Virgin Blue Holdings Ltd has confirmed those long circulating market rumours that it was after fresh capital with news of a $231 million equity raising.
At the same time it announced the departure of Brett Godfrey, the start up CEO of 10 years standing and forecast a large net loss for the June, 2009 year as it feels the impact of cost of its start up Australia-US airline, V Australia.
And the airline sees itself at no better than break-even in the 2010 financial year, but with positive cash flow.
Virgin Blue’s equity raising will consist of a placement of shares worth $21 million, and a one-for-one non-renounceable rights offer to all shareholders seeking $210.4 million.
The issue will be made 20 cents each, a 30% discount to last Friday’s 29 cent closing price.
The airline said its 25.5% shareholder, Virgin Group, would support the capital raising and that Virgin’s stake would probably rise to around 30% once the dust had settled the exact number of new shares issued finalised.
Virgin said in yesterday’s statement to the ASX that it expects a full year group net loss of $160 million to $165 million for the June 30 year and described the airline sector as "the most challenging global environment to date".
That will be down from the 2008 net profit of $98 million.
"Key drivers of capacity, demand and fuel remained volatile throughout FY09," the company said in an equity raising presentation released to the ASX.
Mr Godfrey said in the update:
“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.”
The issue for VBA was first mentioned in May, it gathered strength in June and into early July with media reports of a $400 million issue being planned, with a cornerstone investor being sought by Goldman Sachs JBwere. That story was denied in a statement to the ASX and the company said it had no plans for an equity issue.
Well, a month’s a long time in the market and yesterday Virgin Blue argued strongly for the issue, while saying that it didn’t need it anyway.
It said the equity raising was "directed towards creating a more robust capital structure"; the company had a cash balance at year end of $475 million and there were "no refinancing obligations or covenants under existing asset secured debt facilities, nor any cash collateral requirements for hedge book."
The company said it was "continuing the focus on capital preservation and balance sheet management"; the "group will have both positive operating cash flow and net cash inflow for FY10"; "asset realisation program (is) on track – (with a) further $215 million targeted in FY10 through sale and leaseback as part of capex financing plan
"Consistent with guidance, there will be no final dividend and the prudent capital management will position Virgin Blue to move quickly when markets recover and will enable the business to leverage existing underutilised operating capacity," the company said in its presentation to the market for the issue.
Virgin Blue said Mr Godfrey, would retire next year after more than 10 years with the company and the company had ample time to manage the succession and was confident of appointing the right person to lead the company.
Virgin Blue said its short haul operations were expected to make a net profit of between $25-30 million for the year ending June 30, but V Australia, is expected to make a trading loss after tax of between $30-35 million, with a further $60-65 million in associated start-up and foreign exchange losses.
The killer for the airline though has been the impact of the plunge in oil and fuel prices in the June half year that has left its fuel hedging underwater.
The airline said the expenses of financial instruments (the non-cash cost of ineffective fuel and currency hedges) were expected to be $90-95 million for 2009.
Virgin Blue said Sir Richard Branson’s Virgin Group would invest between $61 million-$79.9 million in the airline by participating in the equity raising.
The Virgin Group is committed to subscribing for 304.9 million shares under the entitlement offer and would act as a sub-underwriter for 20% of the retail component of the offer, the airline said.
If there were no subscriptions under the retail entitlement offer, this would take Virgin Group’s holdings in the airline to 30.2%.
