Wednesday, March 19, 2014

Virgin Australian debt - Now at 4.8 Billion!

After calculating the Qantas debt, I thought it was time to try and calculate the Virgin Australia total debt, including non-cancellable operating leases. Looks a bit worse than the Qantas story to be fair.

Firstly, we have on-balance sheet debt of $2.15 billion. No dramas there. But buried deep in the 2013 annual report (no mention in the half yearly 2104) we have $3 billion in non-cancellable operating leases. Discounting at the Virgin Australia weighted cost of debt (at 3.3%) brings us to a value of 2.7 billion

So that brings us to a total debt of $4.85 billion. Now you think that is better than Qantas, which it is in value. However Qantas at least has $5.6 billion in Equity to back up it's 8.7 billion in debt (a Debt/Equity ratio of 1.53)

Virgin has an equity value of $1.04 billion...leaving it's Debt to Equity ratio at 4.69!

There is a real danger of Virgin sinking into the mire...no wonder Richard Branson is making noise. Virgin Australia is heavily leveraged. They better start making profits...and soon.

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