cabin crew would walk at that salary.

& how do you arrive at that idea ?
I didn't.

As you can see above Boeing and IATA came up with these figures. So the pilot EBA was not the cause of this, neither was Covid 19, that merely brought forward the move to administration.

In my opinion it was lack of cost control. They turned over around $5.5 billion dollars a year and every time I flew on them the aircraft was full, or close to it and yet they could not make a profit. That says to me that costs were too high. 2-5% either way on a pilot EBA would not be the reason for the last ten years.
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Old 7th May 2020, 08:17
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No such thing as overtime on the QF SH award. There is a minimum guarantee then additional hours paid at a flat rate.
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Old 7th May 2020, 08:25
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The only thing this man is interested in is bringing pilot wages crashing down. Never be fooled by the hidden agenda.
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Old 7th May 2020, 08:54
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Originally Posted by BNEA320 View Post
& how do you arrive at that idea ?

50% of the workforce at 75% of VA pay would make a huge difference(that's 37.5% of current staff costs), especially now fuel is so cheap, especially if any fuel hedging at low prices can be achieved.

With the new worldwide glut of aircraft, any sort of decent negotiator would be able to get a massive discount on aircraft leasing costs.

Airport handling would also be negotiated downwards.

That graph is a 'generic', outdated to 2015.

It is meaningless currently. Airlines have a dynamic environment and it is certainly no reflection on VA expenditures.

...And as Normanton mentioned. This Singaporean is only Self Interested in bringing Pilot wages down, probably in the hope he doesn't lose more Pilots to the Airlines in the future.
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Old 7th May 2020, 08:59
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Originally Posted by George Glass View Post
No such thing as overtime on the QF SH award. There is a minimum guarantee then additional hours paid at a flat rate.
essentially the same at VA
salary based on 69 hours/rp (NOT 60 as dopey said, was corrected on and STILL wouldnít concede)
and then the hourly rate on top of that. Itís no like itís Double time or anything
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