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).
