When Virgin Australia went into voluntary administration in April 2020, it had $6.8 billion of debt, 12,000 creditors and seven consecutive years of losses. It was Australia’s largest airline collapse. COVID-19 was present when it fell, but it wasn’t the cause of its fall. This is that story.
A Startup That Actually Worked
Virgin Australia wasn’t always the complex, indebted airline. It began in August 2000 as Virgin Blue, with some two Boeithe ng 737 planes, one route between Brisbane and Sydney and a very simple proposition: cheap flights for everyday Australians.
The timing was lucky. At that time Ansett Australia, then country’s second-biggest airline, collapsed in 2001, and Virgin Blue immediately filled that void. Within a few years, it had become a bona fide national carrier. It was traded on the Australian Stock Exchange by 2003. By 2008, it was booking a net profit of almost $100 million annually and had $300 million in retained earnings sitting on its balance sheet. That is a healthy and well-run business.
The man who constructed that was Brett Godfrey, the founding CEO. His rule was simple: one plane (the Boeing 737), domestic routes only, compete on price and never spend more than you are earning. It was boring. It worked.
Then, in May 2010, Godfrey left. And the airline he had meticulously built was about to be whisked in a wholly different direction.
The CEO Who Changed Everything
John Borghetti took the reins in May 2010. He was a 36-year veteran of Qantas, seasoned, and well-connected. In 2008 Qantas chose Alan Joyce over him as its new chief executive. Borghetti was not pleased. He left and walked into the top job at rival airline Qantas was trying to beat.
What ensued was less a business plan and more a personal quest. Borghetti wanted Virgin Blue to shed its budget carrier skin and begin directly competing with Qantas for business travellers, premium passengers and corporate accounts. He aimed, in his own words, to create an airline relevant to all sectors of the market.
That sentence is important. An airline that attempts to cater to all manner of passengers, regional commuters, budget tourists, corporate executives and international long-haul travellers alike, is an airline without a clear identity. And in aviation, where profit margins are notoriously thin, it means having no identity and spending huge sums of money trying to be everything and succeeding at nothing.
Virgin Blue was renamed Virgin Australia in 2011. New uniforms. Business class seats. Airport lounges. Wide-body Airbus A330s brought in for premium domestic routes. Long-haul routes open to Los Angeles, Abu Dhabi and Tokyo across Asia The product looked great. The went into freefall.
The Numbers That Tell the Real Story
Here is the simplest way to understand what happened between 2011 and 2020:
| Financial Year | Net Result |
| 2008 (under Godfrey) | ~$100M profit |
| 2011 | Loss begins |
| 2012 | Loss: $98M AUD |
| 2013 | Losses worsen sharply — net income dropped 530% year on year |
| 2014 | Loss: $356M AUD |
| 2015 | Losses continue — net income drops a further 73% |
| 2016–2017 | Small improvement but still deeply unprofitable |
| 2018–2019 | Net income drops another 52% — loss of $315M in FY2019 alone |
| Total 2011–2019 | $2.1 billion in cumulative losses |
Every year, the airline was spending more than it earned. Labour and staff-related costs rose 16%, 24%, 33%, 38%, 45%, 48% and then by a whopping 60% year on year from 2013-2019. Costs were rising constantly. Revenue was not keeping up. And instead of retrenching, the company continued to borrow money to fill the gap.
By last December, three months before COVID arrived, Virgin Australia already carried $5 billion in net debt. It was making so much in interest payments that its interest coverage ratio, an indicator of whether a company can cover its debt costs with internally generated profits, had been negative for nearly every year between 2012 and 2019. A negative interest coverage ratio signifies that the company is not even earning enough to meet its loans, much less making a profit. For most of the past decade, Virgin Australia was in that boat.
The Fleet: Seven Planes, One Big Problem
Under Godfrey, Virgin Blue operated a single aircraft fleet, the Boeing 737. Simple. Efficient. All the pilots were trained in the same aircraft. One set of spare parts. One maintenance programme.
When it crashed, Virgin Australia was operating seven different types of airplanes at once, Boeing 737s, Airbus A330s, ATR 72 turboprops, Fokker 100s, Embraer jets, Boeing 777s and Airbus A320s. Each type of aircraft requires its own engineering team, its own set of pilot training licenses at up to tens of thousands of dollars a pilot, its own spare parts inventory and maintenance contracts.
