Is the Virgin Australia Holdings Ltd share price about to nosedive?

The Virgin Australia Holdings Ltd (ASX: VAH) share price went into a nosedive late last week, falling more than 12% on Friday alone.

While no company-specific news could explain last week’s fall, news from the leading airline operator today confirms that Virgin Australia will undertake a ‘review’ of its finances to provide more flexibility.

In an announcement to the ASX, Virgin Australia said it had secured a $425 million loan facility from its four major shareholders, including Singapore Airlines, Etihad Airlines, Virgin Group and Air New Zealand — AIR N.Z. FPO NZ (ASX: AIZ).

The loan will be used to provide Virgin Australia with “additional flexibility in the short-term” while it undertakes a review of its capital structure, the company said.

The review will focus on Virgin Australia’s finances in a bid to maximise cash flow generation and profitability. It’ll include an assessment of the appropriate mix of debt and equity and operational initiatives.

“The board is focused on optimising the Group’s balance sheet and capital structure to support the ongoing execution of its strategy and will lead a capital structure review,” Virgin Australia’s Chairman, Elizabeth Bryan, said.

Virgin Australia CEO, John Borghetti, said undertaking this review is a crucial step in the group’s ‘Virgin Vision’ strategy.

“One of the key pillars of our Virgin Vision strategy is to optimise the Group’s balance sheet, and the Group has had an ongoing program in place to achieve this goal,” he said. “Now is an appropriate time to embark on the next phase of this program by taking steps to ensure the Group has a capital structure that supports its strategic objectives.”

Is the Virgin Australia share price going to nosedive?

Following last week’s turbulent ride, shareholders will be hoping today’s announcement can bring some stability back to the Virgin Australia share price.

In my opinion, the company’s share price could go in any direction from here. However, the fact is airlines are very fickle, capital intensive, businesses operating without competitive advantage and partly at the mercy of commodity prices. Therefore, it’d be wise to consider the risks before buying shares in any airline, including Virgin Australia, Air New Zealand and even Qantas Airways Limited (ASX: QAN).

I can't believe it

The Motley Fool's expert analysts recently hand-picked their top technology stock idea for 2016. And it's easy to see why: It has a big dividend yield, is growing rapidly and has heaps of cash on its balance sheet. Best of all: their top stock pick of 2016 is yours free! Just click here, enter your email address, and we'll send you their research report. No credit card details or payment required.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.