Borghetti Gets Sweaty: With earnings still weak, Virgin Australia’s CEO again seeks help from foreign airlines

Virgins don’t survive on their own. That’s the lesson drawn from Virgin Atlantic’s partial sale to Delta, Virgin America’s all-out sale to Alaska and a much earlier transaction between Belgium’s Virgin Express and what today is Brussels Airlines. The most striking example of all, however, is the case of Virgin Australia. Once independent, strong and profitable, the airline that started life as Virgin Blue ultimately fell victim to its own ambition, leading to perennial capital shortages. These shortages, alas, led its CEO John Borghetti to sell pieces of Virgin to not one foreign airline, nor two nor three nor four, but ultimately five, creating an unruly hodgepodge of shareholders with varying strategic interests. That group includes Singapore Airlines (with a 26% equity stake), Etihad (with 22% but likely to fall), Air New Zealand (once the largest shareholder but now with just 3%) and now two Chinese newcomers to Virgin’s equity ranks: the parent companies of Hainan Airlines and Qingdao Airlines (each with 20%). A sixth owner, the Virgin Group, owns 9%. Selling shares to the parent of Hainan Airlines gave Virgin Australia a badly needed $120m capital infusion. But it was hardly enough. It’s now in the process of raising about $640m from longstanding shareholders, at least one of whom got fed up with the repeated calls for cash—Air New Zealand said enough was enough and sold most of its stake; this is how the parent of Qingdao Airlines got in. ANZ, moreover, reportedly tried to remove CEO Borghetti, who remains on the job. It’s not difficult to understand ANZ’s frustrations. Last week, Virgin unveiled more distressing news about its finances, albeit softened by forecasts for a modest $45m pretax profit in the first nine months of this fiscal year, that is, from July 2015 to March 2016. For the full fiscal year that ended last month, meanwhile, Virgin sees pretax profit coming in between $22m and $44m, which would put it on a path for its second straight calendar year of pre-tax profits excluding special items, after two years of red ink. What’s the bad news? The special items. Virgin warns of some $300m to $330m in restructuring and impairment charges this fiscal year, with lots more to come in the years ahead. Put another way, Virgin’s business is steadying, if at uninspiring levels, but its shareholders can expect heavy bottom-line losses this year and perhaps be…

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