AP Explains: What Virgin Australia's bankruptcy move means

Virgin Australia has become the world’s largest airline to seek bankruptcy protection in the weeks since the coronavirus shutdown created a debt crisis.

A look at Australia’s second-largest airline’s predicament and what it means for other airlines:

WHY IT SOUGHT PROTECTION

A Virgin Australia worker uses his phone at the check-in counters at Sydney Airport in Sydney, Wednesday, April 22, 2020. Virgin Australia is seeking bankruptcy protection, entering voluntary administration after a debt crisis worsened by the coronavirus shutdown pushed it into insolvency. (AP PhotoRick Rycroft)

Virgin Australia owed 5 billion Australian dollars ($3.2 billion) and hadn’t posted a profit in seven years when the pandemic virtually grounded the aviation industry.

Singapore Institute of Technology economist Volodymyr Bilotkach, author of “Economics of Airlines,” says small-to-medium European airlines with small cash reserves are similarly vulnerable.

Some small European airlines including British regional carrier Flybe have already folded and Norway’s largest airline Norwegian Air has announced three subsidiaries in Denmark and one in Sweden have filed for bankruptcy.

A Virgin Australia worker, left, helps a customer at the check-in counters at Sydney Airport in Sydney, Wednesday, April 22, 2020. Virgin Australia is seeking bankruptcy protection, entering voluntary administration after a debt crisis worsened by the coronavirus shutdown pushed it into insolvency. (AP PhotoRick Rycroft)

Virgin Australia had asked the Australian government for a AU$1.4 billion emergency loan, but the government refused, partly through fears that the money could be siphoned off to the financially stressed foreign airlines that own Virgin.

Financially stressed airlines typically turn to their governments for a bailout first and then to their owners.

Virgin Australia said some of its major shareholders — Singapore Airlines, Etihad Airways, Nanshan Group, HNA Group and British billionaire Richard Branson’s Virgin Group — were already receiving foreign government support that could not be shared with the Australian business.

The Virgin Australia check-in counters are all but bare at Sydney Airport in Sydney, Wednesday, April 22, 2020. Virgin Australia is seeking bankruptcy protection, entering voluntary administration after a debt crisis worsened by the coronavirus shutdown pushed it into insolvency. (AP PhotoRick Rycroft)

THE VOLUNTARY ADMINISTRATORS

Virgin Australia has appointed voluntary administrators to assess whether it can be saved by restructuring or should be sold to other investors.

If independent administrators can’t save Virgin, their job it to wind up operations and sell off assets.

A voluntary administrator can be appointed to a company by directors quickly and simply in Australia by passing a resolution that the company is insolvent or likely to become insolvent soon.

The Virgin board did this on Monday night and notified the stock market on Tuesday that full control of the airline had been handed to a Deloitte team.

It’s similar to Chapter 11 bankruptcy protection in the United States, although insolvent company directors in Australia have no further control once independent administrators have taken over operations.

But whether airlines in other countries are given time to restructure while insolvent or are wound up to pay creditors depends on variations of national corporate laws.

PROSPECTS FOR VIRGIN AUSTRALIA AND GLOBAL AVIATION

At least 10 unnamed potential buyers were quick to start talks with the administrators and have buoyed hopes that Virgin Australia will survive in a leaner form.

The airline is continuing its scaled-down services through the pandemic shutdown.

Analysts agree Virgin is in a stronger position than Ansett Australia, the nation’s former largest airline after Qantas. Air New Zealand-owned Ansett entered voluntary administration in 2001 and winding up the defunct airline took almost a decade.

Australian government and businesses want to avoid Qantas gaining a virtual monopoly over the domestic aviation market, which would likely lead to higher fares for fewer flights.

Bilotkach, the economist, expects that Norwegian Air, LOT Polish Airlines and Czech Airlines are among the smaller European carriers most at risk of succumbing to the pandemic like Virgin Australia due to poor balance sheets and limited government support.

He expects U.S. carriers will survive the crisis better than their European counterparts due to U.S. government support and consolidation of the aviation industry since the global financial crisis in 2008.

Asia would likely lead the international aviation industry’s recovery with Chinese and Japanese domestic markets remaining relatively strong, Bolitkach said.

A former U.S. Navy sailor convicted of selling technical and operating manuals for ships and operating systems to an intelligence officer working for China was sentenced Monday to more than 16 years in prison, prosecutors said.

A federal judge in San Diego sentenced Jinchao Wei, 25, to 200 months. A federal jury convicted Wei in August of six crimes, including espionage. He was paid more than $12,000 for the information he sold, the U.S. Department of Justice said in a statement.

Wei, an engineer for the amphibious assault ship USS Essex, was one of two California-based sailors charged on Aug. 3, 2023, with providing sensitive military information to China. The other, Wenheng Zhao, was sentenced to more than two years in 2024 after he pleaded guilty to one count of conspiracy and one count of receiving a bribe in violation of his official duties.

U.S. officials have for years expressed concern about the espionage threat they say the Chinese government poses, bringing criminal cases in recent years against Beijing intelligence operatives who have stolen sensitive government and commercial information, including through illegal hacking.

Wei was recruited via social media in 2022 by an intelligence officer who portrayed himself as a naval enthusiast working for the state-owned China Shipbuilding Industry Corporation, prosecutors said.

Evidence presented in court showed Wei told a friend that the person was “extremely suspicious” and that it was “quite obviously” espionage. Wei disregarded the friend's advice to delete the contact and instead moved conversations with the intelligence officer to a different encrypted messaging app Wei believed was more secure, prosecutors said.

Over the course of 18 months, Wei sent the officer photos and videos of the Essex, advised him of the location of various Navy ships and told him about the Essex's defensive weapons, prosecutors said.

Wei sold the intelligence officer 60 technical and operating manuals, including those for weapons control, aircraft and deck elevators. The manuals contained export control warnings and detailed the operations of multiple systems aboard the Essex and similar ships.

He was a petty officer second class, which is a enlisted sailor's rank.

The Navy's website says the Essex is equipped to transport and support a Marine Corps landing force of over 2,000 troops during an air and amphibious assault.

In a letter to the judge before sentencing, Wei apologized and said he shouldn’t have shared anything with the person who he had considered a friend. Wei said “introversion and loneliness” clouded his judgment.

FILE -In this aerial photo taken Aug. 2, 2014, the U.S. Navy USS Essex is shown docked near downtown Seattle during the annual Seafair summer festival. (AP Photo/Ted S. Warren, File)