Virgin Australia’s restructuring plan to raise fresh equity and downsize its fleet and workforce

Virgin Australia is seeking an equity infusion of $852m and looking to cut its fleet and jobs as part of a major corporate restructuring program.

The capital raising has so far been supported by key shareholders Singapore Airlines, Air New Zealand and Chinese companies HNA Innovation and the Nashan Group, although 24% shareholder Etihad Airways has yet to commit any additional capital.

The group will also cut its smaller fleet of ATR turboprop aircrafts and decommission all of its E190 aircraft from its fleet over the next three years in an attempt to assist the group in simplifying its business and increasing its productivity.

Virgin also announced it would undertake a new efficiency drive aimed at cutting up to $250m in discretionary expenses, as well as flagging impairment charges of between $150 to $200m through to 2019.

Virgin Australia’s chief executive John Borghetti said there was no target for job losses in the restructure, as the focus was a realignment of existing jobs.

The $852m capital raising will be a fully underwritten on a 1 for 1 non-renounceable pro-rata offer. The raising along with an earlier $159m placement to HNA will pump up Virgin’s balance sheet with $1.01bn of fresh equity.

The new shares will be offered to existing shareholders at $0.21 per share, a 28% discount to its previous day’s closing price of $0.26 a share.

The money raised would be utilized towards repaying a $425m unsecured loan made by its airline shareholders Air New Zealand, Etihad Airways, Singapore Airways and the Virgin Group. The balance of the raising will be used to pay down the existing $3bn debt on Virgin’s books.

The cost-cutting and efficiency drive aims to boost free cash flow by $300 million dollar a year by 2019.