Capital Raising to Provide Manoeuvring Room for Virgin Blue
Virgin Blue today launched a fully underwritten equity raising of approximately $231.4 million, supported by the Virgin Group, to improve liquidity and provide increased financial flexibility.
Virgin Blue CEO Brett Godfrey said “This is an opportunity to invest in one of the industry’s most respected airline brands.”
“The proceeds of this raising will significantly strengthen Virgin Blue’s capital position, and improve liquidity and financial flexibility which we believe is prudent in the light of challenging conditions facing the airline industry.”
“Our company has this fiscal year invested $850 million in the business and expanded our network with the launch of 22 new routes and achieved sustainable cost reductions throughout our business.
“These initiatives, combined with the proceeds of this capital raising and our new code share agreement and planned joint venture alliance with Delta Air Lines will ensure we are well placed to move quickly to participate in the upside as markets recover.”
At an offer price of $0.20 per share the equity raising will consist of:
- an institutional placement of approximately 105.2 million shares to raise approximately $21.0 million; and
- a one for one non-renounceable pro-rata entitlement offer to raise approximately $210.4 million
The offer is fully underwritten by Credit Suisse (Australia) Limited and J.P. Morgan Australia Limited.
Virgin Blue has told the Australian Stock Exchange it will use the proceeds of the offer to increase its liquidity and provide increased financial flexibility: “When market conditions improve, this will also enable Virgin Blue to quickly pursue available growth opportunities, including flying new routes and the acquisition of aircraft on favourable terms.”
The airline is forecasting 2009 revenue to increase by 11.8 to 12.2% 20 around $2.8 bn; and after-tax profit of $160-165 million.
Capital investment during FY09 totalled some $850 million, and saw the fleet grow by 14 aircraft, including 11 narrow bodies and three widebody B777-300ER’s. With 22 new short haul routes launched in the year, 10 in the domestic market and 12 internationally, Virgin Blue’s network footprint has been increased significantly, positioning the company well for when the markets recover.
Godfrey says the capital raising will maximise flexibility, providing equally for growth opportunities in an expected 2011 market upturn, or for worst-case market conditions if recovery is slower:
“Our businesses are trading at cash flow positive levels in 2009 and will be more so in 2010 even excluding today’s capital raising. Those forecasts are based on nothing but maintenance of the status quo as far as the current economic conditions are concerned.”
Aspirations include further domestic fleet modernisation, possible new international routes, and boosting VAustralia’s transpacific capacity with a fourth B777.
“I think with today’s announcement the airline is very well poised to take advantage not just of opportunities as they present themselves, but to shore up their position for the foreseeable future.”
About 12 of Virgin’s older leased B737s are expected to be returned to their owners in 2011 and a similar number in 2012, providing opportunities to match business upturns with new aircraft and more capacity.
Sydney capacity will be central to strategic domestic fleet planning says Godfrey: “Sydney is getting a little difficult to access so there are bigger B737-900s right down to the 737 500s or 700s, and if you want to go bigger you go to (Airbus) A321. So that’s work to be done and all I can say is that 2011’s the opportunity and we need to get cracking now.
He adds that new routes of interest are South Africa which is being considered, and possible “near-north” destinations which are now being negotiated, as well as further diversification of regional routes operated by the carrier’s Embraer regional jets.
“For the foreseeable future our objective is to do nothing more than strengthen the balance sheet and provide us with some further liquidity for when the market does turn as we know it inevitably will.”
