Virgin Australia Secures a $425 Million Loan

22nd Mar 2016

In a bid to better compete with the two other major Australian airlines, Qantas and Jetstar, Virgin Australia has turned to its major shareholders and has asked for an unsecured loan of $425 million.

The airline has reportedly secured a 12-month loan from Etihad, Air New Zealand, Singapore Airlines and Virgin Group. According to a spokesperson for the Australian airline, VA will receive $131.2 million from Air NZ and $117 million from Singapore Airlines. It's not confirmed how much Etihad and Virgin Group have set aside for the LCC.

The four major shareholders together control 84 per cent of Virgin Australia.

The company hopes this will help its transformation from budget carrier to diversified airline.

In addition, Virgin Australia has also launched a review of its capital structure. Speaking about this, the company's chairman Elizabeth Bryan said the review will should help the airline access its capital structure and move toward "its strategic goals and generate long-term growth and value for shareholders".

In a statement written on Monday, Virgin Australia chairman said:

"The Group has secured loan facilities from its major shareholders that provide a flexible source of funding while the review is undertaken."

Despite earning a $45 million plus profit in the first half of financial 2016, the airline's transformation from LCC to a diversified airline group has affected its finances.

The fact that labour costs have also risen also does not help the situation that Virgin Australia finds itself in.

Faced with much the same debt problems in 2014, Virgin Australia then decided to sell of a part of its Velocity rewards scheme, but it doesn't look like it will be doing the same thing this time. Instead, the Australian carrier is attempting to wipe the debt.

Commenting on the airline's options, Sam Dobson, an analyst for Macquarie Equities said that, in order for Virgin Australia to meet its financial targets by 30 June, 2016, it would have to raise a minimum of $560 million in equities.

Following the announcement, Virgin shares went up by 7 per cent at the start of this week.