At the time of its collapse, 142 of the airline’s fleet of 144 aircraft were leased or financed. The total debt due to aircraft lessors and financiers amounted to $1.884 billion, divided among 73 different lenders. The airline leased its planes. It rented the vast majority of them on long-term contracts, which meant fixed payments were due every month, regardless of whether those planes were flying full or parked on the tarmac idled
This is what a bloated cost base literally looks like in real life. The costs did not shrink when times grew tough. They were locked in.
The Shareholders Who Would Not Help
By the mid-2010s, Virgin Australia boasted one of the most complex ownership structures of any airline in the world. The airline was about 80 percent owned by Singapore Airlines, Etihad Airways, HNA Group and Nanshan Group. The rest, 20 percent, was held by the Virgin Group and Australian investors.
They were not disengaged investors who merely cut a check and waited for the money to return. They were competing airlines, each using their interest in Virgin as a vehicle to access routes, codeshare agreements and positioning in Australia. When Virgin was in need of new cash, none were prepared to dig into their pockets.
By 2017, Etihad was also in a financial crisis of its own and had already lost billions on other airline investments that had failed. HNA Group in China was crumbling under a mountain of its own debt. Singapore Airlines held back. Each of the shareholders was grappling with problems at home, and they didn’t want to spend money unless everyone else did: the airline was being dragged in five different directions by major, rival players. It was a deadlock. And when COVID came along, that stalemate turned deadly.
COVID Did Not Kill This Airline
Virgin Australia’s revenue evaporated almost overnight when the country locked down in March 2020. The airline sought a $1.4 billion emergency loan from the federal government just to survive. The government said no, and that’s not complicated: well over 90 percent of the airline’s equity was owned by rich foreign carriers, including Singapore Airlines and Etihad, which were all owned by their own governments. Providing Australian taxpayer money to prop up a foreign-majority-owned business was not something the government could defend. Virgin next reached out to its shareholders. They also said no.
The carrier was racking up $200 million a month in fixed costs, lease payments, debt servicing, staffing, while it had zero revenue coming in. That number alone is a sign of how overleveraged the business had become. A well-run airline with sustainable debt can weather a temporary suspension. Virgin Australia did not enjoy that cushion. It had been using borrowed money to cover losses for nearly a decade, and there was nothing left to cushion the blow.
Moody’s credit analysts had anticipated the news. Just a month before the collapse they calculated Virgin Australia’s probability of default at 19.1% Moody’s analytics, and that was using only pre-COVID financial data to make their calculation.
The directors filed for the appointment of Deloitte as administrator on 21 April 2020. The airline had about 12,000 creditors, banks, aircraft financiers, landlords and 9,000 workers. Taylor & Francis Online It was the biggest and most complicated corporate demerger in Australian history.
The Quick Snapshot: Key Timeline
| Year | What Happened |
| 2000 | Virgin Blue launches with 2 planes |
| 2001 | Ansett collapses, Virgin grows fast |
| 2008 | Net profit of ~$100M. Business is healthy |
| 2010 | Borghetti takes over. Transformation begins |
| 2011 | Rebrand to Virgin Australia. Losses start |
| 2014 | Sells 35% of Velocity loyalty programme for cash |
| 2019 | Borghetti exits. Debt is $5B. Loss of $315M that year |
| March 2020 | COVID shuts Australia’s borders |
| April 2020 | Voluntary administration. $6.8B in total liabilities |
| September 2020 | Bain Capital buys the airline for $3.5B |
What Came Next: The Rebuild
Creditors approved the Bain Capital $3.5 billion deal in September 2020. Virgin Australia was kept afloat, barely, but wiped out almost all its debts, half its fleet, a third of its workforce and closed down its budget. The carrier on the other side was a different beast from the one that went in, simpler, leaner, and ultimately focused.
The results have been striking since then. Virgin Australia reported a statutory net profit of $129 million in the financial year 2023, the first profit it has made for eleven years. The following year, profit jumped 320% to $545 million. Virgin re-listed on the Australian Stock Exchange in a $685 million IPO in June 2025, with shares jumping 8.3% on its first day of trading and valuing the airline at $2.3 billion. There’s one story in that turnaround, and it’s worth for separate reading.
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